Social Security

9 FACTS ABOUT SOCIAL SECURITY

Tip: How Much? Check your Social Security earnings and see an estimate of your benefits on the Web site, www.ssa.gov.

Social Security’s been a fact of retirement life ever since it was established in 1935. We all think we know how it works, but how much do you really know? Here are nine things that might surprise you.

  1. The Social Security trust fund is huge. At $2.8 trillion at the end of the first quarter of 2016, it exceeds the gross domestic product (GDP) of every economy in the world except the five largest: the U.S., China, Japan, Germany, and the U.K..¹
  2. Most workers are eligible for Social Security benefits, but not all. For example, until 1984, federal government employees were part of the Civil Service Retirement System and were not covered by Social Security.²
  3. You don’t have to work long to be eligible. If you were born in 1929 or later, you need to work for 10 or more years to be eligible for benefits.³
  4. Benefits are based on an individual’s average earnings during a lifetime of work under the Social Security system. The calculation is based on the 35 highest years of earnings. If an individual has years of low earnings or no earnings, Social Security may count those years to bring the total years to 35.⁴
  5. There haven’t always been cost-of-living adjustments (COLA) in Social Security benefits. Before 1975, increasing benefits required an act of Congress; now increases happen automatically, based on the Consumer Price Index. There was no COLA increase in 2016, but there was an increase of 0.3% in 2017.⁵
  6. Social Security is a major source of retirement income for 62% of current retirees.⁶
  7. Social Security benefits are subject to federal income taxes — but it wasn’t always that way. In 1983, Amendments to the Social Security Act made benefits taxable, starting with the 1984 tax year.⁷
  8. Social Security recipients received a single lump-sum payment from 1937 until 1940. One-time payments were considered “payback” to those people who contributed to the program. Social Security administrators believed these people would not participate long enough to be vested for monthly benefits.⁸
  9. In January 1937, Earnest Ackerman became the first person in the U.S. to receive a Social Security benefit—a lump sum of 17 cents.⁹

Fast Fact: How Many? In an average month, 48.2 million people age 62 and older receive a retirement benefit from the Social Security Administration.
Source: Social Security Administration, 2016

1. Social Security Administration, 2016. Assets as of March 31, 2016. CIA World Factbook, 2016.
2-5, 7-9. Social Security Administration, 2016 and 2017 
6. Employee Benefit Research Institute, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

SOCIAL SECURITY: BY THE NUMBERS

Here are five facts about Social Security that might surprise you.

WHEN SHOULD YOU TAKE SOCIAL SECURITY

The Social Security program allows you to start receiving benefits as soon as you reach age 62. The question is, should you?

Monthly payments differ substantially depending on when you start receiving benefits. The longer you wait (up to age 70), the larger each monthly check will be. The sooner you start receiving benefits, the smaller the check.

From the Social Security Administration’s point of view, it’s simple: If a person lives to the average life expectancy, the person will eventually receive roughly the same amount in lifetime benefits no matter when he or she chooses to start receiving them. In actual practice, it’s not quite that straightforward, but the principle holds.

The key phrase is “if the person lives to average life expectancy.” If a person exceeds the average life expectancy, and has opted to wait to receive benefits, he or she will start to accumulate more from Social Security.

Tipping Point

The chart shows how Social Security benefits accumulate for individuals who started to receive at ages 62, 67, and 70. The person who started to receive benefits at age 62 would accumulate $620,064 by the age of 85. Conversely, the person who started to receive benefits at age 70 would accumulate $679,296 by the age of 85.

The example assumes the maximum retirement benefit of $2,687 at age 66. It does not assume COLA.

Source: Social Security Administration, 2017

There is no single “right” answer to the question of when to start benefits. Many base their decision on family considerations, economic circumstances, and personal preferences.

If you have a spouse, the decision about when to start benefits gets more complicated—particularly if one person’s earnings were considerably higher than the other's. The timing of spousal benefits should be factored into a decision.

When considering at what age to start Social Security benefits, it may be a good idea to review all the assets you have gathered for retirement. Some may want the money sooner based on how assets are positioned, while others may benefit by waiting. So as you near a decision point, it may be best to consider all your options before moving forward.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

THREE KEY QUESTIONS TO ANSWER BEFORE TAKING SOCIAL SECURITY

Social Security is a critical component of the retirement financial strategy for many Americans, so before you begin taking it, you should consider three important questions. The answers may affect whether you make the most of this retirement income source.

