If you’re nearing retirement, you’ve most likely given some serious thought to how you’ll make ends meet once you’re no longer receiving a regular paycheck. Along with pensions and retirement savings, many retirees depend on Social Security to provide them with a sizeable portion of their retirement income.
To qualify for Social Security benefits, you must have worked for a minimum of 10 years and earned at least 40 Social Security credits. You can earn up to four of these credits per year by paying Social Security taxes, commonly known as FICA. Once you’ve met these criteria, you may begin taking Social Security benefits at age 62.
Your benefits are calculated based on the average of your 35 highest years of earnings, and the amount of benefit you receive is determined by the age at which you begin taking benefits in relation to your full retirement age (as established by the Social Security Administration).
Taking Benefits Prior to Full Retirement Age – If you elect to begin receiving benefits before your full retirement age, the amount of benefit you receive will be permanently reduced throughout your retirement. The amount of reduction depends on the number of months remaining until your full retirement age, so the earlier you begin receiving benefits, the smaller the amount will be.
Taking Benefits at Full Retirement Age – Your full retirement age depends on the year in which you were born, and ranges from 65 to 67. Once you reach full retirement age, you will be entitled to receive 100% of your Social Security benefits.
Taking Benefits After Full Retirement Age – If you elect to delay the start of benefits until after your full retirement age, you can receive an even larger monthly benefit throughout retirement, and the benefits increase for each year you delay, up to age 70. To calculate your projected monthly benefit, use the Social Security Administration’s calculator at www.ssa.gov.
Receiving Benefits While Working – If you continue working and begin collecting Social Security benefits before reaching full retirement age, you may be subject to an earned-income penalty. Once you’ve reached full retirement age, you can work and earn an unlimited amount of income without being penalized. Regardless of your age, you will still be required to pay Social Security and Medicare taxes on your earnings if you continue working while receiving Social Security benefits.
To Learn More About Social Security – For more information on the role that Social Security benefits will play in your overall financial picture and when may be the best time for you to begin receiving benefits, consult your financial advisor as well as legal and tax advisors regarding your particular situation.
Angela K. Sugimura is a Senior Vice President/Investments and Branch Manager with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, and can be reached by calling the firm’s Murrieta office at (951) 461-7220 or toll-free at (866) 894-2461.