So what do you need to know about Social Security? A lot. BUT, before we begin, I have some crazy numbers for you. We will write this article out in an easy to read, Q&A fashion to keep things simple.
567. This used to be the number of ways you could claim Social Security. It’s less now that they closed some of the loopholes in the system, but there is a lot to know.
10,000. That is the number of seniors retiring each day.
180,000. That is the number of calls a day the SSA office gets. Do you think they may be a little busy over there?
$214,000. That is the average dollar amount a typical couple may be leaving on the table but not being in the know.
So let’s start with the basics.
What is SS?
The clinical definition: Social Security is a social insurance program in the United States designed to provide certain protections against the economic risks faced by individuals, including old age, disability, and survivor benefits.
How is it funded?
The program is primarily funded through payroll taxes paid by workers and employers, and is administered by the Social Security Administration (SSA).
How did it begin?
The Social Security program was created as part of President Franklin D. Roosevelt’s New Deal during the Great Depression, and it has since become one of the cornerstones of the US social safety net. The program provides benefits to eligible workers and their families in the event of retirement, disability, or death.
How much do people get?
The exact amount of the benefit depends on the worker’s earnings history and the age at which they claim benefits, among other factors.
What else is it for?
In addition to providing retirement and disability benefits, Social Security also provides survivor benefits to eligible dependents of workers who die, and offers other protections and support to those who are eligible. Social Security is one of the largest and most important social insurance programs in the United States, providing financial support to millions of Americans each year.
How is it funded?
Social Security works by pooling resources from workers and their employers to provide a safety net for those who are eligible. Here’s how it works in detail:
Contributions: Social Security is primarily funded through payroll taxes paid by workers and their employers. The amount of the payroll tax is based on a percentage of an individual’s earnings, and it is divided between the worker and the employer, with the worker responsible for paying the larger share.
What are “Earning credits?”
Workers earn “credits” for each quarter in which they pay into the Social Security system. The amount of credits earned depends on the worker’s earnings for that quarter. Workers need to earn a certain number of credits over their working lifetime in order to be eligible for Social Security benefits.
How do you become eligible?
To be eligible for Social Security benefits, a worker must have earned a minimum number of credits and must have worked for a certain number of years. The exact number of credits and years of work required can vary depending on the type of benefit being claimed.
What are the Benefits?
Social Security provides a range of benefits, including retirement, disability, and survivor benefits. The amount of the benefit depends on a number of factors, including the worker’s earnings history, the age at which they claim benefits, and the type of benefit being claimed.
Who administers Social Security?
Social Security is administered by the Social Security Administration (SSA), a federal agency responsible for managing the program and providing information and support to those who are eligible for benefits.
How does SS Work?
Overall, Social Security works by pooling resources from workers and their employers to provide a safety net for those who are eligible. The program is designed to help protect eligible workers and their families from the economic risks associated with old age, disability, and death, and it provides a range of benefits and support to help ensure their financial security.
What decisions go into when you should claim?
The decision of when to claim Social Security benefits can have a significant impact on your retirement income, so it’s important to consider a few key factors when making this decision. Here are some things to consider:
Full Retirement Age (FRA): The Full Retirement Age is the age at which a worker becomes eligible to receive their full Social Security retirement benefit, based on their earnings history. The FRA is between 66 and 67, depending on the year in which you were born. If you claim benefits before reaching your FRA, your benefits will be reduced, while if you claim benefits after your FRA, your benefits will be increased.
Life expectancy: Your life expectancy is an important factor to consider when deciding when to claim Social Security benefits. If you expect to live a long life, it may be better to wait to claim benefits, as you’ll receive a higher monthly benefit for a longer period of time. On the other hand, if you have a shorter life expectancy, it may make sense to claim benefits earlier.
Current and future financial situation: Your current and future financial situation is another important factor to consider when deciding when to claim Social Security benefits. If you’re in good financial shape and don’t need the extra income, it may make sense to wait to claim benefits, as you’ll receive a higher monthly benefit for a longer period of time. On the other hand, if you need the extra income to make ends meet, it may be better to claim benefits earlier.
