Answered: The 7 Most Common Social Security Questions
As a younger person, you don't pay much attention to it. You know there is a part of your wages that get taken out and contributed to Social Security. You hear about it on the news and when politicians talk about seniors.
Despite knowing little now, Social Security could be an important part of your financial future. In fact, some 97% of seniors between the age of 60 and 89 in the US get Social Security benefits.
You might have things you don't know about Social Security that would help you to plan for the future. Read on for these common Social Security questions and their answers.
1. What Is Social Security?
Let's start with a basic understanding of Social Security. Started in 1935, it's intent was to ask for a universal pension plan for American senior citizens. Today, one in five senior Americans gets up to 90% of the income from Social Security. As many as 50% of seniors get half their income from Social Security.
The intent of Social Security at its onset was to act as a pension plan for seniors. They would pay into the system while they were younger and earning an income and would later reap the benefits of the system.
2. When Should I Take Social Security?
The question of when to take Social Security will vary from person to person depending on their individual circumstances. At the earliest, you can claim Social Security for early retirement at age 62.
When you can claim your full benefits for Social Security depends on when you were born.
- If born before 1938, full retirement age is 65
- If born between 1938 and 1942, your full retirement age ranges from 65 and 2 months to 65 and 10 months
- If born between 1943 and 1954, your full retirement age is 66
- If born between 1955 and 1960, your full retirement age ranges from 66 and 2 months to 66 and 10 months
- If born after 1960, your full retirement age is 67
Generally speaking, the sooner you start to take Social Security the lower your monthly check will be. On the flip side, there are some incentives to waiting until age 70 when you become entitled to delayed retirement credits. Your benefits can increase each year you choose to defer taking Social Security.
3. Using Your Retirement Planning Strategy, When Is the Right Time for Social Security?
There is not a straightforward answer to this question because every situation is different.
There are a variety of factors to consider when deciding on when the best time to take Social Security is. These include:
- Your health
- Marital status (more on this later)
- Financial needs
Your financial planner can help you weigh the different options by age for when to start taking Social Security.
4. How Is the Social Security Benefit Determined?
The Social Security Administration (SSA) has a whole benefit formula they use to figure out the amount of your benefits. The formula is based on a few factors.
First, as already mentioned, it takes into account your age. The SSA looks at your years and years of earnings.
As you work, you earn credits. In 2020, this is the formula followed. For every $1,410 earned, you get a credit. You can earn up to 4 credits a year until you have at least 40 credits. For most people, this will mean 10 years of work. Then you become a candidate to get Social Security based on the year timeline in Section 2.
Then the SSA figures out the 35 highest years of earnings, then take the average of those years to calculate your benefits.
5. Is Social Security Taxable?
If you're wondering if you will need to pay taxes on your Social Security benefits, the answer is probably yes. Most people pay some taxes. Again, there are a few factors to consider.
The first is if you are single vs. married. Then there is a graduated scale based on the benefits that tells how much you will pay in taxes. The breakdown is as follows:
- Single people with income between $25,000 and $34,000 pay taxes on 50% of the benefits
- Single people with an income of more than $34,000 pay taxes on 85% of the benefits
- Married people with a combined income of between $32,000 and $44,000 pay taxes on 50% of the benefits
- Married people with a combined income of more than $44,000 pay taxes on 85% of their benefits
The SSA defines combined income as your adjusted gross income, nontaxable interest added to half of the Social Security benefits.
6. How Do Spousal Benefits Work?
While the government has tightened the rules for spousal benefits, they do still exist. Spousal benefits mean that one spouse can get benefits from the other spouse's Social Security.
There are benefits available for a spouse who may not have worked to earn Social Security credit. The spouse can get benefits based on their partner's work history. The spouse who worked would need to already be collecting benefits or be on Social Security disability.
Like the previous examples, if the spouse applies before the full retirement age, the benefits would be reduced. If they wait until full retirement age eligibility, then they can get up to 50% of their partner's benefits.
If both spouses have earned Social Security credit through work, the spouse applying would take the highest of the benefits between them.
7. Can I Work and Collect Social Security Too?
Yes, you can work while collecting Social Security benefits. There are some restrictions depending on when you chose to start receiving Social Security.
If you are getting benefits after reaching your full retirement age, you can earn as much income as you want from other employment.
If you started Social Security before your full retirement age, then there are restrictions on how much you can earn. Your benefits from Social Security will also be temporarily reduced. The amount is based on much you are earning from your other employment.
Answering Your Most Common Social Security Questions
Use the answers to these common social security questions to guide your financial planning for the future. Knowing how the system works and what you can expect can help to guide your financial decisions for later in life.
If you want guidance with your financial planning or have more questions about social security, we can help. Contact us today to meet with a member of our financial team.