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Whether you're ready to retire, dreaming of early retirement, or just starting your career, here are the 8 things you need to know about your Social Security retirement benefits. Let's start by talking about the elephant in the room.
1. Is Social Security bankrupt?
No. But with millions of baby boomers still leaving the workforce and birth rates declining, the system's reserves are being depleted. Based on current projections, Social Security trust funds will be exhausted by 2034.
However, exhausted doesn't mean bankrupt. If nothing changed, Social Security can still pay 79% of benefits until 2090. Congress has time to replenish its reserves, just as it did in the 1980s when they voted to tax benefits and gradually raise full retirement age from 65 to 67.1 Don't let fears that Social Security might “disappear” push you into taking your benefits early unless you have other reasons to do so.
2. How do I qualify?
If you work and pay Social Security taxes, you qualify for benefits on an earnings-credit system. In 2018, you receive one credit for each $1,320 of earnings, up to a maximum of four credits per year.2 If you stop working for a time, the credits you have stay on the Social Security records. If you go back to work later, they count toward your lifetime total. You need 40 lifetime credits to qualify for a retirement benefit.
Once you qualify, your full retirement benefit is based on your “average indexed monthly earnings,” which is the monthly average of your 35 highest earning years, adjusted to reflect current-day wage levels.
Even if you don't qualify for Social Security on your own, you still may be entitled to a spouse's benefits. See No. 8, below.
3. How much will my benefits be?
If you have average earnings, your Social Security retirement benefits will only replace about 40% of your pre-retirement income, so knowing your Social Security earnings and estimated benefits is important financial planning information at every stage of your life.3 Social Security has plenty of resources to help you track your progress.
If you're under age 60, open a “My Social Security Account” at ssa.gov./myaccount. You'll be able to see your estimated monthly retirement benefits based on your earnings to date and make sure your information is accurate. Earnings mistakes can happen, and it's easier to correct the inaccuracies now, when you have recent employer, W-2 and tax information on hand, than it will be 30 years from now.
If you're 60 or older, Social Security will send you an annual statement every year until you claim your benefit. It includes your estimated monthly benefit at early, full and maximum retirement age, and offers interactive tools and calculators to help you decide how and when to claim your benefit.
4. When can I receive Social Security?
You can start as early as age 62. There is no final deadline. Once your benefits start, they'll continue for the rest of your life. But when they start can make a big difference in the amount of your monthly benefit check.
If you want to get your full monthly benefit, you have to wait until your “full retirement age.” If you were born between 1943-1954, that's age 66. Born earlier or later? See the chart below for your full retirement age:
Claiming your benefits earlier than your full retirement age reduces the amount, simply because you're being paid longer. For example, if your full retirement age is 66, your monthly benefit is reduced as follows:
25% if taken at age 62
- 20% if taken at age 63
- 13.5% if taken at age 64
- 6.66% if taken at age 65
You can also delay receiving your benefits past your full retirement age. If you do, your monthly payments are larger, depending on when they start. For those born between 1941-1942, the yearly increase is 7.5%. For those born in 1943 or later, it's 8.0%. You accrue your maximum monthly benefit at age 70. You can claim past age 70, but your benefits won't increase beyond that.
You can apply for your Social Security benefits up to four months before the month you want them to start. To sign up, apply online; by phone at 1-800-772-1213 or TTY 1-800-325-0778; or in person, by appointment, at your local Social Security office. If you're living outside the U.S., go online or visit the U.S. Embassy.
5. Can I stop my benefits?
Yes. Social Security gives you two options to stop or suspend benefits:
Withdraw your application: If you're already receiving benefits and change your mind regarding when they start, you can withdraw your application within the first 11 months after you receive benefits and reapply later. You must repay all the benefits you and any family members received, including withholdings for taxes and Medicare Parts A, C, and D.
Suspend your payments: If you're between full retirement age and age 70, you can ask Social Security to suspend your benefit payments. If you've applied but haven't received your determination letter, you can suspend benefits for any month that you haven't received a payment, including all months you might be due a benefit. If you're already entitled to benefits, you can voluntarily suspend your payments up to age 70, at which time they'll start automatically. If you change your mind and want payments to start before age 70, just let Social Security know.