Other sources of retirement income: Your other sources of retirement income, such as pensions, investments, and savings, should also be considered when deciding when to claim Social Security benefits. If you have other sources of retirement income, you may be able to wait to claim Social Security benefits, as you won’t need the extra income as soon.
Health and family history: Your health and family history can also be important factors to consider when deciding when to claim Social Security benefits. If you have a family history of early death or if you’re in poor health, it may make sense to claim benefits earlier, while if you’re in good health and have a family history of longevity, it may make sense to wait.
Ultimately, the decision of when to claim Social Security benefits is a personal one that depends on your individual circumstances. It’s important to consider all of the factors mentioned above, as well as your own goals and priorities, when making this decision.
Who pays in for how much?
Social Security is primarily funded through payroll taxes paid by workers and their employers. Here’s how the payroll tax works:
Employee contribution: Workers pay a payroll tax on their earnings, which is split between the worker and their employer. Currently, the employee’s share of the payroll tax is 6.2% of their earnings, up to a maximum amount that is adjusted each year.
Employer contribution: Employers are also responsible for paying a share of the payroll tax, which is equal to the worker’s share. Currently, employers pay 6.2% of each employee’s earnings up to the maximum amount.
Self-employed individuals: If you’re self-employed, you’re responsible for paying both the employee and employer shares of the payroll tax, for a total of 12.4% of your earnings. However, you may be able to deduct a portion of the self-employment tax from your taxable income.
Maximum taxable earnings: The amount of earnings subject to the payroll tax is limited each year. Currently, the maximum amount of taxable earnings for Social Security is $142,800. This means that workers who earn more than this amount won’t pay any additional Social Security tax on their earnings above this amount.
In addition to payroll taxes, Social Security also receives some funding from interest earned on its trust fund assets, as well as from taxes on Social Security benefits.
Overall, the payroll tax is the primary way that Social Security is funded, and it is designed to provide a steady stream of revenue to support the program over time. The amount of the payroll tax and the maximum taxable earnings are periodically adjusted to ensure that Social Security remains financially sustainable over the long term.
What percent of Americans live off of Social Security?
According to an article in US News, “The 4 Most Important Sources of Retirement Income”, 90% of seniors will live off of social security.
What are other sources used by retirees besides Social Security?
66% will live off of Asset Income, (Portfolio Interest, Dividends, Royalties, Rental Income), 31% Retirement Benefits, (Pension/IRA/ESP) and 29% will have continuous work through retirement.
How do Spousal benefits work?
Social Security spousal benefits are designed to provide financial support to a spouse who is either retired or has a disability. Here’s how they work:
Eligibility: To be eligible for Social Security spousal benefits, a person must be either: Married to a worker who is eligible for Social Security retirement benefits, or Married to a worker who is receiving Social Security disability benefits.
The spouse must also be at least 62 years old, or caring for a child who is eligible for benefits on the worker’s record.
Amount of benefit: The amount of the spousal benefit is equal to half of the worker’s full retirement benefit, which is the benefit the worker would receive if they claimed Social Security at their Full Retirement Age (FRA). The FRA is between 66 and 67, depending on the year in which the worker was born.
Claiming the benefit: The spouse can choose to claim their own Social Security benefit based on their own earnings record, or they can claim a spousal benefit based on their spouse’s earnings record. If the spouse claims their own benefit first and then switches to the spousal benefit later, the benefit may be reduced if they claim before their Full Retirement Age (FRA). If the spouse is eligible for both their own benefit and a spousal benefit, they will receive the larger of the two benefits.
Effect on worker’s benefit: When a spouse claims a spousal benefit, it does not reduce the worker’s benefit. However, if the worker has not claimed their own benefit, their benefit may be reduced if they claim it before their Full Retirement Age (FRA).
It’s important to note that Social Security spousal benefits are designed to provide financial support to a spouse in the event that the worker retires or becomes disabled. If the worker dies, the spouse may be eligible for survivor benefits, which are designed to provide financial support to a surviving spouse or other family members.
In general, the rules for Social Security spousal benefits can be complex, so it’s important to carefully consider your options and work with a financial advisor to ensure that you make the best decision for your unique situation.
