11 Things Everyone Should Know About Social Security Benefits

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Social Security benefits are an important part of nearly everyone’s retirement plan. Many people think of Social Security benefits as a supplement to their income when they retire. In reality, for the 61 million Americans receiving benefits in 2016, Social Security was the major source of income for more than half of them1.

Anyone planning for retirement should take the time to understand this important benefit; however, a recent surveyconducted by Nationwide Retirement Institute found that 63% of future retirees were not confident in their knowledge of Social Security. 26% believed they could live comfortably in retirement on Social Security alone. Here are some important facts about Social Security you may not know.

1. Review your benefit statement regularly

Until 2011, benefits statements were mailed out annually. Today, only a small subset of workers receives a paper statement: those over 60 who are still working, not collecting, and have not created an online account with Social Security. Also, a worker at age 25 will receive a paper statement by mail. But everyone else must first create an account on the Social Security website to see their statement. It is important to review your earnings record regularly because mistakes could lead to reduced future benefits. Generally, you have three years, three months and 15 days after the year in which you earned the wages to fix mistakes.

2. How your benefit is determined

Each worker’s benefit is figured using a complex calculation based on a 35-year average of covered wages. Wages are adjusted for inflation before being averaged. The government will use the highest 35 years and will average in zeros for workers with a shorter work history which will drag down the average. Avoiding zeros by working longer could have a meaningful impact on a worker’s final benefit payment.

3. Drawing benefits too soon could be costly

Full retirement age (FRA) is 66 years and 2 months for workers born in 1955. FRA is the age at which you can collect 100 percent of your benefit. A worker who starts collecting at 62 will collect only 74.2 percent of the monthly benefit. Benefits will continue to grow 8% annually after FRA for a worker who delays benefits until age 70.

4. Started too early? You may get a second chance

Retirees have 12 months after starting benefits to withdraw their application — provided all the money received so far is repaid. A worker can do this only one time. The application for withdraw is Social Security Form SSA-521.

5. Voluntary Suspension could be another do-over

Retirees who missed the 12-month deadline to withdraw their application should continue receiving benefits until FRA. Then they can suspend benefits without having to repay what they have already received. Their benefit will begin growing by 8% until they reach age 70. But during a voluntary suspension, other benefits payable on a retiree’s record, such as benefits to their spouse, are also suspended.

6. Social Security benefits can be taxable

Up to 85% of benefits could be taxed, depending on the retiree’s other income. The income levels for taxing Social Security benefits haven’t changed for decades despite inflation. Less than 10% of retirees paid federal income tax on their benefits the first year Social Security became taxable. Today, about 40% pay tax on some portion of their benefits, and that’s expected to climb to over 50%  in three decades.

7. Married couples should consider each other’s benefit

A spouse can draw the greater of their own benefit or 50% of the spouse’s benefit; however, the lower-earning spouse is not eligible until the higher earner starts receiving benefits. Both could start as early as 62. If you receive Social Security benefits as a spouse, the longer you wait, the bigger the benefit, provided your wage-earner husband or wife waited until full retirement age to start collecting.

8. Spousal benefits are not immediate

Widows and widowers can receive the higher of their own or their spouse’s monthly payment, but not both. Generally, the couple must be married for at least nine months to qualify for survivor benefits if one of the spouses die. As an exception, if the spouse died in an accident or in the line of duty while in a uniformed service, the marriage can be of any length, even less than nine months.

9. Spousal benefits can apply after a divorce

A retiree may be entitled to half of their former spouse’s benefits, or their own — whichever is higher. Requirements for spousal benefits to apply include:

  • The marriage must have lasted at least 10 years;
  • The retiree must not currently be married;
  • is at least age 62 (age 60 if the ex-spouse is deceased).

It’s not necessary to have the consent of the ex-spouse. He or she won’t even know. The claim has no impact at all on the ex-spouse’s benefits.

10. Social Security benefits are protected from private creditors

The government can garnish monthly benefits to repay debts such as back alimony, child support, restitution, federal taxes and federal student loans; however, if Social Security benefits are deposited in an account with other money, the bank must protect two months’ worth of benefits from creditors. The bank can freeze the rest of the money, leaving it up to a court to decide whether creditors get the cash.

11. Social Security numbers remain unique to each worker

Once a Social Security number is used, it’s never assigned again — even if the original owner died. Social Security has issued more than 453 million numbers so far. The administration issues 5.5 million numbers per year and estimates it has enough numbers to last several more generations without changes to the system.

Talk with one of our financial planners to learn more about Social Security benefits and how they can be an integral part of your retirement plan.

Rick’s Tips:

  • Social Security benefits are a very important part of nearly everyone’s retirement plan.
  • It is important to review your Social Security benefit statement each year to verify your earnings record is correct.
  • Up to 85% of Social Security benefits can be taxable depending on the taxpayer’s other income.

Source: SSA.gov “Fast Facts & Figures About Social Security, 2017”

Over Half of Future Retirees Will Rely on Social Security as Their Main Source of Retirement Income. April 26, 2018

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