Top things that everyone needs to know about Social Security
Social Security is the cornerstone of many people’s retirement. Whether or not you are nearing retirement age, you probably have questions and concerns about Social Security. This information can help clear some things up.
One of the first times that people become aware of Social Security is when they notice the contributions that come out of their paychecks.
“Currently, you and your employer each pay a 6.2 percent Social Security tax on up to $118,500 of your earnings" states ssa.gov.
In order to determine when you can start collecting Social Security and how much you can collect, you first need to know your full retirement age, which is when you are entitled to your full (unreduced) retirement benefits. This is based off when you were born.
If you were born between 1943 and 1954, then your full retirement age is 66. For each year after that, two months are added to the full retirement age. For example, if you were born in 1955, it is 66 and 2 months, and if you were born in 1956, it is 66 and 4 months. This pattern continues until it maxes out at a full retirement age of 67, which is applicable to everyone born in 1960 or later.
You are able to collect Social Security when you reach age 62, but since you are not at full retirement age, there will be a permanent reduction in how much you receive. Therefore, it can be beneficial to wait as long as possible. There is even incentive to continue waiting after you reach full retirement age because your benefit can grow by 8 percent for each year.
"If you're going to err, err on taking in later," states Baylor University Professor William Reichenstein for the U.S. News & World Report. "The risk of running out of money in your lifetime is obviously greatest if one or both of you live a long time, and if that's the case, then it pays to wait. You can't outlive the Social Security benefit."
Married couples have an extra reason to wait on receiving Social Security for full retirement age. People who are married can claim Social Security based on their own work history, or choose to receive up to 50 percent of the benefit of their spouse, if that ends up being higher. Ex-spouses are also eligible for this, provided that they were married at least 10 years. If one spouse passes away, the other can receive the full amount of the higher earner’s benefit.
"The higher earner should base his benefits decision on the age he would be when the second spouse dies," says Reichenstein. "What would probably be the best strategy is for him to wait until he turns 70 because after the death of the first spouse, the survivor keeps the higher benefits."
It is not just people who are retired that benefit. Disabled people who are not able to work can qualify and the children and spouse of a worker who passes away may also be eligible.
“Minor children of Social Security beneficiaries can be eligible for a benefit. Children up to age 18, or up to age 19 if they are full-time students who haven't graduated from high school, and disabled children older than 18 may be able to receive up to half of a parent's Social Security benefit.”
Social Security is based on a “credit” system and is adjusted for inflation. You must earn 40 credits in order to receive Social Security. It is possible to earn as many as four credits a year, so it would take a minimum of 10 years to qualify. Each year, the amount of earned money that it takes to equal a credit is different. In 2015, it was $1,220 for 1 credit.
Out of all the years you work, only the 35 years when you had the biggest income are used to determine how much Social Security you get. It is beneficial to work at least 35 years, even part time, because if you don’t, any year without an income is considered a 0 and averaged in. It is important to note that the 35 years don’t have to be consecutive.
“So if you decide to phase into retirement by going part-time, you won't affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.”
You can estimate your maximum benefit by using this online calculator: http://www.socialsecurity.gov/retire2/estimator.htm
Social Security is a main piece of many people’s retirement portfolio, but for all your retirement questions, please contact us today.
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