Unemployment benefits are paid to you to help you make it through tough financial times. When you're laid off or you lose your job, unemployment benefits pay part of your lost wages to you as an insurance benefit. Social Security benefits are a form of insurance that you receive when you retire. Make sure you understand how Social Security benefits are impacted by unemployment benefits if you're retired yet expecting to receive compensation from unemployment insurance.
Unemployment benefits are calculated by adding the two highest quarters paid to you during the last 52 weeks; this number is then divided by two. The resulting number is then multiplied by an interest rate factor set by the state. Your unemployment benefits compensate you for an involuntary job loss. Social Security is a form of insurance also. This insurance provides an income benefit to you at retirement. You pay Social Security taxes during your working years. When you retire, you're entitled to a benefit payment.
Your Social Security benefits aren't affected by your unemployment benefit payments. This means you get the Social Security benefits you're entitled to and also receive the unemployment compensation you need to pay for your bills and other expenses. You may not have to draw on your other retirement savings if your unemployment benefit is sufficient to replace what you would otherwise draw from your retirement savings.
Other income you receive aside from unemployment and Social Security may affect your Social Security income. For example, a pension may reduce some or all of your Social Security benefit payments indirectly through taxation of benefit payments. If one-half of your Social Security income, plus all of your pension income, equals at least $25,000, as of 2011, then 50 percent of your Social Security income is taxable as ordinary income. If your income exceeds $34,000, then 85 percent of your income is taxable. If you're married and your combined income is $32,000 or $44,000, then 50 percent or 85 percent of your Social Security benefits are taxable, respectively.
Don't be worried about drawing Social Security benefits while drawing unemployment if this is sufficient to pay all of your bills and expenses. Consider drawing on a Roth IRA or converting your personal retirement savings to a Roth account if you do need more income. Roth IRAs are exempt from the Social Security income test used to determine whether your Social Security income is taxable. Additionally, any policy loans from cash-value life insurance policies don't count against your unemployment income or your Social Security benefit payments.