Understanding the Basics of Your Social Security
Social security serves as a vital resource, ensuring financial stability for millions of retirees, persons with disabilities and dependent families. Known for providing a standard income, it is designed to replace a certain percentage of a worker’s pre-retirement earnings. Understanding the basics of how this public retirement program exactly works is an important starting point in your retirement plan.
The Social Security Administration uses a complex formula based on your 35 highest-earning years to compute your primary insurance amount (PIA) which is basically the amount of your retirement benefits at full retirement age. So, the more you earn and the longer you pay into the Social Security system, the greater the amount of benefits you receive.
Aside from the retirement benefits, you are also protected against various contingests such as disability, premature death, etc., by providing disability and survivor benefits. If you become disabled before reaching retirement age or if you pass away leaving behind young children or spouse, the Social Security Administration provides them a certain percentage of your benefits.
Hidden Perks: The Not-So-Obvious Benefits of Your Social Security
While the Social Security provides guaranteed income, there are some less obvious perks that could significantly increase your financial safety net. Did you know that you may be able to claim retirement benefits for your spouse, ex-spouse, or minor children? These are some of the hidden benefits that you might be overlooking.
Spousal benefits can grant your spouse up to half of your retirement benefits. If you have been married for at least one year, your spouse will have the option to either receive the greater of their own retirement benefits or half of yours. On the other hand, benefits for your minor or disabled children may be available if they are younger than 18; 18 or 19 and a full-time student; or 18 or older with a disability that began before age 22.
There’s also the potential payout to your ex-spouse. If you have been married for at least 10 years and not remarried, your ex-spouse can claim benefits based on your record, too. This won’t reduce the amount of your Social Security benefits nor would it affect the amount of benefits your other family members receive.
Qualifying for Unique Social Security Benefits
In addition to standard benefits, there are unique Social Security benefits that certain individuals may qualify for. One such benefit is the survivor’s benefits. When a breadwinner dies, family members including children and surviving spouse may be eligible to receive a portion of the deceased’s benefits.
The Social Security Disability Insurance (SSDI) is another unique benefit that protects workers who have a severe physical or mental health condition preventing them from working for at least a year or is terminal. To qualify, one must meet the medical criteria for disability and have worked enough years to be “insured” for these benefits.
Then there’s the Supplemental Security Income program which provides additional income to people who are aged, blind, or disabled and have little to no income. This program ensures the basic needs for food, clothing, and shelter.
Methods for Maximizing Your Social Security Payouts
One method that could increase your Social Security payouts is waiting until the age of 70 to claim your benefits. While you’re eligible to claim benefits at the age of 62, every year you delay until 70, your benefits increase by a certain percentage.
Another method is to continue working. If you earn more now than you did in some of your 35 highest-earning years, you can replace those years with higher-earning ones, which could increase your benefits.
Finally, if you’ve been divorced and your ex-spouse is deceased, you may be eligible to claim survivor’s benefits. These are just a few methods that could maximize your Social Security payouts. It’s recommended to consult with a financial advisor to determine the best strategy for you.
How Delaying Social Security can Boost Your Cash Benefits
By delaying when you start collecting social security benefits, you can increase your monthly benefits. For every year that you delay your benefits past your full retirement age (up to age 70), your benefits will increase by up to 8 percent.
Not only would you receive a larger amount every month, but this increased benefit will be yours for the rest of your life. In addition, your increased benefit would be used to calculate surviving spouse benefits if you’re married.
Of course, deciding when to claim benefits is a personal decision and one that should be based on your individual circumstances. However, if you can afford to wait, delaying social security can significantly boost your cash benefits.
Harnessing the Power of Spousal Benefits
Spousal benefits in the world of Social Security can be seen as another form of hidden perk. Should you or your spouse earn significantly more than the other, the lower-earning spouse can opt to receive up to half of the higher earner’s benefit rather than their own.
Spouses are entitled to take a split approach, opting for spousal benefits at their own retirement age and then transitioning to their own delayed benefits later. This is a strategy known as ‘restricted application.’
Of particular note, is the fact that claiming spousal benefits doesn’t impact the higher-earning spouse’s own benefits. Your benefits remain unaffected if your spouse claims on your record. The ability to harness this benefit provides greater flexibility in retirement planning.
The Role of Work History in Your Benefit Size
Your Social Security benefits are calculated based on your lifetime earnings, specifically, your highest 35 years of income. If you worked fewer than 35 years, the calculation includes years with zero income.
This means, the more income you earn during your highest 35 years of income, the higher your benefits will be. If you worked in higher-paying jobs or saw significant income increases later in your career, your benefits could be larger.
However, Social Security imposes a cap on the amount of your earnings subject to taxation for Social Security purposes, so in a given year you’ll never pay Social Security taxes on more than that amount of earnings.
Understanding Changes to Social Security Benefits Over Time
Social Security is not static; it changes with time in response to various factors such as inflation rate, the political climate, and the overall economy. One of the most tangible changes that recipients may notice are the annual cost-of-living adjustments (COLAs).
COLA is the annual increase in Social Security benefits to counteract the effects of inflation. The increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This ensures that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.
Changes can also occur in the form of new laws and regulations. These changes may affect eligibility rules, taxation of benefits, retirement age, and more.
The Impact of Life Situations on Your Social Security Benefits
Real-life events can significantly affect your Social Security benefits. For example, marriage may allow you to claim spousal benefits. In the event of divorce, you might be eligible to claim benefits on your ex-spouse’s work record, if certain conditions are met.
Similarly, the death of a spouse can allow the surviving spouse to claim survivor benefits. Having children later in life can also affect your benefits, as the Social Security Administration provides benefits for dependents of retirement age.
Lastly, working in retirement could affect your benefits. Prior to your full retirement age, there is a limit on how much you can earn while receiving benefits. After full retirement age, you can work as much you want without affecting your benefits.
Best Practices for Making Social Security Claim Decisions
There are several factors you should consider when making Social Security claim decisions. First, consider your health and life expectancy. If you’re in good health and anticipate a longer life span, you might benefit more from delaying benefits to increase the amount you’ll receive.
Second, consider your current financial situation. If you need the income now, it might make sense to claim benefits early. However, if you can afford to wait, you’ll receive a larger monthly check later on.
Lastly, think about your family. If you have a spouse or dependents who rely on your income, the timing of when you claim benefits can affect the amount of money they would receive if you pass away. Considering these factors can help you make the best decision for your specific situation.
