Social Security has been a key part of the American retirement scene since 1935. Today, some people question its long-term viability, with only 31% of 18-39 year olds convinced it will be there when they retire, compared to 82% of those aged 60 and older. But the Social Security trustees say - and the numbers back them up - that even without changes, the system can pay full benefits through 2042, or even 2052, and that payments after that would still cover 73% of benefits. So, while there are clearly solvency issues to address, one thing is certain: Social Security will continue to play an integral role in retirement planning for the foreseeable future. In fact, for people with average earnings at normal retirement age, Social Security could replace as much as 55% of after-tax earned income. Even for high-wage earners, that number could reach 25%. That's why it's critical to understand this program's basic principles, so you can make the most of the choices you'll be offered.
What you need to know and understand about Social Security
largely depends upon your age.
If you are between the ages of 25 and 54:
- Pay attention to your yearly statement which is mailed to you approximately three months before your birthday.
- The statement is called "Your Social Security Statement."
- Examine closely the section, "Your Estimated Benefits." You will see estimates for monthly retirement benefits at age 62, at your full retirement age, and at age 70. There are also estimates for disability and survivors benefits.
- Examine closely the section, "Your Earnings Record." Review this chart carefully each year to ensure that your information is correct and that each year of work is recorded.
Visit www.socialsecurity.gov/mystatement for more information or to request your personalized statement.
If you are between the ages of 55 and 61:
- Continue to track your estimates and earnings on your yearly "Your Social Security Statement."
- Think about what age you plan to apply for retirement benefits. Age 62 is the earliest possible retirement age for Social Security. Retiring at this age will permanently reduce your benefit amount by approximately 25 percent of what it would be if you waited until full retirement age. Full retirement age is 65 for people born before 1938. After 1938, the "full retirement age" gradually increases in small increments until age 67 for people born in 1960 or later. Your full retirement age is provided on "Your Social Security Statement" or can be found at www.ssa.gov/retire2/ where you can also use the benefit calculators to test out different retirement ages or future earnings amounts.
If you are between the ages of 62 and 70:
- Congratulations! You are either collecting or soon to collect your retirement pension from Social Security. Here is what you need to know.
What Influences Benefit Amounts:
Most people know that retirement benefit payments are based on how much you earned during your working career, with higher lifetime earnings resulting in higher benefits. If you had years when you did not work or had low earnings, your benefit amount will be lower than if you had worked steadily. Contrary to popular myth -- that only your three highest years of earnings are used to arrive at your benefit amount -- Social Security uses the 35 years in which you had your highest earnings to compute your benefit amount.
Generally, people should apply for retirement benefits no more than four months before they want their benefits to begin.
When you decide to retire is another key factor in how much your benefit amount will be. There are basically three different scenarios regarding the age choice:
- The earliest possible retirement age for Social Security is 62. You can receive benefits beginning with the first full month you are age 62. Retiring at this age will permanently reduce your benefit amount by approximately 25 percent of what it would be if you waited until "full retirement age."
- "Full retirement age" is 65 for people who were born before 1938. After 1938, the "full retirement age" gradually increases in small increments. For example, if you were born in 1940, your "full retirement age" is 65 and 6 months. If you were born in 1950, your "full retirement age" is 66. People born in 1960 or later have a "full retirement age" of 67, which is when the increments stop. Visit our How To File for Social Security page to find out your "full retirement age."
- Delayed retirement is another option if you decide you want to keep working beyond your full retirement age. This will increase your benefit amount by approximately 8% every year up to age 70. At age 70 there is no longer a financial advantage to delay retirement.
There are pros and cons associated with each of the age options. Outside influences - health and life expectancy, spousal employment, military service, other family members and personal financial assets and plans - all play a part in your retirement and future. Using our website and drawing on the guidance of our Financial Advisors, you can "walk through" some of these decisions to find what's right for you. It's a start down the path to "the good life, uninterrupted."
Sources:
- Barbara Basler, Changing Social Security-Will Young People Go for It? (AARP Bulletin, March 2005.)
- Thomas N. Bethell, What's the Big Idea? (AARP Bulletin, April 2005.)
- Social Security Administration, SSA Publication No. 05-10045, ICN460275, January 2008
- Social Security Online, www.socialsecurity.gov
