A whopping 70 percent of adults in their 20s through 50s fear that the Social Security program might be reduced or eliminated by the time they retire, and don’t know what to expect.1 It’s important for all adults to be informed of what awaits them when they reach Social Security retirement age. Read on for eight key facts everyone should know about the Social Security program.
Social Security Isn’t Going Broke—But Future Benefits May Be Reduced
According to the Center on Budget and Policy Priorities (CBPP), the latest Social Security trustees’ report provides assurance that the Social Security program can pay full benefits for the next 15 years, but it will then face “a significant, though manageable, funding shortfall.”2
Even in the worst-case scenario—where no steps are taken to shore up the program—benefits will only be reduced by about 25 percent for retirees beginning in 2034.[1]
Qualifying for Social Security Benefits
Not everyone will qualify for Social Security at retirement. To be eligible for Social Security benefits, you will need to earn a certain amount of credits in 2021—one credit per each $1,470 of earnings—for a maximum of four credits per calendar year.3 If you were born after 1929 and you’ve earned 40 credits—or 10 years of work history—you’ll be eligible for Social Security benefits.[2]
Calculating Your Benefits
Your monthly Social Security benefit will be based on the number of credits you’ve earned in your lifetime, the amount of your reported Social Security earnings, and the age at which you first claimed benefits. Someone retiring at full retirement age (FRA) in 2021 can receive a maximum benefit of $3,148 per month.4
Determining When to Draw Social Security
Deciding when to draw Social Security is often based on factors unique to each claimant. The longer you put off benefits, the greater your Social Security check will likely be. But people with major health issues are one group that may want to claim early benefits, to ensure they receive them for as long as possible. Those with a family history of longevity could maximize their individual benefit payments by putting Social Security off until age 70.
Pausing Your Social Security Benefits
If you begin to claim benefits but ultimately decide that it’s better to put them off, you’re able to suspend them with no penalty.[3] Each month in which you’re qualified for benefits but opt not to receive them will ultimately increase the benefit you’ll receive at full retirement age (67) or the maximum retirement age (70).5
Working While Collecting Social Security
It’s not only possible to continue working while collecting Social Security benefits, but it can often increase your total retirement benefit.[4] If you earn more than a certain amount while collecting Social Security, your current benefit may be reduced—but this amount is simply withheld and then provided to you when you fully retire. 6
Paying Taxes on Social Security
Those who have a substantial amount of non-Social Security income may find themselves paying taxes on their Social Security benefits. Social Security recipients may pay tax on 85 percent of their benefits if they file:
- Individually with a combined income of more than $34,000; or
- Jointly with a combined income of more than $44,000.
Most people who are married and file separately will pay taxes on Social Security earnings.7
Claiming a Spouse’s Benefits
Even if you’ve never worked outside the home or earned Social Security credits on your own, you may be able to claim Social Security benefits on your spouse’s record once they retire.8 Divorced spouses also can opt to claim on their ex-spouse’s record if they were married for at least ten years, are age 62 or older, and haven’t remarried.9
Social Security-related decisions can be complex, and there’s no one-size-fits-all solution for everyone. However, familiarizing yourself with the various facets of the Social Security program can help you optimize your benefits and ensure that you’re making the best decision for your unique situation.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
3 https://www.ssa.gov/oact/cola/QC.html
5 https://www.ssa.gov/benefits/retirement/planner/suspend.html
6 https://www.ssa.gov/pubs/EN-05-10069.pdf
7 https://www.ssa.gov/benefits/retirement/planner/taxes.html
8 https://www.ssa.gov/oact/quickcalc/spouse.html
9 https://www.ssa.gov/benefits/retirement/planner/applying7.html
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[1] https://www.cnbc.com/2018/06/11/what-social-securitys-budget-woes-mean-for-your-retirement-benefits.html
[2] https://www.ssa.gov/pubs/EN-05-10072.pdf
[3] https://www.ssa.gov/benefits/retirement/planner/suspend.html
[4] https://www.ssa.gov/benefits/retirement/planner/whileworking.html
