As Baby Boomers are getting closer and closer to retirement, they have many questions about Social Security retirement benefits, such as…
Will Social Security be there for me when it’s my time to retire?
We’ve heard for years that Social Security is going broke. Millions of Americans rely on Social Security to fund all or part of their retirement, so this is a huge concern in our country. So, just how true are the rumors that Social Security is going broke?
According to the 2009 Social Security Trustees Report, Social Security benefits paid out will exceed revenues starting in 2016, and the trust fund could be exhausted by the year 2037. Once the trust fund is exhausted, benefits will still be paid out, but the taxes collected from workers will only be enough to cover 76% of the benefits promised.
While these numbers are definitely alarming, the chances that Social Security is allowed to fail are minimal. Most likely we will see reforms such as raising the full retirement age, raising the income limit that Social Security taxes are paid on, and reduced benefits for future recipients (it’s less likely that people already receiving benefits will see their benefits reduced).
How much can I expect to receive?
It’s important to know how much income you will have from various sources, including Social Security, after you retire. For some people Social Security is their only retirement income; for others it’s a small part of their retirement, as they will have pensions and investment income in addition to Social Security retirement benefits. Regardless, you need to know how much income you can expect to receive so that you can create a realistic budget for your retirement years.
Your retirement benefits will vary based on a number of factors, such as the age you retire, how much you earned during your working years, and how much you contributed to Social Security (some government employees do not contribute to Social Security and therefore may not be eligible for benefits).
Generally, your benefits are calculated by applying a formula to your top 35 years of earnings, indexed for inflation. Once your benefit is calculated, it is reduced by up to 25% for people who retire before their full retirement age, and increased by 8% per year for people who wait until after their full retirement age to start collecting benefits.
The Social Security website has several calculators to help you estimate your retirement benefits.
When should I apply for Social Security benefits?
Probably the most commonly asked question is “when should I apply for Social Security?” By now, you’re aware that your benefits will be reduced if you apply for Social Security before your full retirement age.
The question is, are you better off applying early and receiving benefits for more years, or are you better off waiting until age 66 or later to apply? The answer varies for each person and is based on many factors, such as how long you plan on working, how healthy you are, if you have other sources of income, etc.
How can I maximize my retirement benefits?
Your parents probably never asked this question, but you should: “How can you maximize your Social Security retirement benefits?” Social Security is a much more valuable income stream than most people realize, especially because of the cost of living adjustment (COLA), so every baby boomer should ask this question.
There is nothing wrong with using the Social Security rules to your advantage. There are many strategies you can use to maximize your benefits, which will be discussed throughout this blog (so please visit often!).
Will my Social Security retirement benefits be enough to live on?
Social Security was never meant to support 100% of your retirement. It was designed to supplement other income streams (pensions and annuities) as well as your retirement savings. So you should not expect Social Security to be enough to cover all of your living expenses in retirement. On average, Social Security represents about 40% of a retirees income.
However, Social Security is still a very valuable income stream – whether it makes up 40% or 90% of your retirement income – and you should do careful planning to maximize your benefits and coordinate them with the rest of your retirement plan.
You may also like:
Social Security Spousal Benefits: Applying for Benefits
No Increase In Social Security Benefits for Retirees Next Year
Social Security Retirement Age: When Can You Retire?
Social Security Eligibility: How to Qualify for Social Security Retirement Benefits
Do Not Underestimate Social Security When Planning For Retirement
cort says
Can a spouse get her part of her half of her husbands SS if she reaches retirement age before her husband?
kristine says
Hi Cort. No, unfortunately, a spouse can not collect spousal benefits if her husband is not already collecting benefits. If he is full retirement age, then he can file and suspend his benefits (if he is still working or just isn’t ready to collect benefits), but you can not collect a spousal benefit based on your husband’s work record if he has not yet filed. I hope this helps.
Glenn says
I am 65 and my wife is 60 years old. Both of us are still employed and hope to stay employed until she reaches age 62. If I wait until age 66 to file for social security payments what limits do I have on earnings from my job before being penalized?
kristine says
Glenn: Once you turn 66 (or your full retirement age), there are no limits to how much you can earn while receiving Social Security benefits. You are correct that before you reach your full retirement age, you are penalized if you earn too much and you are collecting Social Security. In 2013, you can earn up to $15,120 before you are penalized. Social Security will deduct $1 for every $2 you earn over that amount. However, if you turn age 66 in 2013 you can earn $40,080 until the month you turn age 66 before you are penalized. If you earn over that amount Social Security will deduct $1 for every $3 over the limit. Thanks for the question.
