If you want to maximize your Social Security payments, you need to familiarize yourself with the rules. The taxes you pay and the age you sign up for benefits play a big role in how much you will receive in retirement. Pay attention to these important components of Social Security.
Workers pay 6.2 percent of their earnings into the Social Security system, and employers pay a matching 6.2 percent. Self-employed workers contribute 12.4 percent of their pay to the Social Security Trust Fund.
This is the income cap for Social Security taxes in 2014. Workers do not pay Social Security taxes on earnings that exceed $117,000 and will notice a bump in their paycheck once they earn above this amount in a single year.
Retired workers receive an average Social Security payment of $1,294 in 2014. Retired couples receive an average of $2,111.
If you sign up for Social Security benefits before age 66 and continue to work, you can earn $15,480 in 2014 before $1 in benefits will be temporarily withheld for every $2 you earn above the limit. The year you turn 66, the earnings limit increases to $41,400 and the amount withheld drops to $1 for every $3 earned above the limit. After you turn 66, there is no penalty for working and collecting benefits at the same time.
This is the earliest age workers can sign up for Social Security payments. However, monthly payments are significantly reduced if you sign up at this age. And if you work and collect benefits at the same time, your Social Security payments could be temporarily withheld if you earn too much.
Age 66 is when baby boomers born between 1943 and 1954 are first eligible to collect unreduced Social Security benefits. The Social Security full retirement age is 66 and two months for people born in 1955, and it increases in two-month increments to 66 and 10 months for people born in 1959. The earnings limit for working and collecting benefits at the same time also disappears once you reach your full retirement age.
The full retirement age is 67 for everyone born in 1960 or later. Most members of generation X and millennials will not be able to claim unreduced Social Security benefits until a year later than the baby boomers and two years after their grandparents, whose full retirement age was 65.
Social Security payouts further increase for each year you delay starting your payments up until age 70. After age 70, there is no additional benefit for waiting to sign up for Social Security.
If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits totals more than $34,000 ($44,000 for couples), you will have to pay income tax on up to 85 percent of your Social Security payments. If these income sources are between $25,000 and $34,000 ($32,000 and $44,000 for couples), income tax will be due on up to half of your Social Security benefit.
This is the maximum possible Social Security benefit for a worker who signs up at full retirement age in 2014. However, to get this amount, you would need to earn the maximum taxable amount, which is $117,000 in 2014, in each of the 35 years factored into your Social Security payments.
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