Understanding your social security benefit is a huge part of being prepared for retirement, and even the young generation should understand what they can expect to receive from social security. It can be very confusing as there are many different rules and variables that go into the equation of estimating your social security benefit.
Basics
So let’s start with the basics. Anyone who has worked 10 years or more, or is married to someone that has worked that long qualifies for a benefit. The earliest you can start taking this monthly benefit is age 62, and the latest is age 70. The monthly benefit is based on 2 main factors. First, it is based on the amount of income you made throughout your working years (and thus how much you paid into the social security pot). Second, it is based on when you choose to take your benefit, with a lower monthly payment if you start at age 62, continually growing until the maximum monthly benefit if you wait until age 70 to start your benefit. Full retirement age, which I will discuss later, is age 67 if you were born after 1960. If you were born in 1955 it is age 66 and 2 months, and increasing by 2 months each year until 1960.
Spousal Benefit
Spousal benefit is getting half of the Social Security benefit of your working spouse. When you file to begin receiving social security, they will let you know if your individual benefit or your spousal benefit is higher, and automatically you will receive the higher of the two. The spousal benefit maxes out when the non working spouse reaches full retirement age. Thus it is not beneficial for a non working spouse to wait until age 70.
Real Numbers
You can actually run an estimate of your social security benefits on ssa.gov to see how much you could get in social security dollars. I will give you one example I ran on the website with real numbers to show you an estimate of what you might expect with your social security benefit.
Ryder is 62 years old, and his wife Paisley is also 62. He worked his entire life and made $60,000 a year. Paisley only worked for 9 years, thus she does not qualify for her own benefit. If Ryder chose to start taking his benefit today he would receive $1476/month. If he waited until full retirement age, age 66 and 8 months, he would receive $2064/month. And if he waited until age 70 he would receive $2627/month.
Now this is where it gets a bit confusing. Time for some math. If Ryder thinks he will die before age 78, he will receive the most total money from Social Security if he starts his benefit at age 62. If Ryder thinks he will live past age 78 he will receive the most total money if he waits to start his benefit at age 70. This is called the “break even” point. The ages of 77 to 80 are almost always the break even years for any individual situation.
As for Paisley, if she chose to begin taking her spousal benefit at age 62 she would receive $671/month. If she waited to full retirement age she would receive $1032/month. And if she waited till age 70 she would still receive the same $1032/month.
Other Factors
If you plan to work in any form and are receiving income, it is not a good idea to take your social security before your full retirement age (66 or 67). Your social security money is decreased based on the amount of income you receive. Once you reach full retirement age, you can receive your social security benefit and it will not be effected by any income you are making.
The File and Suspend Strategy that you might have heard about, is no longer in effect and cannot be used by anyone filing for social security that was under age 66 as of April 30th 2016.
If no changes are made by the government to the social security program, it is projected that by the year 2035, there will only be enough money to pay 75% of the scheduled benefit to retirees. 1. So in short, the younger generation cannot really count on the amount shown in the example above.
Retirement Plan
Your social security benefit will only be a small portion of what you will need to live on in retirement. You need to have a retirement account to be your main source of retirement income if you do not have a work pension. Whether it be a 401k, Roth IRA, or another type of account, most people need to have between $500k and $2 million saved in order to live a comfortable retirement comparable to how they lived in their working years.
If you need help figuring out social security or getting a retirement account set up to go along with your social security benefit, please contact us.
By Jimmy Hancock
References
- Goss, Stephen C. “Social Security Administration.” Social Security Administration Research, Statistics, and Policy Analysis, 1 Aug. 2010, www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html.