Social Security FAQ: What You Need to Know
1- When Am I Eligible To Receive Benefits?
Depending on what year you were born, retirement benefits may begin as early as age 62 for partial benefits and as late as age 67.
- If you were born before 1938, your age for full eligibility is 65.
- If you were born after 1960, your age for full eligibility is 67.
- People born between 1938 and 1942 reach full eligibility age on graduating scale two months per year.
- People born between 1943 and 1954 become eligible for full benefits at age 66.
- Those born between 1955 and 1960 become eligible based on a graduating scale increasing two months per year, finishing with an eligibility age of 67 for those born in 1960 or later.
2- How Is My Eligibility Determined?
Social Security eligibility is based on “credits” that you earn from working. You usually need to have earned 40 credits in order to qualify. As of 2011 you earn one credit for every $1,120 in earned income per year, up to a maximum of four credits.
3- How Much Will My Monthly Benefit Be?
Your Social Security benefit is calculated by averaging the earnings from your 35 highest income years. The average monthly payment is $1,082. As of January 2012, the average monthly benefit was increased by 3.6%, which works out to an additional $467 per year or an average benefit payment of $1,549 per month. It depends on your unique situation. You can calculate your Social Security benefit at www.ssa.gov.
4- Must I Quit Working to Receive Social Security?
You can continue to work without negatively impacting your Social Security benefits once you reach your full retirement age. Prior to full retirement age you are permitted to earn up to $14,160. $1 is withheld from your benefits for every $2 in earnings over the limit. You may earn up to $37,680 in the year you reach your full retirement age, then $1 is withheld for every $3 in earnings over the limit until the month you reach your full retirement age.
5- How Does Social Security Work For Married Couples?
If you both have worked long enough to qualify for Social Security, you both qualify for full benefits. If your spouse’s earnings record qualifies them for a benefit from Social Security that is less than half of your benefit, their benefit will be increased to a rate equal to half of your amount.
6- What If My Spouse Dies?
Provided the surviving spouse has reached their full retirement age, they are entitled to 100% of the deceased’s basic benefit amount. Prorated survivor benefits are paid to surviving spouses who have not yet reached full retirement age. The survivor will receive the higher benefit amount if the surviving spouse was receiving Social Security benefits and the deceased’s benefits were greater.
7- Is Social Security In Trouble?
Social Security is a “pay-as-you-go” system, so money paid in by current taxpaying workers is spent to pay benefits to current retirees. As the ratio of current workers to current retirees drops, fewer people will be paying into the system while more will be receiving benefits. People are also living much longer than when Social Security began in the 1930s, stretching out the payments which millions of Americans will be receiving. While some fear the end of Social Security, it is generally agreed that the U.S. government will not allow the Social Security program fail. That, however, does not mean that the program will be able to continue in its current state. Legislators have increased the eligibility age for receipt of
full benefits from 65 to 67 for people born in 1960 or later. Reductions in benefits, additional increases in the age of eligibility, or both, will likely to be needed in order to get the program back on solid ground. Another possible, although unpopular, course of action is raising taxes to fund the system.
When Should You Apply for Social Security Benefits?
When to apply for Social Security benefits is one of the most important issues you will face during your retirement. Most people simply apply for Social Security whenever they decide to retire, instead of taking into consideration what age will give them the maximum lifetime benefit. But can they afford to wait? It depends. Navigating Social Security can be a complicated process so it’s critical to take the time to evaluate your specific situation with a financial professional whom you trust.
Should I Take My Social Security Benefits Now or Delay?
Every individual’s situation is different. The best timing depends on your financial situation, including a thorough evaluation of critical income needs versus luxury income needs. You may be able to delay taking benefits, or need them sooner, depending on whether you or your spouse is working. Understanding how spousal benefits work, and using strategies to maximize your benefits can save you thousands of dollars over a long period of time. At age 66 you will receive full retirement age (FRA) benefits, but you are eligible to receive 75% of your full benefits if you apply at 62. Also, if you delay the onset of benefits past age 66 you can delay until age 70 and actually earn 132% of your FRA benefits. The longer the primary earner delays, the more the monthly income will increase. Theoretically, if you begin receiving Social Security early, you will receive a smaller monthly benefit for a longer time, and if you delay, you will receive a larger monthly benefit for a shorter time. There are “break-even calculators” which can be use to figure out how long you would have to live to make delaying worthwhile. Consult your financial professional to assist in this process. Calculating spousal benefits can be more complicated. Married couples have to consider how the retired worker benefit, spousal benefit, and survivor benefit will affect benefits and life time maximums. More information is available.
What You Don’t Know Could Cost You Thousands in Lost Benefits…
After having paid taxes on your hard-earned income over dozens of years, did you know that you may face even more taxes on your Social Security benefits?
Prepare yourself: up to 85% of your Social Security benefits could be taxable.1 However, with proper retirement planning, you can reduce or eliminate your Social Security tax liability, saving you a significant amount of money in your retirement.
How to Avoid the Social Security Tax Trap
Avoiding taxation of your benefits can only be accomplished in a couple ways.
- First, you can reduce your overall taxable income
- Second, you can use tax-deferred savings options, such as annuities.
Discuss with your financial professional. When properly structured, tax deferred annuities can increase your income while reducing taxes on your Social Security benefits. Income distributions are subject to regular income tax, and any income taken before age 59 ½ are subject to a 10% federal tax penalty.