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For most people, Social Security retirement benefits are a cornerstone of retirement income. Even for those who don’t rely solely on Social Security, it provides the foundation on which a financially happy retirement life is based.
Let us discuss some of its basic advantages for your post-retirement life along with clarifying a few things about Social Security.
Will waiting for more than 62 years help to receive more income?
You are usually entitled to receive Social Security retirement benefits at 62 years or older, if you have enough “work credits”. However, for your dependents, who are entitled to get benefits, it doesn’t fully depend on work credits.
A person needs to be a US citizen or a lawfully present person to claim the benefits. Coming back to the question, yes, waiting for a little more than 62 years can help you increase the percentage of monthly benefits you receive.
For example, if you wait till 63 years, you may receive about 8% more monthly benefits. Therefore, if you have other sources of income, it is wise to wait for a little longer even after your retirement for your to claim Social Security. The increased benefit that you get by delaying your Social Security claim can translate into significant additional income over your retirement life . You can maximize your monthly income if you wait till age 70 to collect your Social Security benefits.
Does Social Security help if the cost of living increases?
Many people are concerned about how to manage inflation post-retirement. Every year, the Social Security Administration decides how much to increase benefits because of Cost-of-Living increases. The COLA or Cost-of-Living Adjustment has increased Social Security benefits by about 1.6% in January 2020. The maximum amount of your earnings that is subject to Social Security tax increased to about $137,700 for 2020 .
Can your Social Security income get suspended due to this pandemic?
It is a concern for many. But, the advantage of Social Security income is that your payments won’t be suspended due to the pandemic even if Social Security offices are closed to the public. The Inspector-General of the Social Security Administration has warned the public not to believe in such fraudulent letters or threats that Social Security income will get suspended. The FTC also has warned people against believing similar frauds and Social Security scams related to the CoronaVirus pandemic. If required, you can communicate with your local Social Security Administration office over the telephone or fax to get the correct information.
Is Social Security just for your post-retirement life?
As you already know, Social Security income helps you with post-retirement income. Along with retirement benefits, you can get SSDI (Social Security Disability Insurance) protection and life insurance benefits.
According to the Social Security Administration,about 4.7% of people or their dependents claim Social Security disability benefits . The definition of Social Security itself states that it is a federal insurance scheme that provides benefits to pensioners as well as people who are disabled or unemployed.
However, to take advantage of disability benefits as well as unemployment benefits, you need to have worked for a certain number of years. The benefit amount is calculated on the basis of your pre-retirement paycheck and the age at which you’re claiming the benefit.
Also, as stated before, you may benefit from Social Security survivor benefits, too. How much benefit a survivor will receive depends on the age of the worker when he/she died along with his/her salary, along with the survivor’s age and relationship with the deceased person.
Of note, there are also Social Security spousal benefits. A person can get up to 50% of his or her spouse’s benefit at FRA or his/her own, whichever is higher.
In addition, divorced individuals may get Social Security retirement benefits on the basis of their ex-spouse’s record.
Is Social Security income taxable?
Depending on your other income, 0-85% of your Social Security retirement benefits may be taxable . In other words, 15%-100% may be tax-free.
Do you have to pay Social Security taxes even after retirement?
Unfortunately, income taxes still have to be paid in retirement. If you continue working past your Full Retirement Age or FRA, and have earned income, then you’ll have to pay Social Security taxes along with collecting your Social Security benefits. The additional taxes will help increase your monthly benefit depending on how much you had earned before and what amount you’re earning now.
You should note that if you collect Social Security before FRA and continue to work, your Social Security benefits will start at a lower level and may get reduced even more depending on your earned income. That is important because the lower level of benefits has a ripple effect throughout retirement. It may result in a significant reduction of your lifetime income. Hence, if you plan to work between 62 and your Full Retirement Age, there is an additional incentive to delay Social Security benefits.
Can your unpaid debt reduce your Social Security income?
Debt in retirement is a major concern for many people. However, usually, creditors or lenders can’t touch your Social Security payments. Therefore, your Social Security income will be untouched even if you have credit card debt or payday loan debt at retirement. But, certain debts, like federal debt, can reduce your Social Security payments. If you have unpaid federal taxes, the Treasury Department can levy a maximum of 15% of your Social Security benefit every month until the debt is paid off .
Therefore, it is advisable to repay your back taxes and other types of debts long before you reach Social Security retirement age. It is advisable not to resort to a payday loan because of its high-interest rates. However, if you’ve payday loans, it is better to repay them as soon as possible to avoid paying high interest. If your payday loans are legal, you can opt for payday loan debt consolidation or payday loan debt settlement to get rid of your debts. Also, try to repay your credit card debt as fast as possible so that you can save more every month towards a better financial future.
How can you increase your Social Security payments to the maximum?
Here are a few ways to maximize your Social Security income and secure your post-retirement life.
⦁ Try to work till 66 or 67 years to receive full payment. The longer you work, the greater your retirement benefit.
⦁ Try not to claim Social Security before 70 years of age. Delaying in claiming can help increase survivor’s benefits as well.
⦁ Increase your earnings as much as possible. In 2019, up to $132,900 were used to calculate your retirement payments. In 2020, it is $137,700.
⦁ Work for at least 35 years to get maximum Social Security benefits.
It should be clear now how important Social Security is for our post-retirement life. However, it is advisable not to rely only on Social Security income for your golden years. You should have other income streams post-retirement. If your company offers a 401(k) retirement account, then contribute into that account. You can also contribute into an IRA (Individual Retirement Account) to make your golden years financially secure.
This article may or may not reflect the views of Insight Financial Strategists.