During retirement living, in excess of 50 million individuals depend on Social Security benefits for part or even all of their income. Even though most working Americans don’t have any plan for financing their retirements with only Social Security income, there is no doubt that it is essential. Without it, a lot of seniors would require financial assistance for their basic necessities.
1. What is Social Security?
Social Security happens to be the basis of financial security for numerous US residents, including disabled individuals, retirees, and families of disabled, retired, or deceased employees. Approximately 170 million US residents pay Social Security taxes, while the benefits are collected by 61 million every month. Approximately 1 household in every 4 gets their income from Social Security.
One can refer to Social Security as a pay-as-you-go scheme. This implies that the workers’ Social Security taxes will be paid into the program while cash will flow back out to the beneficiaries as monthly income. Social Security is not the same as company pensions, which happen to be pre-funded. The cash is accumulated beforehand in pre-funded retirement schemes such that it is available for being paid out to the employees once they retire. It is essential to fund the private plans in advance to safeguard the workers if the company becomes bankrupt or shuts down.
2. Types of Social Security
You will come across 4 basic benefit types depending on the individual receiving them. These types happen to be retirement, survivors, visibility, as well as supplemental benefits.
While thinking of Social Security, retirement benefits usually come to mind at first. These types of benefits will be available for individuals who are more than 62 years of age, having worked for a minimum of 10 years. The amount of the interest is going to vary depending on the age when you start collecting the benefits and the salary you received before retirement. Although it should not be your sole income source, it will definitely help you to stay away from debt during retirement years. Moreover, your spouse might be entitled to Social Security retirement benefits even though they might not have paid into the program.
These types of benefits will support individuals who are not able to work due to disabilities. Like retirement benefits, you must work for several years to be entitled to SSDI (Social Security Disability Insurance) benefits. How much work you need will depend on your age, while the amount of your monthly benefit will depend on the salary you received before being disabled. Your spouse might also receive SSDI benefits.
These benefits can help minimize the financial gaps of retirees and the survivors of the employees. Entitled recipients usually include assistance for divorced spouses, widows as well as widowers, and children. The 2015 US Supreme Court decision has given same-sex couples access to Social Security benefits.
The benefit level depends on several factors that include the worker’s age at death, the salary of the worker, the ages of the survivors, and the relation of the survivors to the deceased.
You will also come across a “death benefit” for the survivors, which happens to be a $255 one-time payment that will go to the spouse or the children of the worker who has died.
Supplemental Security Income Benefits
SSI (Supplemental Security Income) helps individuals who cannot earn adequate salaries on their own. It will be available to adults suffering from disabilities, children suffering from disabilities, and individuals who are more than 65 years of age. People with sufficient work history might also be entitled to get SSI benefits apart from retirement or disability benefits. The amount received by the individuals will differ depending on where they reside and also their other income sources.
3. How To Find How Much Social Security You will Receive?
There are 4 ways to find out how much Social Security you’re going to receive: by visiting a local Social Security office for getting an estimate, going to the official Social Security site and creating an account while using its calculator, allowing the SSA to find out your benefits on your behalf, or finding out the benefits yourself. However, in case you want to calculate on your own, you need to understand what NAWI, AIME, bend points, PIA, and COLA are and how to apply them. In case you are using a spreadsheet for creating a model of the future benefits, hire a financial advisor for checking your math and also helping you to decide when you should retire.
4. Is it better to take Social Security Early?
In case you claim your Social Security when you are 62 years of age instead of waiting until your FRA, you can expect a reduction of as much as 30% in monthly benefits. For each year delayed by you passing your full retirement age up to 70 years of age, you will increment 8% in your benefit. Therefore, if you’re able to afford it, waiting might prove to be the better option. Longevity, retirement lifestyle, and health status are the three variables that will play an essential role in deciding when you should claim your benefits.
5. Best Month to start Social Security
January happens to be a critical month for numerous potential beneficiaries of Social Security who will reach 66 years of age (their FRA) in 2016. The important thing is that all of them must consider the possibility of filing for the benefits to be efficient in general, even though they might not be reaching their FRA until later that year.
6. The Bottom line
In case you do have a choice, and you happen to be in good health, you should think seriously regarding waiting as long as possible for taking your benefits. For retirees in good health, uncertainty regarding markets and inflation coupled with a long retirement happens to be the biggest threat. Delaying Social Security, if possible, is actually an insurance policy against these types of challenges. However, your situation might differ, and you have many things to take into consideration. Take the help of your financial planner if needed.