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An Overview of Social Security Benefits

July 27, 2017
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More people end up relying on Social Security as a major source of income than they initially thought when they were still in the workforce. Only about one-third of workers predicted they would depend on Social Security benefits to meet their monthly expenses. The reality? Social Security accounts for a significant portion of retirement income for 61 percent of retirees.


Sound financial planning based on expected benefits will allow you to live comfortably once you exit the workforce. Here, you’ll find a basic overview of Social Security benefits and how much they might contribute to your retirement income portfolio.


When are you eligible to receive Social Security benefits? 


Eligibility is determined based on the number of years worked and age. For those born after 1926, the minimum time of workforce participation required to receive benefits is 10 years, consecutive or nonconsecutive. This is the amount of time necessary to earn the obligatory 40 credits. Workers may only earn up to 4 credits per year, each credit given per $1,260 earned. 


Even after meeting the credit criteria, people are not eligible for early retirement until the age of 62. Normal retirement age is now 67 for those born in 1960 or later and about 66 for those born before 1960.


How much will I receive in Social Security benefits?


The Social Security Administration calculates benefits based on your 35 highest-earning years. If you worked less than a total of 35 years, zeros will be calculated into your average. Your benefits will also vary depending on cost-of-living adjustments (COLA) that account for inflation overtime.


If you begin collecting Social Security at full retirement age (FRA), you will receive 100 percent of your monthly benefit. Retire earlier and you’ll receive less; retire later and your monthly payments could be more than your FRA benefit.


The amount you collect each month will grow by about 8 percent for each year you delay payments from 62 to 70, the age at which your benefits stop growing. Based on FRA amounts, seeking early retirement will cut your checks up 25.8 percent, while delaying retirement beyond 66 could deliver payouts that are up to 30.7 percent more.      


Though your monthly benefit checks will be larger if you retire later, the system is designed so that the total amount of social security benefits paid evens out up to the age of average life expectancy - regardless of the timing of your retirement. However, if you live longer than the average American, you will gain more from Social Security in the long run.


By 81 years of age, people who retired at 62, 66, and 70 will have collected the same amount in total benefits. After that point, however, is when gross payouts differ. Not accounting for cost-of-living adjustments, the 62-year-old retiree will have collected over $620,000 in all by the age of 85, while the person who waited until 70 will have collected over $679,000. 


When should you retire?


When you choose to retire is a personal decision that will depend on many factors, such as spousal benefits, asset portfolio, age of dependent children, and health. If you’d like to learn more about retirement income planning, please contact us for your free consultation.


Our financial specialists will help you create a sound financial plan that accounts for all aspects of retirement living, from daily living expenses and investment withdrawals to budgeting for luxuries and quality of life.