Signed on August 17th, 1935, the Social Security Act was put in place to help pay retired workers with continuing income in retirement. The first monthly benefit check was issued in 1940 for $22.54. Over the years Social Security has evolved and many changes have been made including cost of living adjustments, changing early and full retirement age, as well as taxation on social security. Here are a few key areas of Social Security that you should be aware of.
Full Retirement Age:
Once you reach full retirement age, you become eligible to claim your full Social Security retirement benefit, known as your primary insurance amount (PIA). The primary insurance amount is the base amount you'll receive if you retire at your designated full retirement age. The specific age at which you reach full retirement varies, depending on your birth year. For individuals born between 1943 and 1954, the full retirement age is 66. It gradually increases for those born between 1955 and 1959, reaching 67 for those born in 1960 or later. Understanding your full retirement age and PIA is crucial for effective retirement planning, as it impacts the amount of your monthly benefits and the financial security of your retirement years.
Claiming Early:
You can start claiming your Social Security retirement benefits as early as age 62. However, if you do so before reaching your full retirement age, your benefits will be permanently reduced. At age 62, this reduction can range from 25% to 30%, depending on your birth year. Additionally, if you work while receiving benefits before your full retirement age and your income exceeds certain thresholds ($22,320 in 2024), your benefits may be temporarily reduced. Once you reach your full retirement age, an adjustment will be made, and you will gradually recover any benefits lost due to excess earnings.
Claiming Later:
If you choose not to claim your Social Security benefit at full retirement age, you will earn delayed retirement credits for each month you wait, up until age 70. These credits increase your benefit by two-thirds of 1% for each month you delay, which amounts to an 8% increase for each year you postpone claiming. After age 70, there are no additional increases for delaying your benefits.
Spousal Benefits:
If you are married, you may be eligible to receive a spousal benefit based on your spouse's work record, regardless of your own work history. If claimed at your full retirement age, the maximum spousal benefit is 50% of your spouse's primary insurance amount, regardless of whether your spouse claimed early. This spousal benefit does not include delayed retirement credits. However, if you claim a spousal benefit before reaching your full retirement age, your benefit will be permanently reduced.
Dependent Benefits:
After you start receiving Social Security benefits, your dependent child may qualify for benefits if they are unmarried and meet any of the following conditions: (a) under 18 years old, (b) aged 18 to 19 and a full-time student in grade 12 or lower, or (c) 18 years or older with a disability that began before age 22. The maximum family benefit amount ranges from approximately 150% to 180% of your primary insurance amount, depending on your specific circumstances.
Survivor Benefits:
If your spouse passes away and you have reached your full retirement age, you can claim a full survivor benefit equal to 100% of your deceased spouse’s primary insurance amount, including any delayed retirement credits. Note that the full retirement age for survivor benefits differs slightly: it is 66 for those born between 1945 and 1956, gradually increasing to 67 for those born in 1962 or later.
You can opt for a reduced survivor benefit as early as age 60 (age 50 if you are disabled), or at any age if you are caring for the deceased’s child who is under 16 or disabled and receiving benefits. If you are eligible for both a survivor benefit and a retirement benefit based on your own work record, you can claim the survivor benefit first and later switch to your own retirement benefit at your full retirement age or later, if it would be higher.
Dependent children qualify for survivor benefits under the same criteria as dependent benefits. Additionally, dependent parents aged 62 and older may be eligible for survivor benefits if they received at least half of their support from the deceased worker at the time of death.
Divorced Spouses:
If you were married for at least 10 years and are currently unmarried, you can receive a spousal or survivor benefit based on your ex-spouse's work record. Even if your ex-spouse is eligible for Social Security benefits but has not applied, you can still receive a spousal benefit provided you have been divorced for at least two years.
Conclusion:
An advisor can help you navigate the complexities of Social Security, including understanding the Full Retirement Age, the impact of claiming early or later, spousal and dependent benefits, survivor benefits, and considerations for divorced spouses. By working closely with an advisor, you can develop a strategy that maximizes your benefits and fits your unique financial situation. This personalized approach can provide greater financial security and peace of mind as you plan for a comfortable and stable retirement for yourself and your loved ones.
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