Ah, your golden years: a wonderful time for vacations, relaxation, and finally reaping what you’ve sewn – your Social Security retirement benefits. Roughly 9 in 10 retirees above the age of 65 receive Social Security benefits. And, according to the Social Security Administration, nearly 60% of retirees consider Social Security a major source of their retirement income. Knowing what to expect from your Social Security benefits is important in retaining financial security during your retirement. But, where do you begin?
Below I’ve outlined the basic facts about social security you’ll need to know to kick-start your retirement.
What Is Social Security?
The Social Security Act was signed into law during the Great Depression in 1935. It was a measure designed to protect citizens by providing financial aid to qualified groups of individuals, which included:
- The retired
- The unemployed
- The disadvantaged
Since then, the program has expanded to include dependents and survivors of beneficiaries. Furthermore, the program now also encompasses welfare programs such as Medicare and Medicaid.
How Social Security Retirement Benefits Work
The Social Security Trust Fund is made up of two funds:
- Old-Age & Survivors Insurance Trust Fund (OASI)
- Social Security Disability Insurance Trust Fund (SSDI)
The OASI fund is what we know as the retirement fund. To qualify to receive benefits from this fund, you must pay into the Social Security program during your working years.
Each working year a sum of 6.2% of your salary is taxed, matched by your employer, then deposited into the social security fund. Then, when you retire, you receive a portion of this money back through monthly payments.
The SS program calculates the amount of these benefits using a progressive formula. However, online tools are available to help you determine the amount of replacement income you will receive.
Social Security Eligibility
Each quarter year counts as a “credit,” Therefore, you can earn a maximum of four credits each calendar year.
To be considered eligible to claim benefits, one must accumulate a minimum of 40 total credits from working wages. Given these numbers, you can accomplish this in a minimum of 10 working years.
How Are Benefits Calculated?
Social Security benefits are affected by the following variables:
- The year you were born
- Your average lifetime salary
- The age you decide to claim benefits
The SSA takes your top 35 “earning years,” adds them all together, adjusts the number for inflation. Then this number is divided by 420, representing the total number of months in 35 years.
How Much Will I Receive?
Each retirement is unique, and the amount will vary with each individual case. However, the average retiree currently receives around 1500$ a month in Social Security Benefits.
Before you decide to apply, you should verify your earnings history to know what to expect when crafting your retirement plan.
Social Security Retirement Age
The current full retirement age is 66 years and two months; any retirement before this age is considered “early retirement.” Additionally, this number will gradually increase over the coming years until it caps off at age 67.
You may begin to collect benefits as early as age 62 and as late as age 70. However, if you are eligible for benefits through SSDI or survivor benefits, you may begin to collect your benefits sooner.
Receiving Benefits Early
Should you choose to receive retirement benefits at age 62, the benefit amount will significantly decrease to compensate for added years, which will potentially increase the number of overall payouts.
For example, those turning 62 and two months of age in 2021 should receive about 71% of the total benefit amount. However, should you wait until the age of full retirement, you will receive 100% of your benefits.
How to Maximize My Benefit Amount
Currently, the highest amount a retiree may receive in SS benefits is $3,148. That’s considering you reach full retirement age before beginning to collect.
The longer you wait to collect, the more benefits you’ll receive. For example, waiting until age 70 to collect will increase your benefit amount by 8% each year past the full age of retirement.
However, there is no benefit to postponing collecting beyond this age.
Can I Still Work and Receive Benefits?
Yes, you can choose to keep working beyond the full retirement age and still receive benefits. Doing this can even increase your future benefit amount; the higher your lifetime earnings are, the higher your benefits will be.
However, if you are younger than the full age, there is a maximum limit to how much you may earn before your benefits decrease. Though, once you reach full retirement age, there is no limit or reduction in benefits.
The current limit to how much you can earn while collecting early retirement benefits is $18,960 a year.
Suppose you are below full retirement age for the entirety of the year. In that case, the following applies: anything earned beyond $18,960 will reduce your benefit amount by $1 for every $2 you earn above that limit.
The year you reach full retirement age, a deduction of $1 in benefits for every $3 earned will be applied, beyond a separate threshold. Additionally, this only applies towards the months before you reach full retirement age.
How to Retire
You can apply for social security benefits up to four months before you would like to begin collecting. There are several ways to apply, including online, by phone, or in-person at your local Social Security office.
Before you apply, be sure to do the following:
- Gather the necessary documentation
- Complete your application
- Wait for a decision letter
Knowing how much you’ll receive from social security retiring will help you determine how much additional income you’ll need to reach your retirement goals.
Pre-retirement savings should be a part of every retirement plan. However, we all know that things don’t always go according to plan. If you don’t already have retirement savings stashed away, there’s no need to worry.
Retirement income strategies are designed to help you earn money on a fixed income. By reinvesting income and utilizing other safeguarding strategies, you can ensure your nest egg goes the full mile.
Invest in Your Retirement
Maybe you haven’t saved as much as you would’ve liked to, or perhaps you’re worried about supplementing your income during retirement. Either way, a solid plan is vital to getting the most out of yourSocial Security retirement.
Did you find this article helpful? Check out this blog post to learn about fixed income investing and whether it deserves a spot inside your retirement portfolio.