Social Security is often in the headlines and is an important area of concern for our country. The system is in need of reform, and the how’s and why’s of that are the subject of many debates.
In 1935, President Franklin D. Roosevelt signed the Social Security Act. It was created in response to the ending of the Great Depression and numerous aging Americans were struggling. Financing would come from workers and employers and be distributed to retirees. After years of paying into Social Security, it is approaching the time that the largest generation ever will begin reaping their benefits…
A more detailed and extensive history can be found here.
So what do you need to know about Social Security for your own, personal situation? Everyone has different factors and needs to consider when making decisions about their benefits. Here are 5 key areas/questions to consider when planning for your Social Security benefits:
to play Understanding the Challenges of Social Security video
1.) When should I apply for my Social Security benefits (now vs. later)?
- First, you should consider “Do I need the money”? If you need it, then it’s a simple answer, but if you are not in immediate need, delaying may be more beneficial in the long run.
- Secondly, you should consider your health and life expectancy. Poor health may mean that it makes sense or is a necessity to begin taking your benefits as soon as you are eligible.
- If you delay receiving benefits until age 70, your payment will increase for each delayed year.
2.) How do spousal benefits work?
- If you are married and have little to no earnings, Social Security can be received through spousal benefits
- Two high income-earning spouses can also utilize spousal benefits. The one claiming spousal benefits can receive Social Security payments while allowing his/her own benefit to continue increasing until the age of 70 (must then forfeit spousal benefit and receive their own).
- Divorced, unremarried people may also receive spousal benefits based on the ex-spouse’s work history if they were married for at least 10 years and can produce documents to verify the marriage.
- Widowed people may also receive survivor benefits as early as age 60 (before your full retirement age (FRA), you will receive reduced benefits, and after FRA, you will receive 100%). There are other factors that may affect the amounts and what you are eligible to receive.
3.) Can I work in retirement and still receive benefits?
- You can work and still receive benefits, but there regulations as to how much income you can earn before seeing a reduction in your benefit amount when you are working between age 62 and your full retirement age.
- Once you have reached your full retirement age, there is no limit to the amount of income you can earn, and you will not have reduced benefits.
4.) Will I pay taxes on my Social Security income?
- Depending on how much income you earn in retirement, your Social Security benefit may be taxable.
- Income that counts toward your limits include: pensions, dividends and interest, and tax-free interest from municipal bonds.
- There are two ways to reduce the amount of tax you pay on your Social Security:
- Reduce the amount of other income you are receiving.
- Change the type of investments you have that are paying dividends and interest.
5.) What is my plan to fill in the “income gap” if my benefits are not enough to meet my needs?
- Go to the Social Security Administration’s website and click the link that will allow you to estimate your retirement benefits (you will have to enter personal information to verify your identity. There are step-by-step instructions to walk you through the process.
- Work with your financial professional to analyze your current financial situation and your future needs and goals. It is never to early to begin to plan for retirement, and if you are already retired, it is not too late to take a look at your financial picture and plans.
- There are a lot of things you can do on the SSA website, including applying for benefits, getting your statement, appealing a decision, finding out if you qualify for benefits, and changing your information and delivery options.
To find out more, listen to this Saturday’s Your Personal Economy segment on Your Financial Editor on AM 930 WFMD @ 8am. You can also go to the MFG homepage and download the “Guide to Social Security”.