Dear Possibly Not Thinking About Social Security Yet, Have you thought about it? If yes, you may be thinking, “That’s the money that I will live on when I retire. So, I don’t have to think about it now.” Well, as with most parts of one’s financial journey, it’s better to plan ahead. So, today I am sharing some important basics on social security.
12 Things You Should Know About Social Security
1. You May Hear Talk of Retired People Living On Social Security, It’s Not Designed To Replace Someone’s Full Working Income
With this in mind, it does not surprise me that many people living solely on social security have to cut back on their lifestyles. So, you should know that it was never designed to be one’s only source of income when one retired. Currently, average wage earners’ retirement benefit is only designed to cover approximately 40% of your living expenses. Some people earn more than the average wage earner and have living expenses correspondingly higher than average. Obviously, they will have social security covering even less of their living expenses.
2. Social Security Is Projected To Run Out of Its Reserves By The Year 2025
If that happens, it is said that the benefits that are paid out will be cut by 17%. There is always talk of the program being “saved.” But, my suggestion is that you assume a reduced benefit. In other words, plan as if you are not going to receive anything from social security. There is no guarantee what, if anything, will be available by the time you are retirement age.
3. “At What Age Is Social Security Taxed?” Is a Common Question That I Hear.
The answer: It is always eligible to be taxed. Age has nothing to do with it. Instead, whether your social security is taxed is determined by your total combined income. If your total combined income exceeds a certain level, up to 85% of your social security will be taxed. With this in mind, if social security is your only income, your benefits are not likely taxable.
4. To Be Eligible To Collect Social Security, You Must Have Earned At Least 40 Credits
Or, you have to be married to someone who worked at least 40 quarters and had FICA taxes withdrawn. (FICA is the federal payroll tax that you pay, and for which you earn credits toward your social security benefits.)
So, be careful if you have plans to leave the workforce early. If you hope to collect any benefits, make sure that you have earned at least those 40 credits.
Also, note that if you are being paid “under the table,” you are not earning credit toward Social Security. Being paid under the table mean that you get paid off the record, not reporting, and paying no taxes. It’s illegal,
Note that the quarters do not have to be in consecutive years. The minimum amount needed to earn a quarter is $1,730, which means that a worker earns one quarter for every $1,730 in covered earnings.
5. Currently, People Can Begin Collecting Social Security Retirement Benefits At The Age of 62
However, that is not the current full retirement age. So, the amount that they receive will be cut by 30% of their full benefit. In other words, you wouldn’t receive full benefits at age 62. Claiming your retirement benefits at age 62 is considered claiming early.
6. At One Point, The Full Retirement Age Was 65 Years Old
This means that 65 was the age that you would be able to receive the full benefit. At the time that I am writing this, the full retirement age is on a sliding scale, beginning at age 66 and going up to age 67, depending on which year you were born. For instance, my full retirement age is 67 years old. But, people born in 1955 reach full social security benefit age at 66 years and 2 months.
7. There Is a Way To Receive More Than Your Full Retirement Amount.
If you start taking your social security benefit at age 70, you will receive approximately 24% more than your full retirement age benefit amount. In other words, the longer you wait, up to age 70, the more you receive. It increases by approximately 7 to 8% each year past your full retirement age.
8. If You Are Working and Making Income at Age 62
Those working for income at age 62, and taking social security, will be penalized if making more than $22,320 per year. That penalty (at the time that I am writing this) will be $1 for every $2 that you earn over the $22,320.
9. Once You Reach Full Retirement Age
Once you reach full retirement age, you can work and earn as much as you want, without having any reduction in your retirement benefits.
10. You May Be Eligible For a Spousal Benefit
You may be able to do this if your spouse has filed for their own benefits and you have been married for at least one year. Spousal benefits go up to 50% of the primary insured benefit (the full retirement benefit) amount. If you are eligible for your own benefit from your work history, you may only collect either your own benefit or your spousal benefit.
(There are some exceptions to these spousal benefits. Please check with the Social Security Administration for the exceptions.)
11. Even If You Are Divorced, You May Be Able To Collect Spousal Benefits.
If you were married at least 10 years and a day, have been divorced at least two years, you may be able to collect a spousal benefit. You and your ex-spouse must be at least age 62. It is not necessary that your ex-spouse has filed for benefits (in contrast to his or her current spouse, if there is one). Same as with a current spouse, a person may never receive both their ownbenefits and spousal benefits. It’s one or the other.
12. You Can sign Into SocialSecurity.gov To Find Out What Social Security Estimates That You Will Receive When You Retire
If you are under the age of sixty, I suggest that you log in to check your account approximately every two years. Print out the statement so that you can check it for accuracy in terms of how much income for which you are paying FICA.
Things to Know About Social Security:
Key Takeaways
- Social security is only designed to replace approximately 40% of your income.
- Social security is projected to run out of its reserves by the year 2025, so plan accordingly.
- Social Security is always eligible to be taxed if you earn over a certain amount of income.
- To be eligible to collect social security, you or a spouse must have earned at least 40 credits having had FICA taxes withdrawn.
- You can begin collecting social security early at age 62, receiving a reduced benefit amount.
- At one point, the full retirement age was 65.
- Currently, the full retirement age ranges from age 66 to age 67, depending on which year you were born.
- You can receive more than your full retirement amount by waiting past your full retirement age, up to age 70.
- If you start collecting social security before your full retirement age, there is a limit to how much you can make before you begin being penalized with a reduction in benefits.
- Once you reach full retirement age, you can work and earn as much as you want, without any reduction in your retirement benefits.
Spousal Benefits
- You may be eligible for a spousal benefit if your spouse has filed for their own benefits and you have been married for at least one year.
- If you are divorced, were married at least 10 years and a day, you may be able to claim benefits on your ex-spouse’s work record.
As always, I hope that you are doing very well… mentally, spiritually, physically, and financially. I am here to cheer you on.
Hugs,
Rich Mom
Would you like to read more about money for retirement and otherwise? Check out:
What is the Best Retirement Account?
Don’t Forget: You can sign into SocialSecurity.gov to find out what social security estimates that you will receive when you retire.