Social Security: The Basics
WHAT IS SOCIAL SECURITY?
The Social Security Administration was founded in 1935 after the Great Depression to ensure that American citizens would have a reliable stream of income when they retire through no effort of their own. Social Security is a pay-as-you-go program, which means that you get Social Security taxes taken out of your paycheck today, that is then paid out to beneficiaries, tomorrow. That means when you decide to claim your Social Security benefits, the money will be coming from people who are in the workforce currently, not the money you put in.
CLAIMING SOCIAL SECURITY
When to claim your Social Security benefits is often the most important financial decision you will make in your retirement. The Social Security Administration (SSA) determines your benefit amount through your tax records. The SSA looks at the 35 years where you earned the most money, and through their own formula, translates this into your Primary Insurance Amount. The PIA is the amount you will receive if you wait until the full retirement age of 66 (if you were born between 1943 and 1954, 67 otherwise) to claim your benefits. You can choose to claim your benefits as early as 62, but your benefit amount will only be 75 percent of the PIA. Remember, this income will need to last you for the rest of your life. On the other hand, if you choose to wait to claim your benefits even past your 66th birthday, you will get a benefit increase by 8 percent for each year you delay, up to age 70. If you are interested in seeing the dollar amount you will receive, the SSA has a Retirement Estimator you can go to which will give you an estimate of the benefit you will receive.
SHOULD I DELAY, OR CLAIM MY BENEFITS NOW?
The short and long of it is: you should wait. Social Security is unique to most retirement accounts in that it protects against out-living your income. From the first Social Security check you receive, you will get that same amount (adjusted for inflation) for the rest of your life. This is why it’s so important that you wait to get your full benefit amount if you can afford it. That way, even if your other retirement accounts run dry, Social Security will be there as a steady source of income. However, the majority of Americans will claim their benefits at age 62. The main argument for this is that you need the money; which if this is your scenario, unfortunately, your options are a bit limited. If you have the savings built up, or are still physically able to work until age 66, you may consider living on your salary and savings for a few years to lock in that extra benefit. For married women in households where your husband was the major breadwinner, this decision is especially important. If this is your situation, you can retire at 66 on half of your spouse’s benefit. Married women tend to outlive their husbands, and another feature of Social Security that encourages you to wait is, in the instance you are widowed, you may claim a survivor’s benefit, which is usually the same amount you late spouse was receiving. Waiting until 66 to claim your full benefit is an excellent way to ensure your spouse will be financially stable if you were to predecease them.
Everyone’s situation is different, and it can be complex and confusing to determine the right age to claim your benefits. It is recommended that you speak to an expert who will be able to assess your situation and provide you with advice tailored to your specific needs. Please do not hesitate to contact our office if you have any questions, or would like to speak with someone about when to claim your benefits.