6 Facts About Social Security

There are many things in life you should take the time to get to know more about before you expect to have to deal with them, but oftentimes we don’t do so.

Some are just so unpleasant that we can’t be blamed for avoiding such topics or issues altogether. Death and taxesare prime examples…inevitable, but we tend to steer away from such issues.

Others are the opposite – they can be good or beneficial, yet we still don’t take the time to think about them. There can be many underling reasons, such as discomfort in learning about or becoming more familiar with our finances or financial matters in general.

Proof of this can be found in the recent “Mind over Money” survey by Capital One and The Decision Lab. The survey found that roughly 77-percent of Americans report feeling anxious about their financial situation. That’s seven in 10 people who don’t like thinking about their finances, including their financial future.

A good example of this is Social Security. It’s actually a good benefit to you, but if you are like many people you might rather contemplate getting your teeth pulled versus discussing Social Security. It’s almost as if you start to talk about it then you’re jinxed and it might suddenly go away.

Today we want to discuss a handful of facts that you should know about Social Security to help demystify the issue and get you more comfortable thinking and learning about it, sooner rather than later.

Introduction

You ever notice there are some things in life that we all have to deal with at some point, or even often, yet actually few of us have a clear understanding of what that “THING” really is or how we are supposed deal with it appropriately?

Sure you do. The most recognized are death and taxes. Death, whether our eventual own, or those of people we know and care about, is understandably unpleasant. Yet we all have to deal with it…even plan for it. Enough said there.

Taxes is another example. We all deal with them, whether through our purchasing, employment (with exceptions), etc., yet few know much about them and none of us like paying them, despite the fact some taxes can be worthwhile and beneficial to us.

The fact that neither are very pleasant makes it understandable that many of us avoid dwelling on them much at all.

Social Security is another issue we in this country deal with. It’s fair to say that most view this gov’t provided benefit as a good thing. Yet many still don’t know much about it and actually shy from learning about Social Security. Many actually wonder whether it will still exist when it comes their turn to start receiving the monthly payments.

Today we are going to cover a handful of key facts surrounding Social Security in the hope this will encourage you to learn more about this important topic that will one day affect your retirement.

There’s more than one Social Security benefit

To begin with, many people don’t realize there are actually multiple types of benefits. In fact there are four. They are retirement, disability, survivor and supplemental security income.

• Retirement – This is the primary benefit most people tend to pay attention to when contemplating Social Security.

According to the Social Security Administration (SSA), the retirement benefit is monthly income you receive from the government (after you become eligible) that is intended to replace part of what was your working income before retiring, whether you continue to work, reduce your hours or completely stop.

The income is paid out to you monthly in the form of paper or electronic checks. The amount you receive is based on a few straightforward factors:

• How much you earned in your career
• How many years you worked
• At what age you are when you first start drawing the benefit

When it comes to what your monthly Social Security retirement benefit will be, the SSA indexes your lifetime earnings using your 35 highest earning years. They then apply a formula to determine your Primary Insurance Amount, or PIA. You can check with the SSA to determine your projected PIA.

• Disability – Social Security Disability Insurance (SSDI), as it is officially known, is a form of assistance for those with disabilities.

In order to qualify you must apply and go through an investigative process establishing that you have a qualifying medical disability that will last at least a year, or result in death.

You must also meet additional requirements. According to the SSA, you and certain family members may be eligible if you are considered “insured,” which means you worked long enough and paid Social Security taxes on your earnings while working.

• Survivor – This Social Security program may pay a one-time lump-sum death payment of $255 to a surviving spouse under certain circumstances, which you can find at the SSA.gov website.

Additionally, they might pay ongoing benefits to your surviving spouse and other family members, based on your earnings and eligibility to collect benefits.

The Social Security Administration lists the following guidance on their website in terms of who might receive ongoing monthly benefits:

• A surviving spouse who is age 60 or older (age 50 or older if they have a disability), or any age and caring for the deceased’s child who is under age 16, or who has a disability and is receiving Social Security benefits
• A surviving divorced spouse, under certain circumstances
• Supplemental Security Income – SSI is a program that provides assistance to those who meet specific requirements and have limited financial resources.

