After all your years of working, saving, and paying taxes, you’re finally approaching retirement, and it’s time to ensure your benefits and income sources are in place. For many retirees, Social Security benefits make up a sizeable portion of the funds you’ll need to maintain your retirement lifestyle. But there are a lot of things to consider related to your Social Security benefits, and you need to start the process well in advance of when you actually intend to retire. You also need to be well informed about all your options and how these choices will impact your Social Security income and, potentially, the income available to a spouse.
Accessing Your Social Security Account
Don’t forget that everyone who works and pay taxes—either self-employment taxes or withholding from wages paid by an employer—has an account with the Social Security Administration. If you’re thinking about retirement and you haven’t already done so, the first thing you need to do is create your free online access to your Social Security account. It’s easy, it’s free, and maybe most important, setting it up properly makes it more difficult for hackers to steal your identity and, potentially, your Social Security benefits.
To get started, go to https://www.ssa.gov/myaccount/. There, you’ll be able to click on a button, “Create an Account,” and the program will walk you through the process. You’ll need to provide some basic information and create a user name and password. When you’ve done that, you’ll be able to log in to the site and view your Social Security statement and earnings record, use various online calculators, and access information you’ll need in order to make informed decisions and plans regarding your Social Security benefits. When the time comes, you can also use your online access to submit your application for Social Security benefits.
Qualifying for Social Security
To qualify for benefits, you must have at least 40 credits: these are accounting units used by the Social Security Administration (SSA) to assess how much and for how long you or your employers have been paying into the Social Security system. In 2024, for example, you earn one credit for every $1,730 earned in wages or self-employment income. When you’ve earned $6,920, you have four credits, which is the maximum number of credits you can earn in any year. The amount needed to earn credits is adjusted each year in accordance with national wage statistics.
In addition to securing credits each year towards eligibility, the amount of money you earn (and on which you pay Social Security tax) also factors into your future benefits. Each year 12.4% of your annual earnings (up to $168,600 in 2024) are contributed towards your Social Security benefits. Most people pay 6.2% from their paychecks, while the employer pays the matching 6.2%. For those who are self-employed, the 12.4% is part of the applicable self- employment tax.
There are various types of benefits available, and each has different requirements for qualification:
- Retirement income benefits: You must have 40 credits to qualify.
- Survivor benefits: Paid to the spouse or children of a deceased worker, the amount of the benefit is determined by the length of time the worker or their employer paid into the system. Qualification for survivor benefits can begin with as few as six credits.
- Disability benefits: If a worker is disabled, they may qualify for Social Security Disability Insurance (SSDI). Qualification depends on the age at which the disability occurred. For workers disabled at age 24 or younger, as few as six credits may be needed. For those 31 and older, a minimum of 20 credits will usually be required.
- Spousal benefits: A spouse who has little or no Social Security wages or earnings may qualify for a benefit on the basis of a spouse’s earnings record. Even if you are divorced from the spouse, if the marriage lasted at least ten years and you have not remarried, you may qualify to receive a spousal benefit, subject to age requirements (discussed below).
Options for Collecting Benefits
The timing for when you start collecting benefits, along with the type of benefits you choose (if you have the option of collecting spousal, disability, or death benefits) are perhaps the two most important decisions you’ll make concerning your Social Security account. The amount of your benefit will be determined by how much you have paid into the system and by your age at the time you begin receiving benefits. You can begin receiving benefits as early as age 62 (“early retirement”), but your benefit will be reduced permanently. Your full retirement age (FRA), at which you will receive your full benefit, is determined by your date of birth.
- For those born 1943–1954: age 66
- For those born 1955–1959: age 66–67 (see “Full Retirement Age Chart” at https://www.ssa.gov/benefits/retirement/planner/agereduction.html)
- For those born after 1960: age 67
You do not have to begin taking your benefit at full retirement age, however. In fact, if you delay receiving benefits past your full retirement age, your benefit will increase by 8% per year (for those born 1943 or later) until age 70. Once you reach age 70, your benefit will not increase, no matter how long you wait. So, for example, if you are at full retirement age at 66 and your benefit is $2,500 per month, by waiting until age 70 to claim your benefits, the monthly amount would increase to around $3,300.
For spousal benefits, you may apply as early as age 62, but the benefit will be reduced, as discussed above. At full retirement age, your spousal benefit cannot exceed one-half of the benefit for which your spouse is qualified. If you have your own earnings record and your benefit would be greater based on that, you will receive your own benefit instead of a spousal benefit. Your spousal benefit will not increase past full retirement age, regardless of whether your spouse delayed receiving benefits or not. Spousal benefits do not affect the amount of benefits payable to the spouse on whose earnings record they are based.
Deciding to retire is a big step, and it bears careful consideration. In addition to decisions about Social Security, you also need to think about any pension income you’ll be receiving, how your retirement accounts (401Ks, IRAs, 403Bs, and others) are positioned, and even whether you plan to continue working part-time to supplement your retirement income. Getting your mind around all these factors can be overwhelming, and this is where a qualified, professional, fiduciary financial advisor can really help. An advisor can help you make sure you’ve considered all your sources of income, help you forecast your tax situation in retirement, provide assistance with investments, and advise about such matters as the timing of your Social Security benefit, spousal benefits, and a host of other practical matters. The Planning Center is a fiduciary financial advisor, which means that any guidance or advice we give is delivered with the client’s best interests foremost. To learn more, visit our website to read our article, “When Is Retirement Age? Well, It Depends…”
