What is Social Security
Social Security is a government sponsored retirement benefit program designed to replace some of your income while you’re retired. If you’ve worked and paid taxes on your income, you’ve been paying into Social Security for most or all of your career.
Who is Eligible for Social Security?
- Retired Workers.You become eligible for Social Security by working in a Social Security covered job for at least 10 years in order to reach your needed 40 credits. If you earn 4 credits each year for 10 years, you accumulate the 40 credits necessary to be fully insured and achieve basic eligibility.
- Spouses. If you are a spouse of a retired worker, you may qualify for spousal benefits now or in the future. If you are divorced, you may also qualify for benefits if certain conditions are met.
- Survivors. If you are the widow or widower of a retired worker, you are probably eligible for Social Security survivor benefits.
How Your Retirement Benefit is Calculated
The size of your benefit in retirement depends on how much you earned during your working life. The Social Security Administration (SSA) keeps a record of how much you made every year, up to a ceiling ($128,400 in 2018). Any amount you made over that annual ceiling doesn’t get taxed by Social Security and doesn’t figure into the formula.
When it’s time for you to apply for benefits, the SSA will look at your highest 35 years of earnings. They’ll then apply a formula to arrive at your basic benefit, which is the amount that you will be eligible to collect at your full retirement age. You can find out more about it at the SSA’s website, SSA.gov.
Maximizing Your Social Security Benefits
If you apply for Social Security at your full retirement age (66 to 67 depending on your birth year), you will receive your full primary insurance amount (PIA) as your benefit. Early eligibility begins at age 62, and if you apply at this age, your monthly benefit will be permanently lowered. In some cases, your monthly benefit can be reduced by up to 30%.
The age at which you apply for Social Security benefits has a tremendous impact on your monthly income and the total amount of benefits you stand to receive over your lifetime. Determining the optimal claiming strategy has significant ramifications for you, and your loved ones.
When Should You Apply for Social Security?
If you apply for Social Security when you first become eligible at 62, your benefits will be 70% to 75% of your PIA, depending on your birth year. On the other hand, if you delay claiming benefits past full retirement age, you will earn delayed credits. For each year you delay the start of benefits, your benefit will increase by 8% per year up to age 70, prorated monthly.
Your optimal claiming strategy can only be answered in the context of your overall financial plan. It’s important to have a financial plan with clearly defined goals and then determine a claiming strategy to help you achieve those goals.
How We Can Help
The key to choosing the right Social Security strategy is to plan carefully and look holistically at your entire financial picture. Dechtman Wealth Management can provide you with a comprehensive Social Security Planning Analysis that illustrates your expected income stream under differing claiming scenarios. Our state of the art software takes out the guesswork and helps you choose the right benefits at the right time. Making the right decisions could mean tens of thousands of extra dollars in income during retirement.
Please contact our office if you have questions about your Social Security options.