Things to Consider When Planning for Retirement: Social Security
Social Security is a benefit provided by the federal government, paid to individuals who are elderly, disabled, or no longer able to work. If you have ever looked at your pay stub or a record of your earnings, you have seen part of your income go towards “OASDI” which stands for Old Age, Survivors and Disability Insurance program, which is the official name for Social Security. Social Security was never meant to be the only source of income for people when they retire; however, Social Security replaces about 40% of an average wage earner’s income after retirement. Here is an overview of what you need to know about Social Security.
EligibilityIn order to be eligible for Social Security’s retirement benefit, individuals born after 1929 must earn 40 “credits” (i.e. work at least 10 years). As you work and pay taxes, you earn Social Security credits. In 2016, you earn one credit for each $1,260 in earnings — up to a maximum of four credits a year. Therefore, in 2016, whether you earned $5,040 ($1,260 per credit x 4 credits) or $100,000, you still only earn four credits in 2016. The amount of money needed to earn one credit usually goes up every year.
In addition to needing 40 credits, individuals only become eligible for retirement benefits on the first full month after their 62nd birthday. For example, if you turned 62 on July 25th, you would become eligible for benefits starting August 1st; likewise, if you turned 62 on November 1st, you would not become eligible for benefits until December 1st. Although you become eligible to collect Social Security benefits at the age of 62, as discussed in more detail below, the longer you wait, the higher your monthly benefit will be until you reach the age of 70.
Know When to RetireChoosing when to retire is one of the most important decisions you will make in your lifetime. You can choose to claim your benefits at 62, when first eligible, at 66 or 67 when you reach “full retirement age” (the exact full retirement age varies depending on your birth year), or after full retirement age. If you claim benefits at your full retirement age, you will be entitled to “full” retirement benefits. If you claim benefits before your full retirement age, you will receive up to 25 percent less than you would have if you waited until full retirement age. In contrast, your benefits will increase by 8% for each year you wait after full retirement age, up to the age of 70.
Another factor to consider when deciding when to retire is that Social Security will withhold benefits if your earnings exceed a certain level, which is called the retirement earnings test exempt amount. A beneficiary may earn up to $15,720 (the exempt amount) annually before Social Security will withhold your benefits. Social Security will withhold $1 in benefits for every $2 of earnings above the exempt amount. However, any benefits withheld while you continue to work are not “lost.” Once you reach full retirement age, your monthly benefit will be increased permanently to account for the months in which benefits were withheld.
Your BenefitsSocial Security benefits are based on your lifetime earnings. The Social Security Administration (“SSA”) adjusts or “indexes” your actual earnings to account for changes in average wages since the year the earnings were received. SSA then calculates your average indexed monthly earnings during the 35 years in which you earned the most. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. The benefit, however, is not based on 35 consecutive years of work, but the highest-earning 35 years. For someone at full retirement age in 2016, the maximum monthly benefit is $2,639.
If you qualify for retirement benefits, Social Security also may provide benefits to other family members under certain conditions, without reducing the benefits that go to you. Eligible dependents may include a spouse age 62 or older or a spouse of any age who cares for a dependent child younger than 16 or disabled. In order for children to qualify, they must fall into one of the following categories: a) 18 and younger and are unmarried; b) full-time students up to age 19 who haven’t yet completed high school and are unmarried; c) or age 18 or older and severely disabled with a disability that began before age 22. Under certain conditions, a former spouse may also qualify for Social Security benefits based on your work record.
There are many Social Security laws and policies that determine eligibility, benefit amount, and benefit duration. If you are having an issue navigating those laws and policies, an experienced attorney can help you obtain, collect, and maximize your Social Security benefits. Find an attorney by quickly posting a short summary of your legal needs on www.legalserviceslink.com, and let the perfect attorney come to you!
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