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By Michael Morelli
Special to the Financial Independence Hub
When you are thinking about early retirement to fully enjoy retirement living, or thinking of postponing retirement, you need to know how and when it is best to take your Social Security benefits. When dealing with something as important as Social Security, you must make sure that you are receiving as much as possible. Comprehending the program will help to secure your future to a great extent. In this article, we have mentioned several essential things regarding Social Security that you ought to know.
What is Social Security?
Social Security happens to be the foundation of numerous Americans’ financial security, including disabled individuals, retirees, and families of the retired. Approximately 170 million Americans pay Social Security taxes at present, while 61 million individuals collect monthly benefits. Approximately one household in every 4 gets income from Social Security.
One can consider Social Security to be a pay-as-you-go scheme. This implies that today’s workers pay Social Security taxes into the program, and cash flows back out to the beneficiaries as monthly income. Social Security is not the same as company pensions, which happen to be “pre-funded” out there. The money will be accumulated beforehand in pre-funded programs such that it can be paid out to the workers of today once they retire. It is essential to fund the private plans beforehand to safeguard the employees provided the company shuts down or becomes bankrupt.
1.) Full Retirement Age (FRA)
The following paragraph mentions the full retirement age when you might be eligible to get full Social Security retirement benefits.
Here we have mentioned the year in which you were born and what will be the Full Retirement Age in that case.
1937 or before – 65
1938 – 65 + 2 months
1939 – 65 + 4 months
1940 – 65 + 6 months
1941 – 65 + 8 months
1942 – 65 + 10 months
1943 – 1954 – 66
1955 – 66 + 2 months
1956 – 66 + 4 months
1957 – 66 + 6 months
1958 – 66 + 8 months
1959 – 66 + 10 months
1960 or later – 67
2.) You can work while getting Social Security
You will have the option of taking Social Security so long as you happen to be 62 years of age. Yearly earning limitations have been set by the SSA – in case you have been getting Social Security benefits prior to your full retirement age, and you are earning in excess of the limit, there will be a reduction in your benefit payments temporarily depending on how much you are earning. Suppose you are earning $8,000 over the limit, your benefits will be minimized by $4,000. In case you can earn $12,000 over the limit, it will be reduced by $6,000.
However, the good thing is that you will not lose your benefits permanently in case they are reduced. On the other hand, your payment account will be calculated once again, such that you will get the withheld cash as soon as you reach your full retirement age)
3.) Social Security benefits may be Taxable
As per the SSA, several Social Security beneficiaries are going to pay taxes on their Social Security benefits. It will depend on how much you make listed on the income tax return. In case you file with an excess of $25,000 as an individual (or $32,000 jointly), it will be imperative for you to pay the federal income taxes on the benefits. However, the regulations for state income taxes differ from one state to another.
4.) Your payments can help your family
Let us suppose the monthly benefits, according to your Social Security card, happen to be more than that of your spouse.
This scenario is quite common, particularly in households where 1 spouse stopped their profession to stay home and the children. In such cases, according to the SSA, it will be possible for your spouse to get the extra benefit – as much as 50% of your full retirement amount.
Following your demise, your spouse will receive the monthly benefit check of yours or hers – whichever happens to be greater. Moreover, in case you have any disabled child below 19 years of age or elderly parents depending on you for at least 50% of their income, they might get “survivor benefits”.
5.) The purchasing power of Social Security is diminishing
Every year, a COLA (cost-of-living adjustment) is being issued by the SSA, which happens to be a yearly adjustment that beneficiaries will receive for helping the monthly checks to keep up with inflation. Nevertheless, the formula utilized for calculating the COLA will not completely account for the medical expenses of any average older US resident. These expenses are increasing quicker as compared to any other services and items. An average US resident who is 55 years of age or more spends approximately 27% more every year on healthcare as compared to the overall population, as per the Bureau of Labor Statistics.
6.) The extra benefit of being a Spouse
Marriage helps to provide an advantage to couples in terms of Social Security. Namely, one spouse will be able to take what is known as a housing benefit, which is worth as much as 50% of the other spouse’s benefit. If the worth of your benefit is $2,000 while that of your spouse is only $500, it will be possible for your spouse to switch to a spousal benefit whose worth is $1,000. In this way, they will be able to bring in $500 more in income every month.
However, the calculation is going to change in case the benefits are claimed before retirement age. In case your spousal benefit is requested by you before your full retirement age, it will not be possible for you to receive the entire 50%. In case you take your benefit early, and following this, go over to a spousal benefit, there will still be a reduction in your spousal benefit.
7.) The Break-even Age for filing is not as far away as many believe
The break-even age of any person who becomes 62 in the year 2018 and also files the same year and a person who becomes 62 in the year 2018 but files at his Full Retirement Age when he is 66 years and 4 months old happens to be 76. Put Both these claimants will get approximately an identical amount of benefits when they reach 76 years of age despite claiming at different ages; however, over time, more overall benefits will be received by the individual who waited to file until Full Retirement Age. If you have any questions about Social Security that you’d like answered in person, consider visiting a Social Security office location near you and speaking with someone there.
Michael Morelli is a seasoned writer who loves to write about issues relating to retirement, Medicare, and Social Security. He currently works as a writer for “Social Security Office Near Me“, where he writes about Social Security benefits and issues affecting the senior citizen population.
