No matter how much you have saved towards retirement, Social Security will probably play a large role in your retirement income strategy. After all, the average American gets 34% of their retirement income from Social Security, according to the Social Security Administration. In the midst of disappearing pensions and seemingly fickle markets, Social Security provides government-guaranteed income that isn’t subject to market risk, cannot be outlived, and will help support your family after your death. Because of this, it is vital that you are well informed and do not underestimate the importance of Social Security in your retirement strategy. Below are six facts about Social Security that are important for every retiree or future retiree to know.
1.Your Age Affects The Benefit You Will Receive
You are eligible to begin receiving Social Security retirement benefits any time between ages 62-70. However, when you choose to file will affect the amount that you receive. If you were born between 1943 and 1954, your Full Retirement Age (FRA) is 66. After 1954, 2 months is added each year until the FRA becomes 67 for those born in 1961.
At FRA, you are eligible to receive the full benefit that you have earned based on your work history and contributions. Filing for benefits before FRA lowers your benefit amount up to 25%. Delaying benefits increases the amount 8% each year, for a maximum of 32% at age 70.
2. Waiting To File Until Age 70 May Be Best
One of the biggest questions retirees face in regards to Social Security is when the best time is to file for benefits. Some people have no choice and must claim early for financial reasons, but if you are able to wait, it could make a huge difference in your retirement income. Usually, it is best to wait to file if you expect to live beyond the average life expectancy for someone your age. According to the Social Security Administration, a man turning 65 today can expect to live until age 84.3 and a woman until age 86.6. A full quarter of today’s 65-year-olds will live past 90 and a tenth past 95. If your health is poor, though, you may not live long enough to reap the benefits of waiting and filing early may be best.
3. Consider Spousal And Survivor Benefits
If there is a large age difference between spouses or a large difference in the amount of income earned over their lifetimes, it is especially critical to take spousal and survivor benefits into consideration. If your spouse isn’t eligible to receive their own personal benefit, then your filing decision will have a greater impact, because it determines both your personal benefit and their spousal benefit as well.
An older spouse may want to delay filing as long as possible in order to maximize the survivor benefit. At FRA a surviving spouse is eligible for 100% of the deceased spouse’s benefit. So where there is a great age disparity, a widow or widower could receive the spousal benefit for 20 or even 30 years after their spouse has passed away.
4. Collecting Social Security While Working Is Permitted, But May Affect Your Benefit
Many people continue working well into retirement. If you work before reaching FRA, your benefit may be reduced. In the month you reach FRA, your benefit will be recalculated to include any additional credits earned since filing and any previous reduction in benefits will be removed.
5. Social Security Benefits Are Taxable
If you have income outside of your Social Security benefits, you may have to pay taxes on up to 85% of your benefits. The below table shows the income levels for taxation based on tax filing status.
No Taxes On SS Benefits
Up To 50% Of SS Benefits Are Taxed
Up To 85% Of SS Benefits Are Taxed
Income < $25,000
$25,000 - $34,000
Income > $34,000
Married, Filing Jointly
Income < $32,000
$32,000 - $44,000
Income > $44,000
An experienced financial professional can help you determine exactly how much of your benefit will be taxable based on the types and amount of income you have.
6. Social Security Requires More Attention Since The Rules Have Changed
In November 2015 new legislation was signed into law eliminating several popular Social Security filing strategies. Here is a summary of the changes:
- Retirees turning 62 after January 2, 2016 do not have a choice between receiving their personal benefit or spousal benefit, they will be given the greater of the two.
- A retiree will have to receive their own benefit in order for any family member to receive benefits based on their record. This does not apply to divorced spouses.
- Suspended benefits are no longer available in lump sums.
- Those who filed under the old rules will not be affected by the new ones.
- The new rules only apply to retirement benefits, not survivor or disability benefits.
With fewer options available, a retiree must be even more careful when making Social Security filing decisions.
How We Can Help
Since Social Security will be such a major part of your retirement income, it is imperative to make the right filing decisions. At Engaging Women In Wealth, we have the knowledge and experience necessary to walk you through the Social Security filing process and maximize your lifetime benefit. Call us today at 858.756.0004 or email [email protected] to set up a complimentary consultation. We look forward to helping you build a secure financial foundation for you to enjoy your golden years.
About Deb Sims
Deborah Sims is the Principal of Estate Management Group, a wealth management and financial services firm offering comprehensive and customized strategies to help her clients manage their assets and feel confident in their future. Her mission is to serve as her clients’ most trusted wealth advisor through professional knowledge, integrity, and personalized wealth management services. Based in San Diego, California, Deb’s team has offices in Rancho Santa Fe, Old Town, and Del Mar. She invites you to contact her team today to learn more about how they can help you.