Social Security tends to be a hot-button topic for many women approaching retirement. There are a lot of questions about how the program works, when to start taking your benefit, and how much you can expect to receive each month. I’ve rounded up a handful of the most-commonly-asked questions that I hear from clients, and outlined what you need to know about Social Security (and different things that it entails) here. Ready? Let’s dive into a Social Security overview.
What is Social Security?
The Social Security Administration is a government organization that runs a federal program that distributes benefits to retirees and the disabled. The program itself has been around since 1935 and may play a big role in your retirement income plan. Originally, it only covered retirees. It expanded to cover other individuals who can no longer work in 1939.
The program is funded primarily by income tax that we all pay out of our traditional payroll. Usually, you will pay 6.2% in Social Security taxes, and your employer will pay another 6.2% as a “match.” Social Security also receives some of its funding through general fund reimbursements, taxation of benefits, and net interest income.
Who Receives Social Security?
At its core, Social Security is supposed to help protect people who can no longer work. That encompasses:
- Disabled workers
- Widowers and parents of deceased Social Security recipients
- Spouses of retired, disabled, or deceased workers
- Children of retired, disabled, or deceased workers
The majority of Social Security recipients (around 64%) are retirees.
When Can You Start Receiving Benefits?
You can start taking your retirement benefits from Social Security as soon as age 62. However, if you were born before 1955, your full retirement age is 66. If you were born in 1960 or later, your full retirement age is 67. So, if you choose to take Social Security before your full retirement age (at 62), then your benefit will be reduced. You can also delay taking your benefit until after your full retirement age to receive an increased monthly benefit.
Technically, you can start receiving benefits anytime after age 62 as a retiree. Here’s the breakdown of how much your monthly benefit will be reduced depending on when you take it (these are approximate):
- Age 62: 30%
- Age 63: 25%
- Age 64: 20%
- Age 65: 13.3%
- Age 66: 6.7%
Are There Spousal Benefits?
Yes, spouses can receive benefits in a few different situations:
- Current Spouses and Ex-Spouses
Spouses can either claim Social Security based on their own benefits, or they can claim 50% of their spouse’s benefit. Ex-spouses have to have been married for 10+ years, and can’t have remarried before age 60 to be eligible for spousal benefits.
- Widows and Widowers
If you are a widow or widower, you can start collecting survivor’s benefit at age 60.
Remember, in both situations, you can receive your benefit or your spouse’s benefit, but not both.
Will Social Security Last?
If you’ve ever wondered how long Social Security will last, you’re not alone. The truth is that Social Security funds will be largely depleted by 2034. However, it’s not likely that the program will be completely gone by the time you retire. Still, it’s important to prepare for even the most unlikely scenario and to take charge of things you can control – like understanding your pension benefit and adequately saving for the retirement lifestyle you want.
How Does Social Security Incorporate Into My Retirement Plan?
Usually, it’s wise to view Social Security as just one part of your comprehensive retirement plan. Retirement income is a three-legged stool that’s made up of:
- Social Security
On average, it’s estimated that people need a minimum of 70% of their pre-retirement earnings to comfortably last through retirement. Social Security is only estimated to cover 40% of your pre-retirement earnings (and that’s being optimistic given the depleting funds).
However, many of my clients plan to spend as much, or sometimes more, than they were earning pre-retirement. So it really depends on your personal situation and your goals.
Rather than rely on Social Security to cover a large portion of your retirement expenses, it’s better to look at your monthly benefit as icing on the cake. Have your pension benefit and savings be the bread and butter of what you need, and any additional benefit you receive from Social Security can be viewed as a pleasant “extra” to help solidify the lifestyle you’re looking to achieve in retirement.
Do you have questions about Social Security or retirement planning? Request a call today! I’d love to chat with you about your retirement plan, and how Social Security fits into your needs.