Answering questions about Social Security | Tax Tip of the Week | No. 53

As you near retirement...Inquiring minds need to know!With the Baby Boomer generation (born between 1946 and 1964) coming into the age of retirement, many wonder about their Social Security benefits.  Some of the questions that may arise include:

• What is my full retirement age? For those born in 1937 and before, FRA (full retirement age) is 65.  For 1938-1942, two months is added to the FRA for each year.  From 1943-1954, FRA is age 66.  From 1955-1959, add two months for each year again.  For 1960 & later, FRA is age 67.
• When should I start taking Social Security? This is truly an individual choice.  Some factors to consider are how long you want to work, affects on survivor benefits, personal finances and health.  Although you can start receiving Social Security benefits as early as age 62, you cannot receive Medicare benefits until age 65.  Many people are forced to work until age 65 or FRA just so they can stay on a health insurance plan with their employer.As mentioned, you can start receiving Social Security benefits as early as age 62, wait until FRA, or wait until age 70.  The amount of benefits you will receive will be larger the longer you wait to start coverage.  You should determine your “breakeven point” before beginning distributions.  One rule of thumb: It requires about 12 years of added life expectancy for the higher benefits you receive at age 70 to exceed the lower accumulated benefits if you start at age 62.
• How are my benefits calculated? The simple formula is a percentage of the highest 35 years of earnings prior to age 60.  If, for example, you only work 25 years prior to receiving Social Security benefits the total earnings is still divided by 35.The Social Security Administration sends you an annual benefit report a couple of months before your birthday.  You should review these statements closely to ensure correct reporting of your income.
• Can I still work and draw Social Security? If you start drawing Social Security before your full retirement age, certain earned income restrictions apply.  For 2010: you may earn up to $14,160/year or $1,180/month before your benefits are reduced at a rate of $1 for every $2 over the annual limit if you are younger than full retirement age.  During the year you reach full retirement age, you may earn up to $37,680/year or $3,140/month.  If you go over that limit then $1 for every $3 over the annual limit will be withheld.  Once you reach the month of full retirement age there is no limit on earnings.  If you plan on working while drawing early benefits, be very careful about your earnings.  If you go over the limit and benefits are withheld, then future benefits will be recalculated automatically at full retirement age. Check out the Social Security Administration's Quick Calculator.

For more information, visit your local Social Security office, or go online at www.ssa.gov.We highly encourage you to contact us for tax planning advice prior to signing up for Social Security benefits.As always, you can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our web site.Linda Johannes - author of this week's TTWRick Prewitt - the guy behind TTW...until next week.