Are you ready to retire? Are you about to retire or start collecting Social Security? Are you aware of how Social Security can affect you in your retirement? Well Social Security was originally designed to be a supplement in retirement but in today’s reality people rely on it more than it was intended to be relied upon. So what is the purpose of Social Security in general?
First it is not just for retirement purposes as it is also a disability benefit for working individuals. In order to qualify for Social Security disability according to the fund itself you must be unable to work, “because of a physical or mental condition that is expected to last at least one year or result in death.” If you meet those conditions and have worked the required quarters according to your age you may be eligible for Social Security disability. But do not solely rely on this benefit in the event you become disabled as it is a very difficult benefit to get and you must prove to the Social Security Administration that you meet the definition of a disabled individual. And it will also pay benefits to spouses and children of a recipient as well as those for a deceased worker.
If you take your Social Security retirement benefits early you will receive a reduced amount for the remained of your life and that of your spouses if you do indeed take the benefit at age 62. If you want to receive the maximum benefit from Social Security and you were born after 1960 you need to work until your full retirement age of 67. And if you delay the benefits until age 70 you will really maximize the benefit as it will add approximately 24% to your monthly payment. But if you want to start receiving the benefits at age 62 you will receive about 70% of your retirement benefit that would have been paid at age 67. And there are tax consequences if you take your benefits at an age prior to your retirement age in the fact that for every $2 earned over $15,120 for 2013 your benefits will be reduced $1 and it could result in lower benefit payments for the rest of your life. If you wait until your full retirement age you are not limited to what you may earn as it will not affect your benefits but there are restrictions on earning in the year you do reach your full retirement age.
In the event you want to delay your retirement to age 70 as I stated you could actually see a fairly dramatic increase in your benefits. By delaying your benefit payments you could actually increase your payments between 4.9% and 8.3% per year from age 67 to age 70. Not a bad guaranteed return considering the markets today. But you need to really plan ahead if you go this route as life expectancy really does come into play here. If you do not think you will live much beyond 70 it may make more sense to take the benefits at 62 or 67 depending on your health, family history and financial situation in general. But if you are still working why not delay as long as you can and maximize your benefits.
Now if your spouse did not work your spouse is eligible for approximately half of your benefit when you make your declaration. And in the event of a divorce you get to keep the benefits provided you were married at least ten years prior to the divorce and you do not remarry. Now let’s say one spouse does not plan on earning more than the $15,120 a year they can take early retirement at age 62 while their spouse continues to work. Then when the spouse declares and begins to take their benefits the spouse who retired “early” would see a slight deduction from their new benefit when their spouse reaches their full retirement age. Their new benefit will be the old benefit multiplied by 30%, then subtract that from half of their spouses benefit and you will get the new monthly benefit.
Now those are just some of the strange workings of Social Security so always check with a professional or the Social Security Administration for clarification and how current laws affect these benefits. With proper planning Social Security can be a very valuable aid in your retirement plans.
