The attorneys at our firm counsel clients who have concerns about all the different stages of aging, and the active retirement years will come first. If you have questions about investments or individual retirement accounts, we would be glad to provide you with answers and help you map out a financial plan that leads to a bright future.
Social Security will definitely be part of the foundation of your retirement plan unless you are extremely wealthy. This being stated, you have to fully understand the limitations of the program. In this post, we will provide some useful information that you should digest when you are thinking about what life will be like as a retiree.
Social Security Parameters
When you work and pay FICA or self-employment taxes, you earn retirement credits that lead to eligibility for Social Security. At the time of this writing in 2019, you get one credit for every $1360 that you earn. You can accumulate as many as four credits in a year, so even if you work part-time and make just under $6000 during the year, you would accrue the maximum four credits.
After you have at least 40 credits, you will qualify for Social Security when you reach the age of eligibility. This means that you only have to work for 10 years to become eligible, but the size of your benefit will be tied to the amount that you made during your 35 highest earning years.
We should point out the fact that there is a ceiling on the portion of your earnings that are subject to Social Security taxes. Right now, the maximum is $132,900, and there are typically adjustments each year to account for inflation.
There are some rather convoluted rules when it comes to the age of eligibility to collect your full benefit. If you were born between 1943 and 1954, you become eligible at the age of 66. It then goes up by two months per year, so if you were born in 1955, you could receive a full benefit two months after your 66th birthday.
This two-month per year graduation ends at the year 1960. People born during that year and after become eligible for a full Social Security benefit at the age of 67.
You don’t necessarily have to wait until you become eligible for your full benefit. When you are as young as 62 years of age, you can apply for an early Social Security benefit, but there is a huge downside. Depending on your year of birth, you would receive a 25% to 30% reduction in your benefit.
It is also possible to go in the reverse direction and delay the submission of your application for Social Security until you are as old as 70. If you go this route, you earn delayed retirement credits that will increase your benefit by 8% for every year that you delay.
Anticipated Benefit Amount
The Social Security Administration used to mail out statements annually to let you know how much you can expect when you start to receive your benefit based on your current earning trajectory. A number of years ago, this practice was discontinued to save money, but you can register your account on their website and get this information at any time.
As we touched upon above, there is a maximum amount of income that can be taxed for Social Security purposes, so there is also a maximum benefit. If you made the maximum contribution for 35 years, you would receive $2861 per month. However, if you took advantage of the delayed retirement option, this would go up to $3770 per month.
The average Social Security benefit for a single recipient in 2019 is $1422 a month. This equates to just over $17,500 per year. Clearly, this is not going to finance a very comfortable retirement, even if you and your spouse both receive the average benefit.
Schedule an Elder Law & Estate Planning Consultation!
We would be glad to help you devise a comprehensive plan for aging. If you would like to schedule a consultation, we can be reached by phone at 913-262-2000, and there is a contact form on this website that you can use to send us a message.