FOR A BETTER RETIREMENT
What do I need to know about Social Security?
Can you count on Social Security? The Congressional Budget Office projects that given tax revenues, the Social Security Administration may not be able to support expected benefits in future years.
Expected Payout of Social Security Benefits
While reform is expected to address future shortfalls, benefits for baby boomers are not likely to be affected.
A Social Security estimator tool is available for you to use
Calculating Social Security
The amount of Social Security benefit you receive is based on two factors:
- How much you earned over your working career
- The age at which you apply for benefits
How to estimate your Social Security benefit
You may begin taking Social Security retirement benefits as early as age 62, but your benefit will be greater if you wait until your full retirement age (FRA), which is defined by the IRS based on the year you were born. You can receive benefits while you are working, but if you are younger than your FRA, benefits will be permanently reduced. Once you start taking benefits, there may be an annual cost-of-living adjustment to your benefit determined each year by the Department of Labor. View the chart on the next page for more information on FRA.
How it works
To calculate your Social Security benefit, each year’s earnings are tallied up and indexed for inflation. The highest 35 years of earnings are averaged and then run through a formula to determine your benefit. The formula is complex and depends on which year you were born. Before you take Social Security, you should examine your earnings record from your latest Social Security statement, available online at socialsecurity.gov/mystatement. Review it for accuracy and missing years to make sure your benefit will be calculated correctly.
When to take Social Security benefits
There isn’t a simple formula to tell you when to collect Social Security benefits. However, there are some important factors to consider such as health status, life expectancy, need for income, whether you plan to work in retirement and the needs of your surviving spouse. To receive 100% of your Social Security benefit, you must wait until your full retirement age.
Strategies for making the most of Social Security
Work longer and delay taking your benefit until age 70
For each year you delay taking benefits after your full retirement age up until age 70, the annual benefit increases by 8%, which equates to more income later on. If you apply early, your benefit starts lower and stays lower for life. The annual cost-of-living adjustment to your benefit will also magnify the impact of when you claim your benefit. Working longer before you claim may also have the benefit of improving your earnings record since the calculation takes into account your highest earnings years.
Will Social Security Be Enough?
Consider using a spousal benefit strategy
What is it?
For married couples, each spouse has the option of taking Social Security benefits using their own earnings record or collecting spousal benefits, a process that uses his or her spouse’s earnings record to calculate benefits. You can’t do both. The spousal benefit generally equates to 50% of the full benefit.
When to use it?
Typically, this strategy is used when the lower-earning spouse’s Social Security benefit would be more if using the spousal benefit rather than collecting on his or her own benefit.
Can I use it?
To utilize this strategy, you must have been born before 1954. You typically must wait until your spouse files for his or her benefit first before you can claim the spousal benefit.
Will Social Security Be Enough?
- If you are divorced, had been married for at least 10 years and are not remarried, you can collect the greater of your own benefit or 50% of your ex-spouse’s benefit.
- If you are a widowed spouse, you are eligible to collect the greater of your own benefit or 100% of your spouse’s benefit.
Hypothetical Example: Spousal Benefit Approach Can Pay Off