Social Security pays a monthly benefit to millions of older Americans. And for many seniors, that benefit is their primary or even sole source of income.
Meanwhile, there’s a good chance you’ll end up dependent on Social Security once your career comes to an end and you leave the workforce for good. And so it’s important to know a fair amount about the program before you’re set to retire.
But a large number of workers aren’t in that boat. A good 48%, in fact, say they aren’t getting enough of an education on Social Security, according to a recent Bank of America report. If you feel similarly, here are some important points about Social Security worth knowing.
1. Benefits have to be earned
Social Security doesn’t automatically pay you a monthly benefit once you reach a certain age. Rather, you have to qualify for benefits to get those monthly payments. And the way to qualify is earning enough income and paying taxes on that income to accrue enough lifetime work credits.
To get Social Security in retirement, you need 40 work credits in total, and you can collect a maximum of four per year. Now the value of a work credit can change over time. This year, for example, it takes $1,510 in earnings to earn a single credit. Come 2023, it will take $1,640 in earnings to snag one credit.
If you work full-time for a decade or more, you generally won’t have to worry about your future Social Security eligibility. But if you work on a part-time basis, you will want to track your earnings to make sure you’re entitled to benefits in retirement.
Now all of that said, it is possible to collect Social Security even if you don’t work a day in your life. That’s because the program will pay spousal benefits to those who are or were married to someone who’s eligible for Social Security. But if you’re single and expect to be for the rest of your life, then you’ll need to make sure to earn enough in your lifetime to get a retirement benefit of your own.
2. You get a choice of when to claim benefits
Social Security eligibility begins at age 62. But you’re not entitled to your full monthly benefit based on your personal wage history until full retirement age kicks in. That age is either 66, 67, or somewhere in the middle, depending on your year of birth. And so if you file for Social Security ahead of full retirement age, you’ll slash your monthly benefit in the process — for life.
Meanwhile, you can also delay your Social Security filing past full retirement age for a higher benefit. And just as any reduction you face for filing early remains permanent, so too will any boost you snag.
However, once you turn 70, there’s no sense in postponing your Social Security filing any further. At that point, delaying your filing won’t raise your benefits any more.
3. Your benefits won’t replace your income in full
Many people think they’ll be able to live comfortably on Social Security alone. But you should know that those benefits will generally only replace about 40% of your pre-retirement earnings if you bring home an average income. And most seniors need roughly twice that much money to cover their expenses and have enough money left over to enjoy their newfound freedom.
Of course, there are steps you can take to get more money out of Social Security, like delaying your filing until your 70th birthday. But all told, you should really make a point to have income outside of Social Security so you don’t wind up strapped for cash.
The more you know, the better
There may come a point in your life when Social Security plays a huge role in your finances. So if you’re not comfortable with your knowledge of the program, spend some time reading up on it to fill in those gaps.
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