What about Ex-spouses?
Ex-spousal benefits refer to Social Security benefits that may be available to a person who was previously married to a worker who is eligible for Social Security retirement or disability benefits. Here’s how they work:
Eligibility: To be eligible for ex-spousal benefits, a person must meet the following criteria:
They must have been married to the worker for at least 10 years.
They must be at least 62 years old.
They must be unmarried.
The worker must be eligible for Social Security retirement or disability benefits.
Amount of benefit: If the ex-spouse is eligible for both their own Social Security benefit based on their own earnings record and an ex-spousal benefit based on their former spouse’s record, they will receive the larger of the two benefits. The amount of the ex-spousal benefit is equal to half of the worker’s full retirement benefit, which is the benefit the worker would receive if they claimed Social Security at their Full Retirement Age (FRA). The FRA is between 66 and 67, depending on the year in which the worker was born.
Claiming the benefit: The ex-spouse can choose to claim their own Social Security benefit based on their own earnings record, or they can claim an ex-spousal benefit based on their former spouse’s earnings record. If the ex-spouse claims their own benefit first and then switches to the ex-spousal benefit later, the benefit may be reduced if they claim before their Full Retirement Age (FRA).
Effect on worker’s benefit: When an ex-spouse claims an ex-spousal benefit, it does not reduce the worker’s benefit. However, if the worker has not claimed their own benefit, their benefit may be reduced if they claim it before their Full Retirement Age (FRA).
It’s important to note that ex-spousal benefits are only available if the marriage ended due to divorce, and they are not available if the marriage was annulled or if the ex-spouse remarries. In general, the rules for ex-spousal benefits can be complex, so it’s important to carefully consider your options and work with a financial advisor to ensure that you make the best decision for your unique situation.
What about survivor benefits?
Social Security survivor benefits are designed to provide financial support to surviving family members in the event of the death of a worker who was eligible for Social Security retirement or disability benefits. Here’s how they work:
Eligibility: To be eligible for Social Security survivor benefits, a person must be a surviving spouse, child, or parent of a worker who was eligible for Social Security retirement or disability benefits.
Amount of benefit: The amount of the survivor benefit depends on a variety of factors, including the worker’s benefit amount and the age of the surviving spouse or child at the time of the worker’s death. In general, a surviving spouse who is at least 60 years old or a surviving child who is under 18 years old can receive a survivor benefit equal to the worker’s full retirement benefit. A surviving spouse who is caring for a child who is eligible for benefits on the worker’s record can receive a benefit equal to 75% of the worker’s benefit.
Claiming the benefit: The surviving spouse or child can claim the survivor benefit at any time after the worker’s death, but the benefit amount may be reduced if the surviving spouse claims before their Full Retirement Age (FRA). The FRA is between 66 and 67, depending on the year in which the surviving spouse was born.
Effect on worker’s benefit: When a survivor claims a benefit, it does not affect the worker’s benefit, as the worker is no longer alive. However, if the worker had not claimed their own benefit, the survivor benefit may be reduced if the worker had claimed their benefit before their Full Retirement Age (FRA).
It’s important to note that Social Security survivor benefits are designed to provide financial support to surviving family members in the event of the death of a worker. The rules for survivor benefits can be complex, so it’s important to carefully consider your options and work with a financial advisor to ensure that you make the best decision for your unique situation.
Can you work and still claim Social Security?
Yes, you can work and still claim Social Security. However, if you are under Full Retirement Age (FRA), your Social Security benefits may be subject to earnings limits. If you earn more than the limit, your benefits will be reduced.
Here’s how it works:
Earnings limit: If you are under your FRA for the entire year, the Social Security Administration (SSA) will reduce your benefits by $1 for every $2 you earn over the annual earnings limit. For the year 2023, the annual earnings limit is $18,960.
Full Retirement Age (FRA): Your FRA is between 66 and 67, depending on the year in which you were born. Once you reach your FRA, you can earn any amount and your benefits will not be reduced.
Year of FRA: In the year you reach your FRA, a different earnings limit applies. The SSA will reduce your benefits by $1 for every $3 you earn over a different limit, which is $50,520 in 2023. However, this limit only applies until the month you reach your FRA.
