6 Numbers You Need to Know About Social Security
Good 'ole Social Security... a frequent topic of discussion, confusion and much misinformation among Americans of all ages. Social Security is a program that has greatly changed from its original intent, is difficult to understand, has caused a great deal of political controversy over the years and is considered an "endangered species" by many.
Whether you are about to elect your own benefits, assisting your parents on their choices or are a younger professional wondering about the future of Social Security, read on.
You Decided What...?
Often I have people tell me about a decision they just made and then ask "what do you think?" This is probably not a major issue if your decision was say... buying a new shirt or a pair of shoes (for you ladies out there). However, when it involves a decision that will affect your life (and family's life) forever...like electing your pension payout or social security- it is REALLY important. After the fact, whatever my opinion may be, it is irrelevant and you may not be able to reverse the decision you just made.
Social Security literally has thousands of possible claiming strategies and each option can greatly impact the amount of money you ultimately will collect from the program over your life. Let's talk before you elect your Social Security benefit.
Here are some important numbers you need to know and understand.
66
This is considered Full Retirement Age (FRA) for those born between 1943 and 1954. FRA gradually climbs to 66 and 11 months old for those born between 1955 and 1959. Birthdays 1960 and later, it is 67 at this time. FRA is the age you can claim your normal Social Security benefits.
25%
The earliest you can claim and receive your benefits is when you turn 62. Be Cautioned... electing to receive your benefit early results in a 25% reduction of your benefits and often is irreversible after 12 months. Taking benefits early at 62 should be rare. Now I agree there are some situations in which it may make sense to claim benefits early (poor health and of course, the true need to meet living expenses), but they are few. Also working after 62 while claiming early can possibly further reduce your benefits received in that year.
$1,294
In 2014, the average retired worker will receive $1,294 a month in benefits. The 2014 maximum monthly benefit for someone at the Full Retirement Age (FRA) is $2,642. This is based on 35 years of earning history (years of working don't need to be consecutive). Find your estimate here.
$0
Will Social Security go broke? This I can't say with certainty. Heck, if I could... well that's another story.
I share with my clients that Social Security will likely continue to exist, but it will look rather different in the future. Those that are older and currently receiving benefits are more secure to receive expected benefits; those that are younger (born after 1970) cannot likely count on the program to help them much. Many baby-boomers have unfortunately relied too heavily on social security to help fund their ability to retire.
Younger folks need to take care of their retirement themselves by SAVING with the expectation that Social Security may not be much of an assistance in funding their retirement; and if it does provide a retirement benefit- it will just be "icing on the cake".
½
Rather than electing to receive your own working history benefit amount, you can opt for what is called a "spousal benefit." Taking 50% worth of your spouse's benefit amount may be larger.
Divorced? Just like regular spousal benefit, you can elect to receive 50% of your ex's benefit (whether ex is living or deceased), as long as you were married 10+ years, you are 62 years or older and are single. Your Ex will not know (since filing does not involve them, only the Social Security Admin) and it doesn't affect his or her benefit.
32%
Once you hit Full Retirement Age, you may choose to delay taking your benefit. This can equal a big increase in your check. Each year you wait your benefit will grow by 8% until age 70, thus the four years from age 66 to 70 provides you a 32% increase in benefits. Possibly well worth the wait, if it fits your financial plan.
Use Professional Advice
It is estimated that many Social Security recipients don't maximize their available benefits. This is "money left on the table."
As a trusted advisor, I regularly help clients determine the most suitable course of action not only in regards to Social Security-claiming options, but also in how those choices dovetail into their overall financial plan. You have to consider your likely longevity, coordinate your spouse's potential benefits, minimize taxes and maximize filing strategies (like "file and suspend") as you develop a retirement income plan that should comfortably last for decades.
To your happy Social Security benefit claiming,
Luke Fields, CFP®
Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional.
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Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981. A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is aCERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses. He resides in Columbus, OH with his high school sweetheart, Beth and their three children. Luke is an active member of his church, serving in leadership and finances.
Follow additional insights and connect onLinkedIn,Facebook, hisblogorTwitter. You can always reach him with comments or questions at:luke.fields@raymondjames.com.
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