Truepath TopicsDecember 2009Planning for Social SecurityArticle contributed by Forefield Inc. Social Security was originally intended to provide older Americans with continuing income after retirement. Today, though the scope of Social Security has been widened to include survivor's, disability, and other benefits, retirement benefits are still the cornerstone of the program. How do you qualify for retirement benefits? When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can earn up to 4 credits each year. If you were born after 1928, you need 40 credits (10 years of work) to be eligible for retirement benefits. How much will your retirement benefit be? Your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to retire (up to age 70), the higher your retirement benefit. You can check your earnings record and get an estimate of your future Social Security benefits by filling out a request at your local Social Security office or by visiting the Social Security Administration (SSA) website. You can also find this information on your Social Security Statement, which the SSA mails annually to every worker over age 25. You will receive this statement about three months before your birthday. Review it carefully to make sure your paid earnings were accurately reported--mistakes are common. Call the SSA at (800) 772-1213 for more information. Retiring at full retirement age If you retire at full retirement age, you'll receive an unreduced retirement benefit. Your full retirement age depends on the year in which you were born.
Retiring early will reduce your benefit You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent--you won't be eligible for a benefit increase once you reach full retirement age. Still, receiving early Social Security retirement benefits makes sense for many people. Even though you'll receive less per month than if you wait until full retirement age to begin receiving benefits, you'll receive benefits several years earlier. Delaying retirement will increase your benefit For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For example, if you were born in 1936, your benefit will increase 6 percent for each year that you delay receiving benefits. If you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits. In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are higher than in previous years. Working may affect your retirement benefit You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here's how:
Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you're receiving retirement benefits, the members of your family who may be eligible for family benefits include:
How do you sign up for Social Security? You should apply for benefits at your local Social Security office or on line two or three months before your retirement date. However, the SSA suggests that you contact your local office a year before you plan on applying for benefits to discuss how retiring at a certain age can affect your finances. Fill out an application on the SSA website, or call the SSA at (800) 772-1213 for more information on the application process.
To discuss any of the above information or to make an appointment or complimentary consultation, please contact Sharon Arnold at (513) 792-3360 or s.arnold@truepathfinancial.com View Current Truepath Topic Copyright 2009 Forefield Inc. All rights reserved. Truepath Financial is a fee-only independent investment management firm based in Cincinnati. Our financial advisers provide sound financial guidance and portfolio management for individuals and families. We take great care to thoroughly research the information provided in our Topics to ensure accuracy. However, these columns provide general commentary and are not intended to provide specific tax, legal, accounting, financial or professional advice. Readers are advised to seek qualified professional advice on these issues for their specific circumstances. Truepoint Inc. shall not have any liability with for any damages alleged to be caused, directly or indirectly, by the information contained in our Topics. Additionally, none of the material included on our website constitutes a tax opinion and is not intended to be used, and cannot be used, for the purposes of avoiding any tax penalties imposed by the IRS. |