According to the SSA, to qualify for SSI benefits, adults must be 65 or older, or blind, or have a qualified disability, and:

• Have monthly wages under $1,913 for an individual or under $2,827 for a couple
• Have monthly income from a pension or other sources of less than $934 for an individual or less than $1,391 for a couple
• Have assets of $2,000 or less for an individual or $3,000 or less for a couple

If you have children under age 18 they may be eligible for SSI as well, as long as you meet the limited resources qualification. They must have physical or mental conditions that are debilitating and expected to last more than 12 months, or might potentially result in death.

 

Major income source for the elderly

While most individuals who have worked and contributed will be eligible for Social Security after they reach age 62 (or younger with special circumstances), the fact is that for many elderly people it is a major source of income in retirement.

According to the SSA, nearly 90-percent of people 65 and older were receiving a benefit at the end of 2022. In fact, those benefits represent about 30-percent of income for the elderly as a whole.

Moreover, roughly 37-percent of men and 42-percent of women receive 50-percent or more of their income from Social Security, with 12-percent of men and 15-percent of women relying on their Social Security payments for 90-percent of their income after they retire.

Obviously, when thinking about and planning your retirement you must consider Social Security, given its importance as a secure source of income you are likely to rely on to some extent during your golden years.

You get to choose

When it comes to Social Security, as long as you are eligible to receive the retirement benefit you’ll have flexibility as to when you start to draw the monthly payment. Although you can start receiving payments when you turn 62, your payments will be reduced and remain so throughout your lifetime.

If instead you wait to start drawing the benefit until you reach full retirement age (age 67 if you were born in 1960 or later) you’ll receive your full benefit. And if you continue to delay receiving Social Security payments past that age the benefit will actually continue to grow.

Keep in mind that you can continue to work and draw the benefit, but there are restrictions that can actually reduce the amount you will be paid if you delay starting payments too long.

Once you have attained full retirement age, even if you keep working, your benefits under current law will not be reduced regardless of how much you earn. Also of note, you will be eligible for cost-of-living adjustments, if and as mandated by the SSA.

Protecting your kids

If you have children they may be eligible to receive Social Security payments if you die or become disabled.

To qualify they must be unmarried and younger than age 18 (or up to age 19 if they’re a full-time student in an elementary or secondary school, up to 12th grade), or age 18 or older with a disability that began before age 22. If you have stepchildren or an adopted child they may also be eligible under certain circumstances as well.

Your parents

Your parents may even be eligible for benefits if you die. In order to qualify the parent must be age 62 or older, and they must have been dependent on you for at least half of their support when you passed.

Social Security taxes

No one likes paying taxes, but they are a fact of life. What is surprising to some people is the fact they may have to pay taxes on the Social Security check they receive from the gov’t each month once they start drawing the benefit.

Fact is those funds you receive were originally taken out of your earnings by the SSA for your benefit over many years while you were working.

Once they start to pay them back to us, they are viewed as a type/source of income, so big brother is going to want their piece, just as they do with other sources of income.

A big factor as to whether you have to pay taxes on your monthly benefit payments is your wealth. If you have substantial income in addition to your benefits, you can expect to pay taxes on your Social Security payments. This can include wages if still working, self-employment income, dividends and interest payments, as well as other forms of taxable income.

If you do have to pay taxes on benefit income, you’ll only pay on a portion of your Social Security income – up to a maximum of 85-percent. The amount is based on the following IRS Rules:

Keep in mind that if you are married but do decide to file separately, you will likely have to pay taxes on your benefits.

Conclusion

Social Security is a benefit earned while working long years during the early and middle part of your adult life. The key notion to remember is that you “Earned” the benefit. As such, you certainly want to maximize this benefit once you become eligible to use it.

Fact is that for many Americans it can represent a substantial portion of their retirement income. And as demonstrated, there are many considerations when it comes to Social Security benefits in retirement, including when to start drawing it, how to use it most efficiently in conjunction with other sources of income you might have, the taxes that will be due, how it might affect your spouse and potentially children, or even parents, and more.

And this is just one area of your overall retirement plan. Imagine all the key considerations that must be addressed in order to ensure you have the best opportunity of enjoying your retirement.

We can work with you to create a holistic, comprehensive retirement plan that includes strategies customized to maximize and preserve your income (including your Social Security), completely customized to you and your spouse’s situation. A plan created with the goal of ensuring you have the best opportunity of living out the retirement you envision.

If you are ready to take the next step and talk to a team of retirement planners who can advise on Social Security and myriad other retirement issues, and who will put your interests first, Schedule a call today!