Most of us know that Social Security is money that we receive once we reach a certain age. But what we are not very clear about are the details. What is the best age to file for Social Security? How much will I receive? Can I still work? How do I file?
As I am planning ahead for my retirement, I wanted to learn as much as possible so that I can make the best decisions as to my Social Security benefits. In case you have the same questions, I am sharing some of the information I discovered.
Please note that under no circumstances do I have the qualifications necessary to provide financial advice of any sort whatsoever. The information for the majority of this post originated from Social Security for Dummies, 4th Edition, 2021, by Jonathan Peterson for AARP.
What is Social Security?
Social Security was introduced in 1935 to provide a safety net for people who are unable to accumulate sufficient savings for retirement. At that time, Americans didn’t give much thought to Social Security because of shorter lifespans and dependence on guaranteed pensions.
“Social Security” is what is formally known as the Old-Age, Survivors, and Disability Insurance (OASDI), and is run by the Social Security Administration (SSA), a federal agency. The OASDI, also known as FICA payroll taxes are deducted from your paycheck and is the funding source for the Social Security program.
How do I Fund My Social Security Benefits?
You pay into the Social Security System straight out of your paycheck, which is 6.2% of your earnings up to a certain amount and which can be adjusted annually. Employers also contribute an additional 6.2%. You also contribute an additional 1.45%, which goes to the Medicare Hospital Insurance Trust Fund - which is also matched by your employer.
If you are self-employed, you are on the hook for both your and your employer’s share. This tax is known as the Self-Employed Contributions Act (SECA).
Interestingly, approximately 75% of U.S. households pay more in Social Security taxes than in federal income taxes. None of us enjoy paying taxes, but we tend to accept Social Security tax because it contributes directly to our benefit.
How do I Qualify for Social Security?
40 credits of covered employment do the trick. Covered employment – equates to a job in which you and your employer pay Social Security taxes. Social Security awards you one credit for every $1,410 in earnings, a max of 4 credits per year.
How Much Will I Get?
We have established that 40 credits qualify you for benefits. However, that doesn’t determine the amount of the monthly check amount. Social Security bases the amount of your benefit on your lifetime earnings. Yes, higher earners result in a bigger benefit as they contribute more taxes throughout their working years, but know that the benefit formula favors lower earners.
Your Social Security benefits may increase as cost-of-living increases to help retirees combat inflation. There are debates in Congress to modify the cost-of-living formula to save money or to increase payments on an ongoing basis. As you can imagine, Social Security is a hot topic during elections. U.S. News stated “Senior Citizens have a vested interest in protecting the valuable benefits they receive from the federal government. It is easier for older people to see the relevance of government in their lives. Two of the biggest federal spending items, Social Security and Medicare, are confirmed largely on the basis of age.” 64% of the over 65 crowd voted in the November 2018 election compared to 33% of the 18 – 24-year-olds.
Who isn’t Covered by Social Security?
· Majority of Federal Employees hired before 1984 – as they are included in the Civil Service Retirement System (CSRS).
· Railroad Workers with more than 10 years of experience.
· Some state and local government employees – including some Public School Employees.
· Self-Employed Tax Evaders
How Do I Determine the Amount of My Monthly Benefit?
The average monthly retirement benefit in 2022 is $1,688. Higher earners starting at full retirement age and have paid the maximum amounts for their entire career receive about twice that amount at $3,011. If you wait beyond your Full Retirement Age the amount can be higher. AARP has a Social Security Online Calculator to estimate your monthly benefit.
What is My Full Retirement Age?
Your full retirement benefit is the amount you will get when you start collecting at your Normal Retirement Age (NRA), aka Full Retirement Age (FRA) – which is based on your year of birth. However, collecting at your FRA is not the largest benefit you can get. If you wait until 70 to begin collecting – it can be 32% more if your FRA is 66, and 24% more if it is 67.
The earliest age at which you can start collecting is 62, and the latest is 70. The table for determining your FRA can be found on the Social Security Website. For those of us who were born after 1943, the retirement benefit expands at a rate of 8% per year for each year we delay the claim for our benefits.
Most financial experts suggest that it is best to wait to claim Social Security for as long as possible – up to age 70. However, early claims may make sense for some of us as we may need the income to pay for life’s necessities, we don’t have other sources of income, or for someone who does not expect to live much longer.
An important note – If you decide to delay your retirement – be sure to register for Medicare at 65 to avoid decreased or delayed benefits.
If I file for Social Security Before My FSA – Can I Continue to Work?
