Claiming Social Security Benefits: What You May Not Know
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On August 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law. Its focus was to provide financial benefits to retirees based upon payroll tax contributions. The Act established the Social Security Administration which was created to oversee the administration and logistics of the program.
According to the Social Security Administration, as of June 2018, about 175 million people worked and paid Social Security taxes and about 62 million people received monthly Social Security benefits. Social Security tax money is used to pay benefits to those receiving benefits right now. The money is not held in a personal account for your future use. Social Security benefits are based upon how much was earned during your working career. Choosing when to receive these benefits is one of the most important financial decisions you will make. If you choose to retire when you reach your full retirement age, you will receive your maximum benefit amount. If you were born in 1955, your full retirement age is 66 and 2 months; if you were born in 1956, your full retirement age is 66 and 4 months; and the age grows incrementally till 1960. If you were born in 1960 or later, your full retirement age is 67. Early retirement benefits (as early as age 62) or delayed retirement benefits are options as well. Payments will be calculated accordingly. More information can be found on the Social Security website.
Retirement can be an exciting, yet stressful time for many. You’ve spent many years working hard, raising your family and hopefully saving for the future. However, the financial unknown causes many individuals heartache and stress. Once you make the difficult decision of closing the chapter on your working life, the looming question of when to collect your Social Security benefits becomes very daunting for some. A few things to consider regarding when to claim your Social Security benefits:
1. Claiming benefits at the wrong age
Many people that claim benefits at the wrong age are taking them too early. Sometimes it makes sense that if you were able to amass a high wealth portfolio during your working years, to take your Social Security benefits early and leave your other accounts intact. On the other side, if Social Security is the only retirement income you have, then try and wait as long as possible to collect your benefits. Although these suggestions are more general statements on retirement planning, it is important to conduct a unique financial study on your accounts as each family’s situation varies extensively.
2. Thinking benefits increase at full retirement age
Benefits increase incrementally each month you wait to collect your Social Security benefits. Despite what some people may believe, there is no magical jump in benefit payout if you wait until full retirement age.
3. Not understanding the rules for married people
Since every financial situation is different, claiming your Social Security benefits should be made in the context of your entire financial picture. With a married couple, if for example, the wife takes Social Security early while her husband waits to collect, if the husband should predecease the wife, then she steps into her husband’s benefits which could potentially be larger than hers.
According to the Social Security Administration office, the average estimated 2019 benefits for all retired workers is $1,461 per month. When to receive this benefit that you’ve worked so hard for can be mind-boggling, however, working with a financial advisor who will help analyze your financial picture is one of the best steps to take when deciding what age to claim these benefits. Remember your sister or friend’s financial portfolio is very different than your own, therefore their decision on when to collect Social Security benefits should not have any bearing on your own decision.
Related: Money Wisdom Podcast “8 Popular Questions Surrounding Social Security”
