Finally! After years of researching and writing about Social Security, my husband and I are in our prize round. As enticing as it may be to turn on the tap, we will wait until age 70 to receive benefits. I believe and trust that the system will continue to function reasonably well through our years of old age.
Social Security is the long-despised workers’ paycheque eater who becomes your best friend in retirement. Ninety-seven percent of people aged 60 to 89 receive or will receive social security.
The benefit replaces 35 to 40% of the previous earnings of the average worker; a percentage slightly lower than the average for Western countries. You provide the rest with a combination of family savings, retirement and reduced spending.
How do you actually switch from payroll deductions to benefit deposits?
As long as you receive a salary, you pay Social Security taxes, even if you collect Social Security income. Social security beneficiaries who are still working and have not reached full retirement age (between 66 and 67) receive reduced benefits. However, these lost benefits are counted in full when they reach the FRA.
The start date of social security benefits depends on your situation. The youngest beneficiaries of Social Security are children who have lost a parent. Until the age of 18, children receive a check based on the amount and length of time the deceased parent has contributed to the system.
Disability benefits are also provided through the Social Security program. The definition of disability is stricter than for most private insurance companies, requiring that an applicant be unable to engage in substantial gainful activity. Together, survivor and dependent benefits account for around one-fifth of social security recipients.
Widows and widowers can receive a reduced survivor benefit from the age of 60. Surviving spouses must understand how to maximize their income by considering the timing of survival versus their own benefit.
Divorced spouses have these same options as long as the marriage has lasted at least 10 years. Benefits paid to a former spouse do not affect any benefit due to a subsequent spouse. After 60 years (50 years in the event of disability), a divorced or widowed spouse can remarry and choose the highest benefit available.
If work, savings, and pensions can cover your expenses, your best bet is to delay the start of Social Security until age 70.
The benefit increases by 8% per year of FRA at age 70: an unprecedented return for a low risk investment. The File and Suspend loophole is gone, but seniors born before January 2, 1954 can still collect spousal benefits, allowing their own benefits to grow until age 70. The spouse must receive social security.
Receiving your first check can be pretty easy in theory. You can apply online or visit the Social Security office on West Figueroa Street in Santa Barbara up to three months before your departure.
Understand the benefits reported in your SSA Online Account. If you think there is a mistake, be prepared to defend yourself with proof of work from your former employers. It will take patience and courage.
Every year since 1975, Social Security payments have included a cost of living adjustment (COLA) using the Consumer Price Index (CPI-W). Zero adjustment accompanies years of low inflation, but the increase in 2022 is expected to be the highest since 2008 at 4.5%.
Your net increase could be less than that if the cost of your Medicare coverage increases, since Medicare is deducted from your Social Security benefit.
Seniors’ groups advocate replacing COLA with IPC-E, which better reflects rising health and housing costs for seniors relative to employees. This index would increase payments by up to 0.25% per year more than the CPI-W.
The rules and regulations of social security are important in details. Familiarize yourself with the SSA website and the tools it offers. If your situation is atypical, seek advice from a financial planner or guides like “Social Security For Dummies”.
So enjoy the fruits of your labor!
– Karen Telleen-Lawton serves seniors and pre-seniors as director of Decisive Path Fee-Only Financial Advisory in Santa Barbara. You can reach her with your financial planning questions at [email protected]. Click here to read the previous columns. The opinions expressed are his own.