Navigating Social Security Benefits
Social Security can bring a sense of comfort and ease, knowing that taxes withheld from our paychecks over many years will be returned to us when we retire. And yes, that’s one of the things the longstanding program does.
However, like many government programs, the rules and regulations around Social Security run to several thousand pages. And while you won’t need to read all that, you should understand the basics of how the program works to make sure you get all that you’re entitled to.
Who Gets Social Security?
Retirees receive Social Security after reaching a certain age, but benefits may also be available to the spouses and children of deceased workers, divorced spouses of workers and people who have a qualifying disability. The core Social Security retirement and disability programs require either that you have a history of working and paying the tax, or that you’re a spouse or dependent of someone with a work history.
Eligibility for Social Security payments is based on your work history and lifetime earnings. You need 40 “credits” to qualify unless you become disabled before getting the full 40 credits. Workers receive one credit per $1,810 in income up to a maximum of four credits per year — so for most people, to be fully “vested” in the program takes at least 10 years of paying in.
What Is Retirement Age and Why Does It Matter?
You can retire anytime you like, but unless you become disabled, you can’t receive Social Security benefits until you’re at least 62. Your “full” retirement age is based on the year you were born. For those born 1943-1954, that’s 66. The age for full retirement increases by a couple of months for each birth year until 1960. Workers born in or after 1960 reach full retirement at age 67.
If you claim benefits before your full retirement age, they’ll be reduced by about 0.5% for each month you file early. So, if your full retirement age is 67 and you begin taking benefits at age 62, your benefits would be reduced by about 30% (60 months x .5%). Similarly, if you delay taking benefits until after full retirement age, your benefits are increased by approximately .67% for each month you wait until you reach age 70. No additional benefits are given if you wait until after you’re 70. For example, if you qualify for a $2,000 monthly benefit at age 67 and you wait until age 70 to apply, your checks would go up to about $2,482 per month.
While it sounds like waiting until 70 is a big bonus, you’re also missing out on a lot of monthly payments until then. It could take until you’re in your mid-80s before the extra monthly payments compensate for the missed income.
If you continue working after you begin receiving benefits, Social Security may reduce your benefits depending on how much you earn. Those reductions end when you reach full retirement age, but you may still pay income taxes on up to 85% of your benefits if you file a joint return showing more than $32,000 in income (or more than $25,000 if you file as an individual).
When Should I Apply?
By logging into your account on the Social Security Administration’s (SSA’s) website (www.ssa.gov/myaccount), or after creating an account if you don’t already have one, you can see what the agency shows as your lifetime earnings. These records can be incorrect if employers didn’t report earnings accurately. And because this directly affects how much you’ll receive in monthly benefits, you should treat it like a credit report and check it regularly.
Your account will also enable you to see estimates of what your monthly benefit will be when you retire, as well as apply for enrollment when you’re ready to begin receiving Social Security. The SSA allows you to apply up to four months before you want benefits to start.
Making Social Security Work for You
Social Security was never intended to be the sole source of income for seniors, but it is a reliable, fixed payment that adjusts with inflation. Still, it can be complicated. Talk with a qualified Financial Professional — they can help you make a more informed decision about when to start taking benefits and how they fit into your overall retirement picture.
Sources
https://www.ssa.gov/pubs/EN-05-10024.pdf
https://smartasset.com/retirement/does-disability-pay-more-than-social-security