If you’re collecting Social Security, your benefit won’t be reduced if you’re receiving unemployment checks at the same time. However, receiving Social Security benefits may affect the size of your unemployment benefit. Each state has its own rules for unemployment eligibility, and many will reduce unemployment payments dollar-for-dollar by the amount of income received from other sources, including Social Security. If you’re wondering how Social Security will factor into your retirement plan, a financial advisor can help.
Unemployment and Social Security Basics
The national unemployment insurance program was established in 1932 under the same legislation that created Social Security. Though both programs sprang from the same initiative, unemployment insurance and Social Security are different in purpose and practice. Those differences include their funding, eligibility and how each affects the other.
Social Security is funded by payroll taxes on both employers and employees. The system is run by the federal government through the Social Security Administration.
Unemployment insurance is funded by unemployment taxes paid by employers and collected by the states. The system is administered as a joint program by the states and the federal government. Each state sets its own rules for eligibility and benefit amounts within broader federal guidelines.
Social Security and unemployment insurance are both intended to replace income for workers who have stopped working due to retirement or, in the case of unemployment insurance, involuntary job loss. Both programs base benefits on prior work and earnings history.
Social Security and Unemployment Benefits
Social Security is not means-tested, which means anyone who is otherwise eligible cannot be refused benefits regardless of their financial status. Rich or poor, every wage earner who pays into Social Security is authorized to receive benefits in return.
However, in order to get the benefits intended for people who retire, recipients must in most cases be at least 62 years old. Social Security disability benefits may be available through a different program to younger people who are unable to work because of a health condition.
People who elect to start receiving Social Security retirement benefits at age 62 may have their government benefits reduced if they continue to work and earn money. However, once they reach full retirement age, earning money by working won’t reduce their Social Security benefits.
Unemployment insurance benefits are not considered income by Social Security. So collecting unemployment won’t reduce a person’s Social Security benefits even for those who start taking Social Security before full retirement age.
One difference is that unemployment insurance is time-limited. Workers can receive benefits for no more than 26 weeks in most states. Social Security old-age benefits, on the other hand, continue as long as the recipient lives.
States and Unemployment Insurance
Receiving unemployment insurance won’t affect Social Security benefits, but getting Social Security retirement benefits lead to a reduction in your unemployment benefits. The federal rules actually require states to do this in certain conditions, although the rules don’t say how much unemployment has to be reduced when Social Security benefits are being collected.
Instead, each state is permitted to use different methods for calculating how much unemployment benefits will be reduced by Social Security payments. Some states reduce unemployment benefits on a dollar-for-dollar basis. That is, if you are receiving $1,000 a month from Social Security, your unemployment insurance will be reduced $1,000.
Note that Social Security retirement benefits may be treated differently from disability benefits. Disability benefits may not reduce the size of unemployment benefits, although not being able to work could affect eligibility for any unemployment compensation.
Unemployment benefits have no effect on Social Security payments. However, collecting Social Security may reduce your unemployment payments if you’re out of work. Different states have varying approaches to calculating unemployment, but some reduce unemployment insurance payments by an amount equal to the Social Security benefit you receive. Contact your state unemployment insurance office for details.
Social Security Planning Tips
- A financial advisor can help you determine the optimal time to claim Social Security and integrate it into a comprehensive retirement plan. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Waiting to claim Social Security doesn’t always pan out. We ran the numbers and found that there are some advantages to claiming your Social Security benefits as early as possible. Use SmartAsset’s Social Security calculator to estimate the size of the benefit you can expect.
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