What Women Need to Know about Social Security

Estate Planning

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Deciding when and how to claim Social Security benefits depends on several different factors, all of which are unique to each person’s situation. For women, there are additional financial realities to be aware of, according to the article “3 Things Women Must Know About Social Security Benefits” from Next Avenue.

First, the Earnings Limit Test. Many people end up taking their benefits before they reach their FRA—full retirement age. However, for those who keep working and want to claim benefits at the same time, there is the Social Security Earnings Limit test, which may lower benefits, while you are working. Any retirement benefits over the limit are withheld, until you reach your FRA. They are eventually paid to you.

Here’s an example: Dolores is turning 62 in December 2019. She currently earns $55,000 working full time. If she goes part time, her income will drop to $35,000. Her idea is to start claiming Social Security benefits at the earliest age, when her benefits would be about $1,170. Note that if she waited until her FRA, age 66 and six months, she would receive $1,616.

However, the 2019 earnings limit is $17,640. She earns twice that, so her benefit would be reduced by $1 for every $2 she is over the limit. Her annual Social Security payment of $14,060 would be reduced by half of her excess earnings, or $8,680. She’ll get the benefits back when she reaches FRA, but while she is working, she won’t get as much as she might have expected.

Social Security Benefits and Taxes. The general rule for this is that if a household’s combined income exceeds a certain amount, a portion of the taxes are taxed. The limits for determining the income level are not indexed for inflation, so every year more and more retirees fall into this tax range.

For single women who have an income of $34,000 or more, as much as 85% of Social Security payments for the year will be considered income and taxed as ordinary income. Married women filing jointly with a combined income of $44,000 or more will also have up to 85% of their Social Security payments for the year reported on IRS Form 1040 as income.

Medicare Premiums and Social Security Benefits. Consider your Medicare Part B premiums, before you consider claiming Social Security benefits. The Social Security and Medicare programs are separate programs, but each has a bearing on the other. The Social Security Administration collects Part B Medicare premiums and automatically deducts premiums from Social Security benefits before you receive them. This is often a big surprise to women. Their benefits are reduced, and they may not have included this in their budget.

Medicare B is the part that pays for doctors and outpatient procedures. There are co-pays and deductibles. However, generally speaking, Part B pays for about 80% of covered services. The amount that is paid depends upon the overall household income. The standard monthly premium is $135.50 per month, or $1,626 for the entire year. That’s a per-person cost. If you have a high household income, you’ll pay more for Part B—the range is from $160 to more than $460 a month per person.

Like many other aspects of retirement, you’ll need to do your homework and understand how Social Security works to make the best decisions about your benefits.

Reference: Next Avenue (Nov. 19, 2019) “3 Things Women Must Know About Social Security Benefits”