By Mark Miller
CHICAGO, April 17 (Reuters) - Americans want to know how to get the most from their Social Security benefits, and they have posed more than 11,000 questions to AARP over the years.
The group of more than 37 million people age 50 and older has been collecting these queries - and answers to them - in an online searchable database launched eight months ago.
The list of most frequently asked questions offers insight about the Social Security issues that matter most to older Americans. The most popular questions run the gamut from taxation of benefits to the consequences of filing early.
Here are AARP’s top five questions and my own answers, including guidance from the organization and other Social Security experts:
Q: Do I have to pay taxes on my Social Security income?
A: It depends on whether you have other income and how much.
You will pay federal income tax on part of your Social Security benefit if your adjusted gross income (including tax-exempt interest), plus half your Social Security benefit, add up to $25,000 or more. The threshold is $32,000 for joint filers. But taxes are never levied on any more than 85 percent of your benefits.
“I like to turn that around, and say that at least 15 percent of your Social Security will be tax-free, even if you are blessed with high income,” says Andy Landis, author of the book “Social Security, the Inside Story.”
You can avoid taxes on Social Security by carefully managing withdrawals from tax-qualified retirement accounts. For example, the average Social Security benefit is about $15,000 per year, which leaves $10,000 in possible IRA account withdrawals before taxes would be due.
After you reach age 70 1/2, required minimum distributions kick in for a traditional IRA or 401(k). If they are high enough to trigger taxation of Social Security benefits, converting some of your savings to a Roth IRA can help. These distributions are not required on Roth accounts during your lifetime.
Q: When can I begin receiving Social Security benefits without being subject to an earnings limit?
A: Social Security’s rules allow you to earn as much income as you would like with no effect on benefits after you reach your full retirement age. That is 66 if you were born between 1943 and 1954, and between 66 and 67 if you were born between 1955 and 1959. You can find your full retirement age at the Social Security Administration’s website ().
Q: I claimed Social Security at age 62 and am subject to the earnings limit of $15,120. Does this amount increase as you get closer to full retirement age?
A: Once you hit your full retirement age, you can earn an unlimited amount of income and receive Social Security benefits.
However, if you file to get benefits early, there is a “retirement earnings test,” and you will pay a penalty on dollars earned over a certain amount. The 2013 ceiling is $15,120 in gross wages and net earnings from self-employment.
If your earnings exceed the limit, $1 will be deducted from your benefit payments for every $2 you earn over that amount.
The income limit is much higher during the year when you reach full retirement age. That limit is $40,880 in 2013, and it is applied using a complex formula. Details are available in a brochure from the Social Security Administration ().
Q: If I begin receiving my Social Security benefits early at age 62 and continue to work, will my benefits increase when I reach full retirement age?
A: Many people think of the earnings test as a permanent penalty, but it is not. If you file early, the SSA will re-compute your benefits automatically when you reach your full retirement age, and you will receive credits for any months when your benefit was reduced.
Even if you did not have benefits withheld due to the retirement earnings test, credits for your work history after age 62 could boost your benefits a bit.
Q: What is the maximum full retirement benefit that someone can receive?
A: In 2013 the maximum monthly benefit at full retirement age is $2,533. That assumes the person earned the maximum taxable earnings for every year after age 21.
If you fit the bill, delaying your filing this year to age 70 gets you $3,343 down the road - and that is in today’s dollars. Any cost-of-living adjustments awarded between now and your 70th birthday would be added to your benefits when you reach that age. You will also be in line for larger COLAs later, since they will be figured off that larger base payment.
Christine Fahlund, a senior financial planner at T. Rowe Price, says the numbers may be even more impressive for high-earning dual-income couples. “Your joint income from Social Security could be approximately $70,000 or more per year while you are both living,” she said, “and the survivor would receive the larger of the two benefits.”