Retirement Directions: What to Know About Social Security

Social security

Retirement is 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 whether Social Security will even exist as we know it in years to come.

According to a PBS NewsHour Q&A session with retirement expert, Larry Kotlikoff, Social Security Administration employees don’t always know what’s best for your situation. There are a few specialized software options on the market that can help, though. So you’ll need to sort this through long before you plan to start collecting the benefits that you’ve paid into.

Social security

There are Several Ways to Collect Benefits

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, and your benefits will be 30 percent lower than if you wait until you reach full retirement age, which is 66, according to the SSA’s FAQ page.

There’s another possibility. If you wait even longer, until you’re 70, you’ll receive more, because the SSA will add in what they call “delayed retirement credits.”

It doesn’t end there. Kotlikoff explains variables within those three possible times when you could receive benefits.

If you’re widowed, you could collect either your benefits, or those of your deceased spouse, whichever is greater. If both you and your spouse are living, you can elect to take your benefits at one point, and then switch to your spouse’s benefits at a later time. There are many possibilities and different ways to collect.

The Maximum Social Security Benefit Can Vary

The SSA says the maximum possible benefit, as of 2014, is $3,425 monthly. That is for people who retire at age 70 or later. But that’s only a starting point.

If you retire early, at 62, your maximum possible benefit will only be $1,992. If you begin collecting benefits in the middle, at full retirement age, the maximum amount is $2,642. To get a slightly better idea of what to expect, the SSA says the average monthly benefit in January of 2014 was $1,294.

Your benefits will be determined by your earnings before retirement. The SSA automatically sent out paper copies of projected benefits to U.S. citizens until recently, when it switched to providing that information online. Now, you can activate your “My Social Security” account online, and view your statements digitally.

Social security

Timing is Important when Applying for Benefits

The SSA explains that 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 last 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, according to the SSA. 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 your 62nd birthday, you probably won’t receive Medicare until you turn 65. There are exceptions with Medicare, such as disability.

When you’re ready to apply, you’ll need to begin at the “Apply for Retirement Benefits” page at the SSA website.

Social Security benefits have become a hotbed for controversy, with most financial experts stating that the future of the program is bleak. The SSA says that there is a problem, and it’s 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.

Daily Finance simplifies the problem by explaining that 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 more complex all the time. And unlike generations past, there’s no guarantee that you will receive a set amount from Social Security 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.

Do What is Best for You
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 would be to use a Social Security Start Age Calculator.  This online Social Security Calculator will help you choose when to take Social Security 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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