Social Security and Retirement Planning
Social Security Benefits were never set up to be the “sole” source of retirement benefits, but to be the foundation from which to build. On top of the foundation of social security benefits it was expected that most Americans would receive some type of pension benefits, have savings and investments, and possibly other forms of income, yet sadly that is not the case for many receiving benefits.
If you haven’t done so already, start early planning for the benefits you’ll receive at retirement. You need to work to earn Social Security “credits.” In 2017, you get one credit for each $1,300 in earnings. A worker can earn a maximum of 4 credits per year. For example: To earn 4 credits in 2017, you must earn at least $5,200. Earning 40 credits (10 years of work) throughout your working life will qualify you for a retirement benefit.
Full retirement benefits are paid after reaching Full Retirement Age. See the chart below:
Year of Birth Full Retirement Age
1937 or earlier 65
1938 65 & 2 months
1939 65 & 4 months
1940 65 & 6 months
1941 65 & 8 months
1942 65 & 10 months
1943 –1954 66
1955 66 & 2 months
1956 66 & 4 months
1957 66 & 6 months
1958 66 & 8 months
1959 66 & 10 months
1960 or later 67
Before your Full Retirement Age (FRA), you get a reduced monthly payment. Currently age 62 is the earliest age at which you can begin to collect benefits. If you wait past your FRA, you get an even higher monthly payment. Putting off receiving benefits will earn you Delayed Retirement Credits (DRCs) until age 70.
For example, if you were born from 1943 through 1954:
At Age Benefit to be Received
The chart above illustrations a great planning tool for delaying receiving your payments especially if you don’t really need the income.
How are Social Security Benefits Calculated?
Step1- Your wages are adjusted for changes in wage levels over time
Step 2- Find the monthly average of your 35 highest earning years
Step 3- The result is your “average indexed monthly earnings
You can expect to get only a percentage of your pre-retirement earnings.
Low Wage Earners will get approximately 55%; Average Wage Earners 41%; and High Wages Earners will receive approximately 34% of their pre-retirement earnings
As you can see, Social Security Benefits cannot and should not be our only source of retirement income. For those of you that have been procrastinating, let’s start planning!
For a convenient, and quick financial planning tool, go to:
www.socialsecurity.gov/estimator to create different scenarios based on different ages and earnings and the best time to start receiving retirement benefits.