After years of thinking of Social Security as a safety net for senior citizens,
baby boomers (people born 1946 – 1964) are realizing it is now their
turn to collect. This 80-year old program, originally designed to help
senior citizens escape poverty in their older age, is actually available
to anyone who has paid into the system and reached retirement age.
The following is a broad overview to help you start thinking about Social
Security as a valuable resource for your retirement and a benefit that
should be closely examined and coordinated with your overall retirement plan.
What is Social Security?
Social Security was established in 1935 to alleviate poverty among the
elderly during the Great Depression. It was created as a self-financing
program that would collect payroll taxes from workers which would immediately
be paid out in benefits to retirees.
Millions of Americans depend on Social Security. For many, it is their
primary source of retirement income. For others, it is an important supplement
to pensions and personal savings.
What are the benefits of Social Security?
Unlike other sources of income, Social Security offers a unique combination
of benefits, including:
- Steady, lifetime income
- Annual inflation adjustments
- Spousal and survivor benefits
- Strategies to maximize benefits
How much can you expect to receive?
The exact amount of your benefit is not computed until you reach age 62.
At that time, your annual earnings are indexed to account for wage inflation.
Once each year’s earnings are indexed for inflation, your highest
35 years of earnings are tallied and used in a three-tiered formula to
arrive at your monthly benefit.
If you worked more than 35 years, only the highest 35 years will count.
If you worked less than 35 years, the missing years will count as zeros.
The higher your earnings, the higher your monthly Social Security benefit
will be at your full retirement age.
When can you begin receiving benefits?
Full retirement age is the age at which you may begin receiving your full,
unreduced benefit. For people born between 1943 and 1954, full retirement
age is 66. For those born after 1960, it is age 67.
Early eligibility for Social Security begins at age 62. If you apply at
this age, your benefit will be reduced. If you delay the start of benefits
past age 66, you will earn delayed credits. For each year you delay the
start of benefits, your benefit increases by 8% per year up to age 70
(not including annual inflation adjustments).
When should you apply for benefits?
This is the biggest question facing baby boomers today, and one of the
most crucial aspects of Social Security planning. Anyone approaching age
62 is wondering: should I apply for benefits as early as possible and
grab as much as I can, as soon as I can? Or, should I delay benefits until
age 66 or even age 70, in order to receive a higher amount?
The answer depends on many factors, including your health, current and
future income needs, survivor needs, and much more. The when-to-apply
question should be considered in the context of your overall retirement
plan. In many cases, the best choice could be to select the strategy that
will give you the highest income later on, when you are likely to need
it the most.
Where can you go for more information?
Social Security website offers a wealth of information. From the home page, click on the “my
Social Security” button and register for a personal account. Once
registered, you can download current statements, check your earnings record,
and apply for benefits online.
For additional financial health information, please attend Torrance Memorial's
Financial Health Seminars.
Cristin Harris Rigg, CFP®, CDFA™ is a Certified Financial Planner and a Certified Divorce
Financial Analyst with Harris Financial Advisors in Torrance. She is Co-Chair
of Torrance Memorial’s Professional Advisory Council.
www.harrisfinancial.net. (310) 791-3226.