Yes, you can – but it could decrease your benefit. If you take Social Security at 62, the SSA holds back $1 of your benefit for every $2 you earn above a certain amount ($19,560 in 2022). The limit changes when you reach full retirement age. At that point the SSA withholds $1 for every $3 earned above a certain limit ($51,960 in 2020). The withholding will stop during the month you reach your FRA.
But wait, the Government can be our friend – as you don’t permanently lose the money withheld because of the earnings limit. At your FRA, the SSA returns the withheld money in the form of higher benefit payments.
Hold on – More Good News. As Newsweek recently reported “The Senior Citizens League, an advocacy group, is estimating the 2023 Cost of Living Adjustment (COLA) could be as high as 10.5%.” As the average Social Security Monthly Benefit is $1,688, and then add on a 10.5% increase – that would be a healthy $175 monthly boost.
What if I Filed for Early Retirement and I Have Changed My Mind?
Did you claim your Social Security benefits early and realize that retirement is much more costly than you expected? It is possible to withdraw your claim (as long as it was in the past 12 months) and restart later in order to increase your benefits. There is a catch, you will have to repay all the benefits you received up to that point. This strategy could be worth it in the long run as you will able to increase your benefits depending upon restarting at your Full Retirement Age or until the 70-year mark.
How do I Sign Up for Social Security Benefits?
The Social Security Administration recommends that you apply for your benefits three months before you want to begin to receive them. You have three options:
· Online
· In Person You can make an appointment over the phone in advance. Call 800-772-1213.
· By phone – 800-772-1213. The phone lines are staffed Monday – Friday 7:00 am – 7:00 pm.
What Documentation will be Required?
The Social Security Administration (SSA) doesn’t go by the honor system. Your documentation should be originals, or official copies certified by the issuing agency. Notarized photocopies will not be accepted. Please note that the SSA may already have the majority of the required documentation (We should all be so lucky).
The SSA documentation that is required consists of the following:
· Your Social Security Number
· Your original or certified birth certificate
· Your Form W-2 earnings statement (from each of your employers) or your most recent tax return.
· Military Discharge Papers
· Proof of U.S. Citizenship, if you were not born in the United States
How do I Get My Social Security Check?
The simple answer is you can’t. Social Security is disbursed only through an electronic payment – waivers for exceptions are limited. Those who were born before 1921, or have a mental impairment, or live in an isolated area without banks may qualify for the waiver. Distributing the benefits electronically saves the U.S. Treasury an estimated 1 Billion Dollars over a 10 year period. You can receive your benefits in one of two ways:
· Direct Deposit – You will need your bank’s routing number as well as your bank account number.
· Direct Express Debit Card – This is for those who do not utilize the banking system. Call 800-333-1795, or go online.
How do I Protect My Social Security from Debt Collectors?
Your Social Security is protected from private creditors – with the following exceptions:
· To collect child support or alimony
· To collect unpaid Federal Income Taxes
· To collect debt owed to other federal agencies, such as Student Loans.
· To pay restitution to a victim of a crime you committed.
Watch Out: You should protect your Social Security in case a bank carries out a garnishment order which results in a freeze on the money in your account. If you mingle your Social Security with other sources of income from you or from someone else that is on the account – you may lose access to your money. It is recommended to keep your Social Security benefits in their own account so that they will not be mixed with other assets.
What if I Want to Retire Overseas?
If you are living in another country, you can receive your Social Security benefits via direct deposit just as you would in the United States. International Living is a good source for more information on how to work with a bank for direct deposit in a foreign country. Or visit the SSA or the nearest U.S. Embassy or Consulate in the country in which you live.
What do I do if my card is stolen or lost?
It’s the number you need not the card. If you need a replacement, you can go online and use your Social Security Account and apply for a replacement card. However, if your card was stolen – that is a more serious situation – and a good reminder not to carry your card in your wallet. This could be a consequential event and result in a significant financial loss. Report the theft as soon as possible to several agencies via the following websites.
· Place a Fraud Alert at one of the major credit reporting agencies. It doesn’t matter which one – the other two will be notified automatically. Equifax. Experian. Transunion.
Final Thoughts
I would recommend that before you make any decisions as to your retirement and/or file for Social Security Benefits – that you review your particular situation with a financial professional. Professional financial advice for low income individuals or actually anyone can be found at the National Council on Aging or Eldercare – U. S. Department of Health and Human Services. Then you can be more confident before making the decisions that will affect how you live in your retirement years – which can be the best years of your life.