As you work toward your retirement planning goals, you are aware that Social Security will become an important part of your financial life in the near future. And yet, despite the fact that millions of people access the enormous government program, few know much about how it works!
We can’t possibly cover all of the rules and regulations in one blog, but here are seven facts that every retiree should know about Social Security.
Your money isn’t just sitting there waiting for you to claim it. Many people think that their Social Security taxes are placed into an account with their name on it, where they grow into future benefits over time. But in reality, today’s taxes pay today’s benefits. So right now, your taxes go to fund benefits for current retirees, and when your future benefits will be provided by younger taxpayers.
Your benefits are not likely going to disappear. You might have heard that Social Security is “running out of money” but this isn’t exactly true. Currently, incoming taxes are not likely enough to cover all the benefits that are paid out. That means the extra that is needed is withdrawn from the Social Security Trust Fund. But as of about 2030, that fund will be depleted. Current taxes will still cover about two thirds of benefits* – so either benefits will be cut back, or taxes will be raised to cover them.
Average benefits are just an average. Many people who are planning for retirement read articles that quote the average Social Security benefit. For some reason this number sticks in their heads. But remember that this figure is just an average. Currently the average monthly check is $1,341, but it can range from $700 to $1,800*.
Your benefits aren’t set in stone. Most people know that the annual cost of living adjustment (COLA) raises Social Security checks in accordance with inflation. But in some years, when inflation remains flat, you might not get a COLA. On top of that, increasing Medicare premiums (if you pay them from your checks) can actually cause your benefits to decrease somewhat!
You don’t have to retire to claim your benefits. If you’re still working when you reach full retirement age, you can claim your full benefits check. If you claim your benefits before full retirement age, your checks might be reduced according to how much money you earn.
Your surviving spouse can claim your benefit check. If you die, your spouse has the option of claiming your Social Security benefit instead of their own. If they have reached full retirement age, they will receive 100 percent of your benefits. If they are between age 60 and full retirement age, their monthly check will range between 71.5 and 99 percent of your scheduled benefits*.
You might owe taxes on your benefits. Your checks can be taxed according to your overall income bracket. Some people pay taxes on up to 85 percent of their benefits.
These are just some of the facts you need to know about Social Security. For more information about your benefits, or retirement planning in general, call our office to schedule a consultation. We can help you identify the strategies that work best for you.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.