Despite the fact that millions depend on Social Security during retirement, neither the general public nor some financial advisors and plan sponsors have up-to-date knowledge on how it fits into an overall retirement picture.
Americans tend to overestimate how much they’ll get, or how far the money will go; political threats to the program could leave many seniors adrift just when they need it most.
And changes to the program over the years are not well known or understood by those who have only a nodding acquaintance with it.
Here are 7 things you should know about Social Security, from a range of sources that include the Social Security Administration itself as well as other knowledgeable resources.
7. Monthly benefits are based on the age at which you collect and the average of your highest 35 years of earnings.
How many years have you paid into Social Security?
The SSA will take your 35 highest paid of those years and average them to come up with what your monthly benefit will be.
Then, depending on whether you decide to go for early retirement (age 62), full retirement age (currently age 66, but rising to 67) or keep working till age 70, that will determine your benefit.
If you retire at age 62, your benefit will be reduced. At the full retirement age you’ll get your full benefit, but if you work till 70 the benefit will keep increasing.
The longer you work and don’t claim, the higher your benefit will be, but it stops growing once you hit age 70.
6. Claiming too early can cut your benefits for life.
If you decide to collect Social Security when you’re 62 (or, for that matter, any time before you hit age 70), your benefit will be paid at the minimum level you earned through your career and won’t rise (except for cost-of-living raises) at all.
If, on the other hand, you can wait till age 66, you’ll get at least a third more in those monthly checks than you would at 62.
But if you wait till age 70, your benefit will be at least 75 percent higher. That’s according to the Social Security Claiming Guide from the Center for Retirement Research at Boston College.
Oh, and the same goes for your spouse. If you claim early and die, your spouse will be restricted to that smaller benefit for life as well—unless said spouse has a separate career and benefits to draw on.
5. Widows and widowers can claim on their deceased spouses’ records to delay claiming on their own.
A widow or widower can claim a survivor benefit on their late spouse’s record in order to postpone claiming their own benefit—which can be very helpful should they want to delay claiming till age 70.
And, as the Claiming Guide points out, since most survivors are women and women’s benefits are generally lower—thanks to a range of reasons, including less time in the workplace and lower salaries—a husband’s benefit will generally be higher.
If, however, a woman’s benefit would be higher than her late husband’s, claiming on his record would allow her to delay claiming until age 70 to maximize her own benefit.
That said, survivor benefits are available as early as age 60, or age 50 if disabled, but they’re reduced up to 28.5 percent if claimed before the recipient’s full retirement age.
Survivor benefits can also be claimed by a divorced spouse as long as the marriage lasted at least 10 years.
4. Husbands can boost wives’ survivor benefits by delaying claiming.
Since most women survive their husbands—by an average of 6 years, in fact—a husband who wants to maximize his wife’s survivor benefit in the event of his death can delay claiming his own benefit as mentioned earlier.
In fact, a husband can increase the monthly benefit his wife gets as his survivor by more than 20 percent if he delays claiming Social Security until age 66 instead of doing so at age 62, if he waits till age 70 to claim benefits, that rises to 60 percent.
3. Continuing to work after claiming before full retirement age will cost you.
It might seem like a terrific idea to claim Social Security early and just keep working; after all, what’s not to like?
You gain another source of income, you’re still making money and maybe you envision just socking the extra money into savings for later in retirement.
But there’s one (not-so-)little flaw with that idea: Social Security may giveth, but it will also taketh away.
If you did that last year and weren’t already at the full retirement age, you’ve already learned to your sorrow that for every $2 above $15,720 you earned in calendar year 2016, Social Security withheld $1.
And Social Security will do that every year till you hit full retirement age; in that year, it will keep $1 for every $3 you earn above $3,490 each month.
If you wait to pursue that strategy till the year after you’ve hit full retirement age, however, it won’t withhold anything.
The good news is that you don’t actually lose that money; it’s restored to increase your monthly benefits later.
2. Social Security provides half the income for 61% of seniors.
It’s all very well to say that seniors will have Social Security to depend on, but the majority of seniors have few other resources to draw on.
A report on Madison.com highlights how essential Social Security is to the majority of seniors, regardless of how long they’ve worked or how much they’ve saved, with some statistics from Social Security itself—and one of those is just how important Social Security is to people’s financial well-being during retirement.
Whether they’ve managed to save more in 401(k)s, IRAs or even an actual pension plan, seniors are still deriving much of their income from those monthly Social Security checks.
1. Social Security provides at least 90% of income for 43% of unmarried seniors.
Lest you think that Social Security is just one leg of the proverbial three-legged stool, keep in mind the statistic above.
Without additional sources of income, unmarried seniors who are almost, or completely, dependent on Social Security checks will almost certainly not have a pleasant retirement—or a healthy one.