Social Security is an important – yet occasionally confusing – concept for people approaching retirement. But it is a critical component of your retirement income strategy
Americans are living longer. Retirement for many of us may last 25, 30, 35 years, or even longer. So it’s important to have a basic understanding of Social Security’s lifetime income guarantee to help you make the decisions that are right for you and your family.
What is Social Security?
Social Security is a program of social insurance and benefits established by the federal government in the aftermath of the Great Depression in 1935. The Depression left countless seniors in poverty. Social Security was created to supply seniors with a guaranteed source of income in retirement.
How does Social Security work?
Most workers have payroll taxes withheld from their paycheck, and the amount collected is placed into the Social Security Trust Fund. Once you retire, you can begin receiving payments out of this fund. The amount of your monthly payment is determined by several factors, including your age and your adjusted average salary from your highest-paid 35 years of work. Most people must work at least 10 years to become eligible. Spouses who did not work outside the home may collect on their working spouse’s benefits.
When can I start collecting Social Security?
The minimum age for collecting Social Security benefits is 62, however claiming benefits at 62 will reduce your monthly benefit for life. Full retirement age (FRA) is the age at which you are entitled to your full benefit. For those born in 1960 or after, the FRA is 67. It is younger depending on your year of birth for those born prior to 1960. Waiting longer to claim will increase your monthly benefit, up to age 70.
Can I work while receiving benefits?
Sure. But there are earning limits once you begin collecting, until you reach your FRA. In 2017, for every dollar you make over $16,920, the Social Security Administration deducts $1 from your benefits payment for every $2 you earn. Once you reach your FRA, you can earn as much as you like without a benefit reduction.
What’s the best age to start taking benefits?
The Social Security Administration says it gets this question a lot. The answer is, “there’s no one ‘best age’ for everyone.” It’s an individual decision that should be based on family circumstances including need and health.
What is the future of Social Security?
The Social Security Board of Trustees says the combined reserves of old age and disability trust funds will continue to grow until 2019. After that they will begin to decline, but the agency says it will be able to pay full benefits until 2034. From there, if Congress makes no changes to the program, it will be able to pay 79% of benefits.
Is Social Security income taxable?
In many cases, yes. If you have a combined retirement income (Social Security plus wages, interest, dividends, or other taxable income) of $25,000 or more ($32,000 for married couples) some of that Social Security income will be taxable.
How can I predict how much I’ll get?
SSA.gov/MyAccount, create an account, and get your personalized benefit estimate, based on your actual reported income. Remember, the amount you say may be taxable.
Why it’s important to prepare a head of time.
Studies show us that with adequate financial resources people can expect lower rates of chronic illness and disability, higher life satisfaction, and cushioning from a range of negative life effects. But building the resources for a secure retirement takes preparation. Social Security can be an important source of retirement income, but it’s only one part. For many, employer-based retirement savings plans such as a 401(k) or 403(b) and individual savings accounts such as an IRA will make up a large part of your retirement strategy. A financial professional can show you how small adjustments to your retirement savings today can have momentous results years from now.
Ready to file for Social Security?
Once you are confident you are making the educated filing decision that’s right for you, you can apply for your benefits online, on the phone (800-772-1213) or in person a local Social Security office. You must be at least 61 years and 9 months old to apply.
Looking for more help?
Transamerica offers a guide to Social Security online at Transamerica.com/SocialSecurity.
Things to Consider:
• Talk with your financial professional about how small adjustments to retirement savings today may affect your tomorrow.
• Check out SSA.gov/MyAccount to get a personalized estimate of your Social Security benefits.
• If you’re married, talk with your spouse about developing a Social Security strategy that takes into account both of your benefits and potential survivor benefits.