Benefit calculation: If your Social Security benefits are reduced because of your earnings, the SSA will recalculate your benefits once you reach your FRA. They will add back any benefits that were withheld due to earnings and your new, higher benefit amount will remain in effect for the rest of your life.
It’s important to note that if you are receiving disability benefits and you return to work, your benefits may be subject to different earnings limits and requirements. It’s best to consult with a financial advisor or the Social Security Administration (SSA) to understand how work and earnings may affect your benefits.
Is your Social Security paycheck taxable?
Whether or not your Social Security benefits are taxable depends on your income and filing status. Here’s a general overview:
Federal income tax: Up to 50% of your Social Security benefits may be taxable and subject to federal income tax if your combined income, which is your adjusted gross income (AGI) plus nontaxable interest plus one-half of your Social Security benefits, is between $25,000 and $34,000 for individuals and between $32,000 and $44,000 for married couples filing jointly. If your combined income is above these thresholds, up to 85% of your benefits may be taxable.
State income tax: Some states also tax Social Security benefits. The rules for state income tax on Social Security benefits vary by state, so it’s important to check with your state’s tax authority for specific information.
Filing status: Your filing status, such as single, married filing jointly, or head of household, can also affect whether or not your Social Security benefits are taxable.
It’s important to note that while up to 50% or 85% of your Social Security benefits may be taxable, you are not required to pay tax on the full amount. The actual amount of tax you owe will depend on your specific tax situation, including your income, deductions, and credits.
It’s always a good idea to consult with a tax professional or use tax preparation software to determine the taxability of your Social Security benefits and to ensure that you are accurately reporting your income and paying the correct amount of taxes.
What are some advanced Social Security strategies to know?
Work 35 or more years.
Earn a higher salary.
Sign up for your spousal benefits.
Claim for children of widow/survivorship AND dependent benefit if under 19.
Wait until later (70) to claim Survivor benefits & use other income sources to wait before claiming.
Pay back your Social Security benefit if claiming early at 62.
Work longer into your retirement years.
Use the strategy, “Restricted Application,” if born before January 1, 1954.
Develop a tax strategy so you are taxed less on your Social Security- the “Tax Bracket Bump.”
Check for mistakes and monitor your working years, do the math.
Find a crystal ball and figure out your mortality age and decide when to claim.
For Entrepreneurs, claim early and put money into a business or investment with high ROI.
What are some other important Social Security facts you need to know?
Early or delayed retirement: You can claim Social Security benefits as early as age 62, but your benefits will be reduced if you do so before reaching your FRA. Conversely, you can delay your benefits until as late as age 70, at which point your benefits will be increased.
Cost-of-living adjustments (COLA): Social Security benefits are adjusted each year to keep pace with inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This cost-of-living adjustment is known as the COLA.
Family benefits: Social Security provides benefits not only to retired workers, but also to their eligible spouses and dependents, as well as to surviving spouses and children.
Social Security taxes: Social Security is funded through payroll taxes, with workers and employers each contributing 6.2% of wages up to a certain dollar amount ($142,800 in 2023). Self-employed individuals are responsible for the full 12.4% contribution.
Financial solvency: Social Security is projected to remain financially solvent through 2032, after which its reserves will be depleted and it will be unable to pay full benefits. It is estimated that absent changes to the Social Security program, benefits will need to be reduced by about 25% in 2054.
These are some of the key facts about Social Security that you should know. It’s always a good idea to consult with a financial advisor or the Social Security Administration (SSA) to understand how Social Security may affect your specific financial situation and to plan accordingly.
In a NAPFA 2019 Study: 74% of respondents surveyed wished they could do a “Financial Do-over.” We encourage you to reach out and talk to a financial professional so you don’t fall into this statistic. Also understand the SSA office cannot give you advice, they can only give you answers to your questions, and I can tell you I personally had one client who said he called the office, talked to three different reps and got three different answers to his question.
We hope you have found this of value. Let us know if you have questions, we love to help.
Written by Alec Tuckman, Co-authored by ChatGPT
