Social security benefits are the financial bedrock of most American retirement savings plans, but many Americans do not fully understand how social security works. If you haven’t done it already, you should visit the Social Security Administration’s website at www.ssa.gov and set up an account which will allow you to access your most recent statements and work history, as well as how much you can expect at the age you plan to retire. Below are four important things you should know about the retirement benefit before you start receiving it:
Know your full retirement age
Even though you can opt to claim your benefit anytime between the ages of 62 and 70, you will only get your full benefit if you retire when you’ve reached your full retirement age. And that is dependent upon the year you were born. For example, if you were born after 1960, your full retirement age is 67. Your benefit will also be permanently reduced it you take it before your full retirement age.
Know your monthly benefit
Get an estimate of your monthly benefit amount based on your work history and anticipated retirement age. This will prove to be an invaluable aid as you make financial plans for your retirement. Take steps to determine whether or not you will be eligible for SSI. Supplemental Security Income (SSI) is for disabled individuals and their dependents with limited income and assets. It is a need-based program, meaning your approval will have nothing to do with how many years you’ve worked. If you qualify to receive SSI benefits, the amount of your monthly payments will depend upon your marital status, the severity and extent of your disability, and where you are living.
Benefits are also an important part of a married couple’s financial strategy when they retire. However, if one spouse’s benefit is more than twice that of the other spouse, an additional benefit comes into play that brings up the lower-earning spouse’s benefit to half that of the higher-earning spouse’s benefits. Spousal benefits may be taken early, but will be reduced if you opt to do so. Even if you are divorced from your spouse, you may be eligible to receive benefits if you were married for at least 10 years.
Depending upon how much your benefit is, you could face federal taxes of up to 85 percent of that amount. However, the good news is if social security is your only source of retirement income, you probably won’t face any taxes on it. But, if you have other significant income from investments, a business or even a job, you will more than likely have to pay taxes on your benefit.
Here’s the bottom line: The more you know about your social security benefits, the more you will be able to make smart, empowering financial decisions for yourself, your family, and your business.