6. Can I work and still collect Social Security?
Yes. That's good news for retirees who want to turn a hobby into a second career or supplement their nest egg with a part-time job. On average, working while you receive Social Security payments will not reduce your total lifetime benefits—and it might even increase them.
At your full retirement age, you'll get your full monthly benefit no matter how much you earn. If you're younger than full retirement age, you can earn up to a certain limit without reducing your monthly benefit. If you earn more than the limit, your monthly benefit will be reduced, but you'll get it back in higher monthly benefits once you reach full retirement age.
What's more, working while receiving Social Security payments could potentially increase your overall benefit payout if the pay you receive helps increase your overall average earnings calculation, thus bumping up your payments for the rest of your benefit payments.
7. Do I pay tax on my benefits?
Maybe. According to the Social Security Administration, about 40% of people have to pay taxes on their Social Security benefits.4 The taxable amount varies based on your combined earnings and filing status. If you're thinking about working while you receive Social Security benefits, consult with your financial planner or tax preparer to understand how your earnings could affect your Social Security taxes.
8. Can I claim benefits on my spouse's Social Security?
Yes—even if you're divorced, although different rules apply. For married couples, Spousal Benefits are available while your spouse is still alive and already receiving their monthly benefits. Even if you never worked, you still receive a Spousal Benefit. If you're eligible for Social Security in your own right, you can claim your benefits and a Spousal Benefit. You'll receive whichever is higher.5
Spousal Benefits can make a big difference in your retirement income, but the filing requirements and exceptions differ based on marital status, dependent children and other factors. We've listed some general guidelines below. For specific information about your particular circumstances, visit the Social Security website for more details about Spousal Benefits.
If you've been married for at least 12 months, you can claim a Spousal Benefit if:
- Your current spouse has already claimed their benefit; and
- You are 62 or older
The maximum Spousal Benefit is 50% of your spouse's full retirement age benefit. You won't get more even if your spouse is entitled to delayed retirement credits. If your spouse claimed before their full retirement age, your Spousal Benefit will be reduced accordingly.
If you're divorced and your marriage lasted 10 years of more (even if your ex has remarried), you can claim a Spousal Benefit if:
- You are unmarried;
- You are age 62 or older;
- Your ex is entitled to Social Security retirement or disability benefits; and
- The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex's work.
As a divorced spouse, your benefit will be 50% of your ex's full retirement benefit (or disability benefit) if you start receiving benefits at your full retirement age. You won't get more even if your spouse is entitled to delayed retirement credits.6
Note: The benefit a divorced spouse gets do not affect the benefit amounts their ex and their ex's current spouse get.
Social Security is the foundation for your retirement security. Get better informed and attend an upcoming social security seminar presented by BECU Investment Services.
Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. The investment products sold through LPL Financial are not insured BECU deposits and are not NCUA insured. These products are not obligations of BECU and are not endorsed, recommended or guaranteed by BECU or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. BECU and BECU Investment Services are not registered broker/dealers and are not affiliated with LPL Financial.
1AARP. “Six More Myths About Social Security That Aren't True.” Ellen Embrose. https://www.aarp.org/retirement/social-security/info-2016/debunking-six-more-myths-about-social-security.html
2Social Security Administration. “How You Earn Credits.” 2018. https://www.ssa.gov/pubs/EN-05-10072.pdf
3Social Security Administration. “Thinking of Retiring?” May 2015; “Your Retirement Checklist.” 2018. https://www.ssa.gov/pubs/EN-05-10377.pdf
4Social Security Administration. “Retirement Benefits.” 2018. https://www.ssa.gov/pubs/EN-05-10035.pdf
5Social Security Administration. “Retirement Benefits.” 2018. https://www.ssa.gov/pubs/EN-05-10035.pdf
6Social Security Administration. “If You Are Divorced.” 2018 https://www.ssa.gov/planners/retire/divspouse.html
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