I’ve been teaching Social Security classes for over 8 years now. In addition to that, hundreds of attendees have requested one-on-one strategy sessions. I’ve seen the whole spectrum from those of you with no assets, all the way up to multi-multi millionaires. Many of the strategies are the same.
This week let’s take a look at important Social Security facts and strategies. Social Security for the vast number of you is the most important financial asset. It’s more important than your pension or 401k or real estate. Let’s look at an example:
Mary and John are both retired.
Mary’s S.S = $1500/mo
John S.S = $2000/mo
That equates to $3500/mo or $42,000 a year.
The life expectancy for a healthy 65-year-old is around 90 years old. It is distinctly possible for you to collect your benefits for thirty years. So let’s do the math.
$42,000 a year x 30 years = Over a million dollars! Maybe it doesn’t say at the top of your statement, “this benefit is worth a million dollars.” But it is. Feeling rich yet?
Next…Social Security is not going insolvent. I discussed recently how cutting S.S. benefits would create complete chaos throughout our society. The benefits cannot and will not be cut for those nearing retirement or retired. Do my kids have something to worry about? Maybe. But anyone reading this article is fine. Don’t believe me? Check this out.
Your “full retirement age” is based on your birth year. This is the age whereby you are eligible for the full benefit listed on your statement.
Born before 1954 = Your full retirement age is 66.
1955 = 66 and 2 months
1956 = 66 and 4 months
1957 = 66 and 6 months
1958 = 66 and 8 months
1959 = 66 and 10 months
1960+ = 70
Is your Social Security taxed? Maybe. The simplest formula is this: If you are married bringing in less than $5000/mo of income once retired, your Social Security is not taxed. For singles, the number is $3000 or less.
Anyone can take their benefits as early as age 62 (restrictions apply). If you take them early you get a permanent 25% penalty. You can also wait all the way until 70 giving you 32% more That’s 80% more compared to age 62.
The average benefit amount I see is around $1800/mo (at full retirement age). The maximum benefit is a little over $3000/mo, but you’d have to make six figures for years to qualify.
If you make around $30,000 a year, your benefit will be around $1400 a month
If you make $60,000 a year your benefit does not double. That is not how the system works. You would receive around $2200/mo.
Still working while receiving Social Security? Beware! If you are not yet at your full retirement age, you cannot earn more than $18,240 a year. This only applies to earned income. i.e. You go to a job and get a paycheck. It does not include IRA withdrawals, pensions, rental income, etc.
Once you arrive at your full retirement age there is no limit to your earnings. Go ahead and make $100,000 a year. The world is your oyster! (What does that even mean? Why would I want my world to be my oyster?)
Divorced? Believe it or not, if your ex dies, you become a widow/widower and you are entitled to 100% of your ex’s benefit. This does not work if you are remarried. Not sure where your ex is located? You better make sure he’s still alive. You might be missing out on some cash.
Widowed? You can begin receiving benefits as early as age 60. Remember that the income limits still apply. You can’t make more than $18,240/yr and receive survivor benefits.
There is also an interesting quirk in the system that allows you to collect benefits from your deceased spouse while your own benefit is growing in the background. You can then switch to your own benefit at age 70. If you become remarried then you can no longer apply for these kinds of benefits.
If you go on Social Security disability the amount you receive is the same as your full retirement age. Let’s say you become disabled at age 50 and begin to receive $2000/mo. That is the same amount that you would have received at your full retirement age.
Social Security contains cost of living increases that grow lock-step with inflation.
If your spouse dies, and they were getting a higher payment, you will begin to get the new, higher payment. Your own payment would stop.
I hope that helps. Social Security is a huge part of your financial future. It pays to be informed.