Social Security is a federal program primarily funded through payroll taxes. For most people, it’s the most important part of their retirement income. According to the AARP, Social Security provides benefits to more than 55 million Americans. Despite how widespread the program is, many people have questions about how Social Security works. Read on to learn the answers to some of the most frequently asked questions about Social Security.
Who Can Receive Social Security?
Contrary to what many people believe, Social Security isn’t just for retired workers. Although retired individuals receive most of the program’s funding, the following groups can also receive Social Security:
- Disabled workers
- Dependents of workers
- Survivors (widows, widowers and children)
There are, of course, restrictions that apply to this program. If you want to get Social Security benefits when you retire, you need to work for at least 10 years. To get benefits under an ex-spouse’s earnings, you need to have been married for at least 10 years.
At What Age Do Benefits Start?
You can start collecting Social Security benefits as soon as you turn 62. However, most people try to wait until their full retirement age in order to receive the most benefits. If you do decide to start collecting Social Security before your full retirement age, your total benefit could be reduced by up to 25%.
The year you were born determines what your full retirement age is. If you were born between 1943 and 1954, your full retirement age is 66. That number slowly increases to 67 for those born between 1955 and 1959. Those born in 1960 or later have a full retirement age of 67.
There are also age restrictions for Social Security beneficiaries. Children must be 18 years and under in order to receive up to half of a parent’s Social Security benefit. The exceptions to this rule are when a child is 19 years old, but still a full-time student in high school or when a child is disabled and over 18.
How Much Will I Receive?
The monthly Social Security benefit you receive will be based on the 35 years in which you earned the most money. Those years don’t have to be in consecutive order – the program will factor in only the highest-earning 35 years out of all the years you worked. If you haven’t worked for 35 years, each year with no earnings is counted as a zero. You can increase your monthly benefit by working longer, even if it’s just part-time.
The maximum amount you can receive depends on the age at which you retire. As of 2012, you can earn a maximum monthly benefit of $2,513 if you work until your full retirement age. Basically, the longer you wait to start collecting benefits after you reach the age of 62, the more benefits you’ll receive. Social Security benefits increase for each year you delay taking benefits after age 62. In fact, they increase annually by between 7% and 8% up to age 70 (depending on what year you were born).
A great feature of Social Security is that benefits are increased in account for inflation. This is known as the cost-of-living adjustment (COLA). It’s an automatic feature that will help ensure that you’re provided for in retirement.
Do I Have to Stop Working to Collect Benefits?
You can receive benefits while you’re still working. However, this will temporarily reduce your benefits if you are below your full retirement age or earn more than a certain amount. The benefits will be increased once your reach your full retirement age to make up for that loss.
How To Sign Up For Benefits
The best way to sign up for Social Security benefits is to go to the official government website at www.SSA.gov. When signing up, you’ll be able to choose how you receive your benefits. The most popular option is by direct deposit into a bank account. The Department of Treasury has plans to phase out the option of paper checks and replace it with debit cards in the coming years.
Social Security benefits are an essential part of retirement income for most Americans. It’s important to plan ahead to make sure that you make the smartest moves in deciding when to start claiming your benefits. If you’re confused about how much you’ll receive in benefits and when you should start claiming them, speak to a financial advisor. You can also refer to www.SSA.gov to learn more about Social Security benefits.