Taking Social Security Early
What is Social Security?
Social Security is a social insurance sponsored by the federal government and funded by payroll taxes, called the Federal Insurance Contributions Act, levied on U.S. citizens. This program is also known as the Old-Age, Survivors, and Disability Insurance program and is the largest government program in the world. For retirees, Social Security provides a monthly payment dependent of the amount of money they earned during their working years, and the age at which they decide to begin receiving these payments. For example, if a person decides to start drawing these benefits at age 62, they will receive less money monthly, but for more months. Conversely, if a person waits until full retirement age of 66, they will receive a greater monthly payment, but for fewer months in their lifetime.
Choosing to Take Social Security Early
Last year, 73 percent of all Social Security filers chose to take their benefits early, despite the lower monthly payments. Their decision included several personal factors from job loss to medical expenses, but many based their reasoning on their life expectancy. That’s because the earlier they start drawing benefits, the less time they can continue earning these payments before they eventually break even. So before retirees make this decision, they should all do a personal health inventory, including surveying their current medical conditions and those of their immediate family, and try to accurately determine their expected lifespan.
Working While Collecting Social Security
Because most retirees cannot sustain a normal lifestyle on their Social Security benefits alone, many are forced to seek part-time or even full-time employment to supplement their income. Unfortunately, working while collecting benefits leads to serious tax implications that must be considered. Those that receive benefits are only allowed to earn $13,560 per year from business or employment opportunities. Earning more than that amount will require workers to pay into the Social Security program $1 for every $2 earned. Also, single persons that report a total adjusted gross income of more than $25,000 (including 50 percent of Social Security benefits) could pay taxes on up to 85 percent of the Social Security income.
Avoiding These Penalties
For those retirees that need to work and collect Social Security benefits simultaneously, there are several ways to make additional money without incurring financial penalties. For example, consider purchasing rental properties that could provide enough funds to cover the properties’ mortgages, but also a substantial profit. Rental income is not calculated into annual earned income. There is also the option of starting one’s own S corporation and setting a personal income below the federal limitations. These entities do not pay federal income tax because their profits and losses are divided amongst the shareholders, who then report this information on their individual tax returns. Starting an S corporation would definitely require the guidance of a qualified tax professional so ensure IRS rules and regulations are met.
Overall, there are serious benefits and deterrents to taking Social Security benefits early and making this decision requires a great deal of financial, medical and personal investigation.
Author:
This guest post is contributed by Lauren Bailey, who writes on the topics of online colleges. She welcomes your comments at her email Id: blauren99 @gmail.com.