Jill says
I am currently 57 years old and have taken an early retirement from my previous employer due to the stressful conditions. If I should take another job, say part time or a fill in position will my social security benefits be based on the lower income amount. I was told if I was to “step down” into a different position within the company I was with, that my social security benefits would be based on the amount I was making at the time and not the higher amount I was making when I left. Is it still “the best 7 of the last 10 years worked”? I also need to know how much I will be able to earn until 62 years or older.
kristine says
Jill – Your Social Security benefits are based on your highest 35 years of earnings. So, depending on your earnings history, taking a lower paying job could have an effect on your benefits, but probably not as much as you originally thought.
You can earn as much as you want between now and when you turn age 62. However, once you turn 62, if you decide to start collecting benefits at that time, you will be limited in how much you can earn. In 2013, the magic number is $15,120. Social Security will reduce your benefits by $1 for every $2 you earn above that amount, until the year you reach full retirement age.
Bottom line, any money you earn between now and when you apply for Social Security can only help.
Patricia M says
I plan on retireing at the age of 62 . My birthday is August 1951 so how soon do I need to contact social security about this? Also what is the limit I can make from date of retirement to what date. example: if I retire in Aug. does it go by a year from the date or from Jan. to Jan? Or April to April tax time?
Thank you,
Patty
kristine says
Patricia – You should apply for Social Security benefits three months before you want to receive them, so if you are starting at age 62, then you should apply three months before your 62nd birthday. In your case, you want to start the application process on May 18.
However, it may not be in your best interest to start Social Security at age 62, especially if you plan on continuing to work. First, your benefits are reduced when you take them before full retirement age, second, your benefits are reduced if you earn more than the income limit (until you reach full retirement age), and third, your income from work could cause part of your Social Security benefits to be taxable.
I would encourage you to contact a financial planner to discuss the best time to start collecting benefits before you apply. You might also want to read When’s the Best Time to Apply for Social Security.
Patricia M says
Are state and federal taxes taken from our ss checks. When you say we can only make up to 15,140 does that include ss or is this seperate.?
kristine says
Thank you for the questions. 1) You can have Federal taxes withheld from your Social Security check, but not state taxes. 2) The $15,140 is how much you can make in earned income (from a job or self employment); it does not include your Social Security income.
Mike says
My wife is 2 1/2 years younger than me. We plan on retiring in about ten years. I’ll be 65 and she will be 62 1/2. Here’s the question. When we retire, do we both get separate checks according to our earnings or do we both get only one check according to my earnings? I make more than she does. Thank you.
kristine says
Hi Mike. You will each get your own check. Even if your spouse collects spousal benefits instead of retirement benefits based on her own earnings record, she will still receive her own check (and you will receive your own check). I hope that helps. Thank you for your question.
robert perry says
Hi, I am 63 and I want to retire because I work for a construction laborers union. I get layed off often. My unemployment benefits have been exhausted. I have no income and no work in site. The only thing I can do is retire to get some income. I will be 64 in march 2015. I have an annuity and pension. What should I do? I am confused on what to do. Thank you Robert Perry
kristine says
Hi Robert. You said you have no income, but later in the post you said you have an annuity and pension. If you have different sources of income available during retirement, it is important that you maximize each as much as possible. While I don’t have enough information to give you advice on this topic, I would say that in general, it is best to delay any benefits that have a cost of living adjustment (like Social Security) as long as possible. So it might make sense to start the pension or annuity now, if you qualify, and delay your Social Security for as long as possible. Also, Social Security benefits are reduced by 8% each year that you take them early; another reason to wait if possible. I understand your frustration with getting layed off frequently, but if you are healthy and can find work until you reach your full retirement age (age 66 for people born between 1943-1954), that would allow you to collect your full retirement benefit without any reduction.
Wallace M says
I will turn 66 this year and want to continue working full time. How much can I make without being penalized?
kristine says
Hi Wallace. Thank you for your question. Once you reach your full retirement age (66 for people born between 1943 and 1954) there is no limit as to how much you can earn. It’s only before you reach your FRA that you will be penalized. In the year that you will reach your full retirement age you can earn up to $41,400 (in the months leading up to your birthday). If you earn more than that amount, Social Security will reduce your benefit by $1 for every $3 earned above that amount. However, once you reach the month of your birthday, there is no more penalty. I hope this helps!
Annie Jackson says
I be 60 this August can i apply for social security now
kristine says
To qualify for Social Security retirement benefits you must be age 62. Widowers may be able to collect survivor benefits at age 60 (or earlier if caring for a dependent child). To learn more about when you can collect Social Security please read Social Security Retirement Age: When Can You Retire?