While Social Security is part of the retirement plan of most American workers, it should not be relied on as your only retirement income. If you are among those who are covered under Social Security, you should understand how the system works and what you are eligible to receive when you retire. It is equally as important to understand how your earnings and age can impact your benefits so you can make informed decisions. At Integra Financial, we offer retirement investment advice that takes into consideration your entire financial portfolio.
Social Security provides a lifetime retirement benefit in the form of a monthly check or automatic deposit that's adjusted each year for inflation. It is available to individuals who meet the following requirements:
How do you qualify for retirement benefits?
When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (10 years of work).
If you stop working before you have enough credits to qualify for benefits, the credits will remain on your Social Security record. If you return to work later on, you can add more credits so that you qualify. They don't pay any retirement benefits until you have the required number of credits. Your benefit payment is based on how much you earned during your working career. Higher lifetime earnings result in higher benefits. If there were some years when you did not work or had low earnings, your benefit amount may be lower than if you had worked steadily.
Your benefit payment also is affected by the age at which you decide to retire. If you retire at the earliest possible retirement age for Social Security, your benefit will be lower than if you wait until later to retire.
Full Retirement Age
If you were born in 1944 or earlier, you are already eligible for your full Social Security benefit. If you were born from 1943 to 1960, the age at which full retirement benefits are payable increases gradually to age 67. The following chart lists the full retirement age by year of birth.
NOTE: People who were born on January 1 of any year should refer to the previous year.
You can get Social Security retirement benefits as early as age 62. However, you will receive a reduced benefit if you retire before your full retirement age. For example, if you retire at age 62, your benefit would be about 25 percent lower than what it would be if you waited until you reach full retirement age.
Some people stop working before age 62. But if they do, the years with no earnings will probably mean a lower Social Security benefit when they retire.
NOTE: Sometimes health problems force people to retire early. If you cannot work because of health problems, you should consider applying for Social Security disability benefits. The amount of the disability benefit is the same as a full, unreduced retirement benefit. If you are receiving Social Security disability benefits when you reach full retirement age, those benefits will be converted to retirement benefits. You should contact the Social Security Office to determine what is right for you.
You may choose to keep working even beyond your full retirement age. If you do, you can increase your future Social Security benefits in two ways.
Each additional year you work adds another year of earnings to your Social Security record. Higher lifetime earnings may mean higher benefits when you retire.
Also, your benefit will increase automatically by a certain percentage from the time you reach your full retirement age until you start receiving your benefits or until you reach age 70. The percentage varies depending on your year of birth. For example, if you were born in 1943 or later, they add 8 percent per year to your benefit for each year that you delay signing up for Social Security beyond your full retirement age.
NOTE: If you decide to delay your retirement, be sure to sign up for Medicare at age 65. In some circumstances, medical insurance costs more if you delay applying for it.
Deciding when to retire
Choosing when to retire is an important but personal decision. Regardless of the age you choose to retire, it is a good idea to contact Social Security in advance to learn the available options and make an informed decision. In some cases, your choice of a retirement month could mean higher benefit payments for you and your family.
In deciding when to retire, it is important to remember that you will probably need 70-80 percent of your preretirement income to have a comfortable retirement. Since Social Security replaces only about 40 percent of preretirement income for the average worker, it is important to have pensions, savings and investments.
You should apply for benefits about three months before the date you want your benefits to start. If you are not quite ready to retire, but are thinking about doing so in the near future, you may want to visit Social Security's website to use their convenient and informative retirement planner.
Your Benefits May Be Taxable
About one third of people who get Social Security have to pay income taxes on their benefits.
If you file a federal tax return as an “individual,” and your combined income* is between $25,000 and $34,000, you may have to pay taxes on up to 50 percent of your Social Security benefits. If your combined income* is more than $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income* is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you are married and file a separate return, you probably will pay taxes on your benefits.
At the end of each year, you can go online and set up an account to view the amount of benefits you received. You can use this statement when you complete your federal income tax return to find out if you have to pay taxes on your benefits.
Although you are not required to have federal taxes withheld, you may find it easier than paying quarterly estimated tax payments.
Please visit the Social Security website for a list of restrictions, including those who live outside of the United States.
This information is from www.socialsecurity.gov.
Contacting the Social Security Office
Visit their website at www.socialsecurity.gov; it is a valuable resource for information about all of Social Security's programs. At the website you also can:
Call their toll-free number at 1-800-772-1213 from7 a.m. to 7 p.m., Monday through Friday. Generally, you'll have a shorter wait time if you call during the week after Tuesday. They can provide information by automated phone service 24 hours a day. If you are deaf or hard of hearing, you may call their TTY number, 1-800-325-0778.
If you would like more information on Social Security, please call us today to schedule a free consultation with a retirement investment advisor.