The Backstory of Social Security
The Social Security program is designed to replace a portion of the income you were making before retirement. Your benefit will look different than your partners or friends because it’s based on your highest 35 years of earnings. That being said, your earnings aren’t the only variable; when you choose to receive your benefit will also impact the amount of your monthly check.
So how does Social Security actually work? And if there are variables, how can I find out how much I’ll receive from Social Security? I’m getting close to retirement, how can I be sure I start collecting Social Security at the right time for me? We’re here to provide insight to these common questions around fitting Social Security into your retirement plan.
While many enter the workforce after finishing school and never look back until retirement, others may leave the working world for a period of time, for various reasons. This is why a credit system was established — only those who contribute enough into the Social Security pot are able to draw benefits from it in retirement.
To receive Social Security benefits, you must obtain a minimum of 40 credits. 40 credits equate to 10 working years. It’s easiest to think of your working years in quarters when calculating credits; the terms quarter of coverage (QC), Social Security Credit, and credit, are all synonymous. For every quarter you work, you receive 1 credit or QC as long as you meet the current minimum earnings requirement of $1,510.
How Much Will I Receive from Social Security?
To quickly estimate your Social Security benefit, you can use the Social Security Administrations Quick Calculator. This calculator is best for people who have had a relatively steady income as it’s based on your birthday, current income, and projected retirement date. Here are a couple examples generated by the SSA Quick Calculator for an individual looking to retire in 5 years:
An individual born in June of 1962, with a projected retirement date of December 2027, and a current salary of $50,000 — their estimated monthly benefit is $1,398.
An individual born in June of 1962, with a projected retirement date of December 2027, and a current salary of $90,000 — their estimated monthly benefit is $2,087.
Because the true Social Security calculation considers your salary over 35 years, your figures will differ as your income likely fluctuated throughout your career.
For a more accurate look into your SSA benefit, log into your account at: https://www.ssa.gov/myaccount/
Once a log-in is established, you can easily see an overview of your income for every year you paid into Social Security. You can view your current projected benefit amount, but remember to regularly check back, especially if retirement is a ways in the future.
When Can I Start Collecting Social Security?
Americans can begin collecting social security benefits at the age of 62. Maximizing the number of monthly payments during your lifetime may look like the best strategy. So, why wait? Before making the decision, make sure you have a clear understanding of how deferral affects your monthly payment. This knowledge may steer you down a better path.
If you’ve been monitoring your estimated benefit, remember this is based on you waiting to collect until you reach your full retirement age, as determined by the Social Security Administration. 67 is the current full retirement age for anyone born in 1960 or later.
The government rewards retirees for pushing back their first deposit in exchange for a larger monthly payment. While a few months won’t make a noticeable difference, if you have the option to wait, a year or more will make a sizable difference.
Here’s how. The U.S. Government will increase your monthly payout by a set percentage each month you defer, up to the age of 70. The Social Security Administration has stated those born after 1943 will receive an 8% annual credit for each year they push back cashing in their benefit beyond their full retirement age.
However, taking your social security before your full retirement age will result in a permanent reduction in your monthly benefit. For those born 1960 and later, taking social security at age 62 will cost you a 30% reduction.
If you can wait until age 70, you will receive a substantially higher social security monthly payment compared to drawing your benefit at the age of 62. Like any retirement decision, it pays to know your options.
If I’m Nearing Retirement, When Should I Start Collecting Social Security?
While we always advocate for learning the benefits of deferring your first Social Security benefit, there are other factors to consider. Your other investments, retirement accounts, tax implications, spousal benefits — they all matter.
At Integrated Wealth Management, we take all of this into consideration to make a recommendation that will maximize your monthly retirement income, ensure your plan is tax-efficient, and guide you down a path aligned with your values and goals.
Meeting with an IWM advisor will bring great clarity to your retirement planning journey. If leaning on our decades of experience would bring you added peace of mind — reach out to schedule a meeting with a Financial Advisor today.
About Integrated Wealth Management
Integrated Wealth Management is owned by Burt Hutchinson, CPA, CFP®. We’re a CPA-led organization, meaning we’re here to handle your complex tax scenarios and provide cost-saving insight related to your financial plan.
We’re here to guide you through the 3 stages of retirement:
Uncertainty Stage: When you are within 10 years of retirement and have questions about how to make it work
Stability Stage: When you have reached the financial milestone to retire comfortably and confidently
Reflection Stage: When you are looking to leave a legacy
We are also here to provide experienced, empathetic support during times of loss, such as the death of a life partner. You need confidence and a sense of security to enjoy retirement. As fiduciaries with a fee-only structure, we never receive commissions. Free of ulterior motives, you can be sure we’re focused on your goals.
Continued Readings:
Sources:
“Quarter Of Coverage.” Social Security Administration, 17, August, 2022, https://www.ssa.gov/oact/cola/QC.html
“Social Security Quick Calculator.” Social Security Administration, 19, August, 2022, https://www.ssa.gov/OACT/quickcalc/
“Benefit Reduction for Early Retirement.” Social Security Administration, 30, August, 2022. https://www.ssa.gov/oact/quickcalc/earlyretire.html