Most Americans look forward to the day that they can start claiming Social Security Retirement Income. In fact, many aren’t just looking forward to it; they are depending on it! The Office of Retirement and Disability Policy recently reported that 62% of aged beneficiaries received at least half of their income from Social Security in 2015.
That’s a significant reason to look ahead to the facts surrounding the payments. What you don’t know can hurt your financial future or put you behind on your retirement goals. Here are the major points to remember:
1. Social Security shouldn’t be your nest egg
Even though so many retirees depend on it for their day-to-day needs, it was never designed to carry a household. Social Security retirement benefits will replace only about 40 percent of income (more or less). Despite this fact, it was 90% or more of income for 23% of aged beneficiary couples and 43% of aged nonmarried beneficiaries in 2015.
2. How much you made matters
Even though the word “entitlement” is often thrown around when talking about Social Security Retirement Benefits, these payments are not entitlements. They are paid in direct relation to how long you have worked in a lifetime, and how much you made during the top-earning 35 years. So, the more you make, the more you’ll receive. Entitlements don’t work that way.
3. FRA is the number to beat
The key to getting the most over a lifetime is to understand the full retirement age, or FRA. This is calculated differently for different people, but in 2018, those who are 62 or younger will have a later FRA of 66 and four months. This magic number to beat for full benefit payouts will be increased by two months each year until it hits 67. (If this couldn’t be more confusing, you can simply plug in your info at the SSA site to get your magic FRA number.)
4. There is a maximum
While how much you’ll get in benefits will increase with what you’ve earned, there is a ceiling. Even the highest earners can’t get payments higher than the cap. This amount was $2687 per month for 2017.
5. COLAs aren’t significant
While your visit to the doctor, the cable bill, and even a gallon of milk will all cost more in time through inflation, your benefits payment is not likely to keep up. That’s because cost of living adjustments (also known as COLA) haven’t been keeping pace. Don’t count on them to be your answer to inflation – even with a 2% increase slated for 2018 (the largest bump since 2012).
6. Social Security is taxable
This one really shouldn’t come as a surprise, but it somehow does catch some people off-guard. While not everyone will pay federal taxes, it is subject to filing thresholds. If you’re getting benefits in addition to generous pension or IRA payouts, you’ll see more of it go to the IRS each year.
7. What you do affects others
If you claim early, for example, your reduced payment amount may not be enough if you leave a spouse behind. It’s wise to study up on how your timing affects your family, especially if you are the breadwinner for your household. While it’s impossible to predict the future, especially regarding lifespan, having a realistic outlook on spousal survivorship is best for everyone.
8. You can change your mind
Took your benefits too soon in life? You have 12 months from your original filing for benefits to withdraw your claim and take the later payment path. Just be sure you know what this entails. Benefits paid must be returned, including those paid to your spouse or children, whether or not they are living with you. (They have to consent to the change, as well.)
9. Change may be coming soon
While we may have Social Security figured out now, our understanding may be temporary. Those expecting to live longer than 2034 will want to keep in touch with their advisor to navigate program changes needed to keep them solvent. While you may be retired, it’s never a good idea to become too relaxed about your knowledge of benefits. New laws and regulations could radically change Social Security in the future.
If it sounds like there are a lot of moving parts to determining eligibility and payment of benefits, it’s because there are. Government benefit programs have always had a maze of regulations to navigate and adhere to. Fortunately, it’s not your job to know everything about Social Security retirement benefits. Forming a partnership with a reliable financial professional who has your benefits goals in mind is still one of the best ways to make sure you’re getting every penny out of the program you paid into.
Steven C. Johnson, ChFC, is a financial planner with Finivi. Over nearly 30 years, Steve has helped many clients maximize their Social Security retirement income benefits. Steve is a well sought out speaker for numerous private and public corporations, educational institutions, and social and fraternal organizations on the topics of Social Security and Retirement Income Planning. Would you like to educate your employees about Social Security claiming practices? You can schedule a complimentary consultation online or by emailing email@example.com.
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This information is not intended to be legal or tax advice. The author can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov.