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November 24, 2014
Retirement is a tricky business. You can save and plan your whole life, but that doesn’t mean you’ll know how to best use your Social Security benefits. Counting on the Social Security Administration (SSA) to help you find your way doesn’t always work either. And then there’s the elephant in the room, which is the changing state of Social Security benefits. It’s possible that the institution will look different in the future.
The employees of the SSA don’t always know what’s best for your situation. There are a few specialized software options on the market that can help, though. Either way, you’ll need to sort this through long before you plan to start collecting the benefits that you’ve paid into.
When you retire, you have more than one possible way to collect benefits. You can opt to start taking them when you turn 62. This is considered early retirement, and your benefits will be lower than if you wait until you reach full retirement age, which is 66.
There’s another possibility. If you wait even longer, until you’re 70 years old, you may be able to receive more benefits. This program is referred to by the SSA as “delayed retirement credits.”
In 2020, the maximum monthly Social Security benefit that an individual can receive per month in 2020 is $3,790 (for someone who files at age 70).
For someone at full retirement age (66), the maximum amount is $3,011. For someone aged 62, the maximum amount is $2,265.
Your benefits will be determined by your earnings before retirement. The SSA used to automatically send out paper copies of projected benefits to U.S. citizens; now it provides that information online. There is an option to activate your account online and view your statements digitally on the SSA’s website.
Your application for receiving benefits should be sent in three months before you want them to start. Applying isn’t simple, but it’s manageable.
You’ll need to provide your birth certificate, proof of citizenship (if you weren’t born in the U.S.), a copy of discharge papers if you served in the military prior to 1968, and a copy of your the previous year’s W2 and tax return.
The earliest that you can apply for benefits is when you turn 61 years and 9 months of age. You can’t apply sooner, but you can wait until later to collect a higher level of benefits.
One important distinction to remember is the difference between Medicare and Social Security. Although you can apply for Social Security just before you turn 62 years old, most people will not receive Medicare until they turn 65. However, there are many exceptions with Medicare benefits, such as disability.
When you’re ready to apply to Social Security, you’ll need to begin at the “Apply for Retirement Benefits” page at the SSA website.
Most financial experts believe that the future of the Social Security program is bleak. The SSA says the problem is caused by lower birth rates.
Lower birth rates mean fewer people paying in. So the cost of the program will continue to go up and taxes will only support about 75 percent of the program until 2035. After 2035, the program is projected to stabilize again, according to the SSA.
The number of people receiving Social Security Disability benefits has risen steadily since the 1990s, and there are fewer people paying in than the program needs to support it. So instead of primarily supporting people in retirement, there’s the additional weight of disability payments.
You’ve paid in so that you can receive Social Security benefits. And when you retire, you should apply at a time when it feels right for you to receive them. With the reduced stability of the program, waiting until you’re 70 might not be the best choice for you. But if the program stabilizes again, those concerns may be alleviated.
Planning for retirement is becoming more complex all the time. And unlike generations past, there’s no guarantee that you will receive a set amount of Social Security benefits to see you through. You’ll need a diversified plan that helps ensure your income from various sources. If you count on Social Security alone, you might be left with a gap and no way to fill it.
There will never be one right answer for everyone. For example, if you have dependent children, starting Social Security early probably makes sense.
One way to assess the best time for you personally to start benefits is to use a calculator. Use this Social Security Calculator to figure out the best time for you to start your benefits. Find out if it is better to start Social Security at 62 or 66 or at some other time. But don’t forget to assess spousal and dependent benefits.
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