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Social Security Mailbox

Retired at 57. Will My Benefits Be Affected?

Also, you may have to pay taxes on Uncle Sam's check

Q. I recently retired at age 57, nine years before my full retirement age. If I don't work at all or make only a few thousand dollars during the next nine years, how will that affect my Social Security check when I take my benefits at 66?

A. The answer will depend on how much money you made during your working years — and how much you make during the coming nine years.

See also: Sign up for the AARP Social Security Newsletter.

When you apply for benefits, Social Security will look at how much you earned during your highest-paid 35 years of work. (If you worked for fewer years, say, 30, the other five will be counted as zeroes.)

Computers at the agency will calculate an average of your earnings and use that to figure out how much you'll receive in benefits each month.

If you don't earn any money during the next nine years, your benefits at 66 will simply be based on the 35 top years before your recent retirement. The same will be true if going forward you do work, but make less each year than you did in any of your previous top 35.

But if you work and have years with income that exceeds that of any of the top 35, these years would replace the lower-earning years (or zeroes) in your record and perhaps increase your eventual Social Security benefits.

For more information, read "Your Retirement Benefit: How It Is Figured."

Q. I'm 66 1/2 and have an income of about $50,000 a year. My Social Security, if I took it now, would be about $816 a month. But would that raise my federal income taxes?

A. Because you make $50,000 a year, you'll probably have to pay taxes on part of your benefits. According to IRS rules, if you file as an individual and make more than $25,000 a year (including half your Social Security benefit), some of your benefits will be taxed. If you file a joint return, the cut-off level is $32,000.

In your case, a monthly payment of $816 would add up to $9,792 a year. In filing your taxes, you would have to add that amount to your income for the year, boosting it to almost $60,000.

There's a complicated formula that determines how much of your check from Social Security is taxed. But there's one good piece of news: No matter how much you make, 15 percent of your benefit will be tax-free, and the remainder will be taxed at your regular tax rate.

An accountant could advise you on the pros and cons of taking your benefits now and paying the income taxes, versus putting off benefits to wait for higher levels later on. By doing that you would be eligible for "delayed retirement credits," worth an additional 8 percent a year until age 70 — or 32 percent over four years.

Many AARP members have asked tax questions like yours. For more information, go to the Social Security Mailbox archive and scroll down to the section on "earnings limit and taxes."

You can also check "Paying Income Tax on Social Security Benefits" on the Social Security website.

Also of interest: Will the IRS take a chunk of your Social Security check?

Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

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