Social Security Questions Part 2 You ve probably heard there are different strategies when it comes to Social Security benefits. These strategies can greatly impact the amount of benefits you receive over your lifetime. A Certified Financial Planner Professional, can project benefits through scenario planning or help with optimization strategies for you to receive the maximum benefit for your situation. This type of information is helpful to have prior to meeting with Social Security personnel, because their job is to tell you the amount you are entitled to today on your individual benefits, which is not necessarily the best strategy for your long term goals. The following are some common questions and answers retirees and their families should consider before applying for benefits. What is full retirement age? Social security payments are reduced if you claim them before your full retirement age or normal retirement age. For most people getting close to retiring in the next couple years it is probably going to be somewhere between 66 or 67 depending on when you were born. There s actually a Benefit by Year of Birth chart on Social Security s website (www.socialsecurity.gov) because it could, for example, be 66 and 4 months if you were born in 1956. This was part of the 1983 Amendments which phase in a gradual increase in age from 65 to 67 over a 22-year period. Now you can still start receiving benefits before your full retirement age but if you start taking benefits at age 62, which is the earliest possible age, then you will only get 70-75% of your full benefit amount (if your FRA is 66 it is 75% and 70% if it is 67). So for example a worker who would be eligible for a $1,000 monthly Social Security benefit at his full retirement age of 66 would get just $750 per month if he signs up for Social Security at 62.
What do most people choose? What is interesting is that people overwhelmingly opt for sooner when claiming their benefits. Nearly 7 in 10 draw social security before reaching full retirement age. The most popular age to claim Social Security payments is age 62, the earliest possible age you can sign up. However, the proportion of people signing up for Social Security at age 62 has been declining since the mid-1990s, according to the Center for Retirement Research, (CRR), at Boston College analysis of Social Security Administration data. 48% of women and 42% of men signed up for Social Security at age 62 in 2013, down from around 60% of women and 55% of men in 2005, CRR found which tells us that people are evaluating the decision more, a good thing. (Trends in Social Security Claiming, May 2015) How big a piece of retirement income is social security for most people? Most people rely heavily on social security for their retirement income. Ideally it would be just one of several sources, for example you might have 1/3 from social security, 1/3 from a pension, and 1/3 from your investments. According to Social Security though among current elderly Social Security beneficiaries, about half (53%) of married couples and almost 75% (74%) of unmarried persons receive half or more of their income from Social Security. Also according to social security 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income. (Social Security Fact Sheet 2015) What is the average benefit amount people receive? The main factor in the size of one s social security retirement check is a function of how much the person earned over their working life, specifically an inflation-adjusted average of the person s highest-paid 35 years in the workforce. While this might make it sound like there is
not a limit there is. For 2015, the maximum monthly retirement benefit for someone who draws social security at their full retirement age is $2,663 according to Social Security.* What happens if you take it early or wait until age 70 to draw? The age at which you decide to take social security has a dramatic impact the amount you receive. If you start drawing social security at age 62 in 2015, your maximum benefit would only be about $2,000 ($2,025) instead of $2,600 at your full retirement age. And if you wait to draw social security until age 70 in 2015, your maximum benefit would be about $3,500 ($3,501).* The average monthly Social Security retirement benefit though for January 2015 is about $1,300 ($1,328) or just half the maximum monthly amount.* The average benefit amount changes monthly. How can I get an estimate of my benefit? A lot of people say they haven t seen a statement in the mail for years and they re right. Social security only mails statements to workers attaining ages 25, 30, 35, 40, 45, 50, 55, 60 and older. And they mail them three months prior to their birthday at those ages only if they don t receive Social Security benefits and don t have a My Social Security account. We suggest people get their personal Social Security Statement online by creating a My Social Security account which you can do by going to www.socialsecurity.gov. Your online Statement gives you secure and convenient access to your earnings records. It also shows estimates for retirement, disability and survivors benefits you and your family may be eligible for.
What are the benefits if I die or my spouse dies? When you die, members of your family could be eligible for benefits based on your earnings. You and your children also may be able to get benefits if your deceased spouse or former spouse worked long enough under Social Security. A widow or widower can receive benefits at age 60 or older, age 50 or older if disabled, or at any age if you are taking care of a child younger than 16 (or disabled). Children also can receive benefits if they are unmarried younger than age 18 (or 19 if attending school full time) and any age if disabled before age 22 and remain disabled. (How Social Security Can Help When A Family Member Dies, SSA Publication No. 05-10008) Will Social Security be there for me when I need it? There are two pieces to that question. The first piece is when do you need it? The sooner that time is the more likely the benefit will be as expected. Probably a better question is how will social security change? After 2019, the Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of combined trust fund reserves in 2033. After 2033 tax income would be sufficient to pay about three-quarters of scheduled benefits through the end of the projection period in 2088. Since the last major amendments to the Social Security program were enacted in 1983, the annual reports have presented a succession of developments in the actual experience of the economy and the program benefits that show a need for more change to address the future challenges. Bottom line is change is needed but there is still time for Congress to act. (2014 Board of Trustees Report Summary) Why is there such as thing as spousal benefits? Let s look at case study. Suppose you married someone and helped put them through law school. Then while that person worked getting credit for social security you stay stayed at
home and raised your children. When you get into your 60s you haven t been in the workforce long enough to have earned social security based on your work record or maybe you did but your amount is very small. You get divorced. I think that is someone we want to help out as a society, so as part of the social security program there are spousal benefits. You can claim based on the record of your ex-spouse (or current spouse) and get 50% of their benefit amount without impacting them. Your ex-spouse will not know or be affected in any way by you claiming on their work record. Now people are using it as a strategy to let their own benefits increase and get something in the meantime, but not everyone is able to use that strategy. The goal is really to help those who need it. Knowing more about Social Security prior to drawing your benefits can be a big advantage. If you have questions, please call our office to discuss your individual situation. *See Frequently Asked Questions for retirement at www.socialsecurity.gov