5 Common Social Security Questions
5 Common Social Security Questions
As financial advisors, we understand the importance of Social Security in the overall retirement planning equation. We also understand the Social Security system is so complicated that many people have questions about how it even works! We will answer a few of the most common questions for you here, but remember that unique situations do happen and you should work closely with us to develop your retirement plan so that there are no surprises.
How does Social Security determine eligibility? Eligibility is determined by “work credits” that you earn throughout your working years. Generally speaking, you need to earn 40 work credits in order to qualify for benefits. The equation for calculating these credits can and does change over time. As of 2016, you can earn up to four credits per year, and you will earn one credit for each $1,260 in earned income. So for most people, that means you would earn four work credits per year.
When can I claim my Social Security benefits? This date isn’t actually set in stone. Social Security does define a “full retirement age” for everyone, and it’s based upon your year of birth. Full retirement age currently falls between age 65 and 67. But you can also apply for benefits at age 62, if you don’t mind taking smaller checks for the rest of your life, or you can delay your benefits up to age 70 for a larger check.
How much will I receive in benefits? This amount varies from one person to the next, because Social Security calculates your benefits according to a formula. They will average your earnings from your 35 highest-income years. Currently the average Social Security payment is $1,341 per month. During many years, beneficiaries receive a small “raise” due to a cost of living adjustment (COLA), but these adjustments are not guaranteed to happen every year.
What if I’m still working? Can I claim my Social Security benefits? Once you reach full retirement age, you can claim benefits while continuing to work, and you will receive your full benefit payments. If you decide to claim your benefits early, your checks can be reduced if you earn more than a certain annual limit. Therefore, this is a decision to weigh carefully with us before deciding to claim your benefits.
I heard the system is in trouble. Will Social Security even be around when I retire? The system itself is probably not going anywhere. Too many taxpayers have paid into Social Security, and lawmakers would have some serious trouble on their hands if the system collapsed! They have plenty of motivation to continue adjusting the system to keep it solvent. On the other hand, yes we will need to make those adjustments. People are living longer than ever before, meaning greater strain on the system. Plus, the ratio of workers to retired persons is shrinking. Since current benefits are paid with current taxes, lawmakers will face decisions to raise taxes, cut benefits, means-test beneficiaries, or some combination of those measures in order to keep Social Security out of trouble. But the system is not collapsing, no matter what doomsday talk you might have heard on the news!
For more information on Social Security, or to calculate your benefits and choose a retirement date, call our office to schedule an appointment. We can answer your questions and help you create a retirement plan that works for you.