Much like the fine print of a healthcare plan, understanding the ins and outs of the rules associated with Social Security can be as clear as mud.
It’s somewhat confusing and not as cut and dried as you’d like it to be.
You need to have as much information as possible because chances are, this is going to be your main source of income as you move into retirement.
It doesn’t help that the rules have recently changed.
The important things to know
Let’s dive into some of these factors.
- Age. A key factor is knowing the age at which you’re eligible for full retirement. These are the age standards as they are now:
- If you were born between 1943 and 1954, your full retirement age is 66.
- The age increases toward 67 for those born between 1955 and 1959.
- If you were born in 1960 or later, your full retirement age is 67.
- You can collect Social Security when you turn 62, however, your benefits will be permanently reduced by as much as 25.83%.
- Cost of living adjustment. The benefit amount is adjusted every year for inflation. This number is dependent on the federal consumer price index and fluctuates from year to year.
- Spousal benefit. Hold on, this can get tricky! One spouse can take up to 50% of the other spouse’s benefit. For example, if your benefit is worth $1,800 and your spouses is only worth $450, your spouse can take a spousal benefit, which would be $900, raising your total monthly benefit by $450. Keep in mind, you or your spouse would not receive the entire 50% if early retirement is taken.
- Survivor’s benefit. When your spouse dies before you, you’re eligible to receive up to 100% of what their benefit would have been, if you’re at full retirement age. This can begin at age 60; however, it will be reduced because the full retirement age hasn’t been reached. If you remarry before age 60, you forfeit the benefit. If you remarry after age 60, you may still collect on your deceased spouse’s benefit.
- Delaying benefits. Waiting can pay off in a big way. If you reach full retirement age and decide you aren’t ready to retire, you can delay taking benefits. This delay results in an increase in benefits, to the tune of 8% per year, until you reach age 70. This also applies to the survivor’s benefit.
- Taxes. Unfortunately, you’ll have to pay income taxes on your Social Security benefits. The amount is dependent on the amount of your income.
- Earning too much. If you decided to take early retirement and continue working, you will be giving up $1 in benefits for every $2 that you earn. Once you reach full retirement age, this is no longer an issue and you are able to make as much money as you’d like with no penalty.
When should you retire?
All of the different information surrounding Social Security can have you questioning when the right time is for you to sign up.
There are some handy calculator tools available that can give you some insight and help you narrow it down. Here are a few:
As you make your decision, keep in mind your Medicare enrollment at age 65. Remember, if you’re already signed up for Social Security by that age, you’ll automatically be enrolled!
Don’t stay confused! Contact InsureOne Benefits today and get on the road to understanding!