The Social Security Administration says that 21% of married couples and 43% of single seniors depend on Social Security for 90% or more of their income. 59 million Americans receive a monthly check, either for being over 65 or for a disability claim.
Those numbers tell the story: Social Security is important, or very important, to a large number of us. That leaves one of the key questions before the deposits start appearing in our checking account: when to start?
As I have written in earlier posts, there is no simple answer. Because there are so many variables no one can give you a fail-safe answer. Your best approach is to understand the factors that help you make the decision that right for you.
Let's start with the basis:
1. If you have worked at least ten years you are likely to qualify. The actual requirement is 40 credits, which occur at the rate of four for each full year of employment. Those 10 years do not have to be in a row, they just have to occur before you can claim benefits.
2. Your actual monthly benefit is based on your highest 35 years of earning. As point #1 above states, you don't have to work 35 years to qualify, but the amount you receive will be based on the highest income you earned if less or more than 35 years. This means lower earnings when you begin your career are usually replaced with higher earnings later in your employment history.
3. If you never worked, or not enough to get 40 credits, you may still qualify for Social Security payments, either as the spouse of an employed person who does receive benefits, or because you qualify for disability payments.
4. Deposits to your account run one month behind. When you sign up to start receiving payments, your first deposit will come the following month. Exactly when you receive your check each month is based on your birth date.
5. Social Security no longer sends physical checks through the mail. You must make arrangements for direct deposit. The other option is for your funds to be deposited into a special debit card that can be used like any debit card for purchases or to get cash at an ATM.
Now, on to some of the fine print:
A. When you start receiving payments is up to you. The earliest is when you turn 62. The first payment will arrive the next month. Staring at 62 will reduce your monthly check by about 25% from what you would receive if you waited until you reach your full retirement age (FRA). For most of us that is 66. The FRA varies by your birth year, moving up two months for every year after 1954. So, if you were born in 1955, your FRA is 66 years and two months.
B. You can start receiving payments at any time after your 62nd birthday until age 70, at which point your check will be approximately 30% higher (depending on your exact FRA). There is no reason to wait past 70 since benefits do not increase after that date. You are just leaving money with the government that you will never get.
C. You lose $1 in Social Security benefits for every $2 you earn if you start before your FRA, continue to work, and earn over $1,420 a month. There is a different calculation in the year you reach your full retirement age that lessens this penalty.
D. After your full retirement age, there is no reduction in Social Security payments regardless of how much you earn.
E. Social Security benefits are taxed depending upon your total income and marital status. If you exceed the rather low minimums set by the government, between 50% and 85% of your Social Security income will likely be taxed. And, yes, your Social Security counts as part of your total income to determine if it will be taxable.
Ok, so now that you have a grasp of the basis, when should you start taking the monthly benefits? Here is what to consider:
1. Do you need the maximum amount of payment to make your financial picture work? Do you have enough other income, or will you keep working until at least 70? If so, it is suggested you start Social Security when you turn 70. Your benefits will be at their highest level for the rest of your life.
2. Do you need income now to keep things afloat or as additional income while still working? Start at 62 or any year after that until 70. Your check will be permanently reduced, but maybe not enough to make up for the loss of cash now. For example, I began taking payments at 64. Waiting until 66 would have meant only $132 more per month which didn't seem worth it.
3. Spousal benefits require another calculation which is beyond the scope of this post. Basically, you can get an amount equal to half of your spouse's check, or your own amount if that is higher. Social Security will figure out the proper combination to insure your monthly check is the maximum allowed. Obviously, this benefit is not available to single folk.
4. If married and your spouse dies, there are other provisions to provide benefits based on the amount your partner was receiving. I have provided some links below if you'd like more details.
5. Divorced? There are rules for that, too. See the link below.
When your start your Social Security payments takes some thought and planning. Frankly, though, it is not as complicated as some financial experts like to make it. Start when receiving that monthly payment fits your current needs, situation, and future projections.
Any questions? Leave a comment or drop me an email and I will try to clear up any confusion!
Spousal Benefit Regulations
Widow/Widower Survivor Regulations