  1. When to Start? You have the choice of 1) starting benefits at age 62, 2) claiming them at your full retirement age, or 3) delaying payments until age 70. If you claim early, you can expect to receive a monthly benefit that will be lower than what you would have earned at full retirement. If you wait until age 70, you can expect to receive an even higher monthly benefit than you would have received if you had begun taking payments at your full retirement age. The decision of when to begin taking benefits may hinge on whether you need the income now or can wait, and whether you think your lifespan will be shorter or longer than the average American.
  2. Should I Continue to Work? Work provides income, personal satisfaction, and may increase your Social Security benefits. However, if you begin taking benefits prior to your full retirement age and continue to work, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($16,920 in 2017).¹ If you work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($44,880 in 2017) until the month you reach full retirement age. After you attain your full retirement age, earned income no longer reduces benefit payments.²
  3. How Can I Maximize My Benefit? The easiest way to maximize your monthly Social Security benefit is to simply wait until you turn age 70 before receiving payments. 
  1. Social Security Administration, 2017
  2. Social Security Administration, 2017

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG  Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Social Security can be complicated and, as a result, many individuals don’t have a full understanding of the choices they may have. Here are five facts about Social Security that are important to keep in mind:

1. Social Security Is a Critical Source of Retirement Income

Some have the perception that Social Security is of secondary or even tertiary importance in retirement. But according to a report by the Social Security Administration, Social Security replaces about 40% of an average wage earner’s income after retiring.¹

Keep in mind that Social Security makes annual cost of living adjustments based on the Consumer Price Index and, under current laws, pays income for life and the life of your spouse.²

2. You Have a Choice for When You Take Social Security

You have considerable flexibility for when you can begin receiving your benefits.

As the accompanying illustration shows, the full retirement age, i.e., the age at which full retirement benefits are payable, depends upon when you were born.

Age for Receiving Full Social Security Retirement Benefits

Year of BirthFull Retirement Age
1943-195466
195566 and 2 months
195666 and 4 months
195766 and 6 months
195866 and 8 months
195966 and 10 months
1960 or later67

(Important Note: Though full retirement age varies, you also may want to consider applying for Medicare benefits three months before your 65th birthday; if you wait longer, your Medicare medical insurance and prescription drug coverage could cost you more.)

You may begin receiving benefits as early as age 62, though your benefits will be reduced at a rate of about one-half of 1% for each month you begin taking Social Security before your full retirement age.³

You may choose to delay receiving benefits until after attaining your full retirement age, in which case, your benefits are scheduled to increase by 8% annually. This increase under current law will be automatically added each month from the moment you reach full retirement age until you start taking benefits or reach age 70—the age at which these delayed retirement credits stop accruing. Plus, your benefit also will increase by any cost of living adjustments applied to benefit payment levels during that time.⁴

If you plan on continuing to work, you may still receive the full benefit for which you are eligible. Indeed, working beyond full retirement age can increase your benefits. However, your benefits will be reduced if your earnings exceed certain limits. If you work and start receiving benefits before full retirement age, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($16,920 in 2017).⁵

If you continue to work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($44,880 in 2017) until the month you reach full retirement age.

Once you have attained full retirement age, you can keep working and your benefits under current law will not be reduced, regardless of how much you earn.

As you can see, the decision of when to begin taking Social Security is a critical one.

3. Social Security May Be Taxable

Depending on your income level, your Social Security benefit may be subject to taxation. The chart below illustrates how your combined income (adjusted gross income + your nontaxable interest + one-half of your Social Security benefit) can impact whether your Social Security retirement benefit is subject to taxation.

Will Your Social Security Benefits Be Subject to Federal Income Taxes?

 50% of Benefit
Subject to Taxation
 
85% of Benefit
Subject to Taxation
 
Individual FilersCombined Income of
$25,000 to $34,000
 
Combined Income
Greater Than $34,000
 
Joint FilersCombined Income of
$32,000 to $44,000
Combined Income
Greater Than $44,000

This potential income tax exposure may have substantial implications for whether you choose to work in retirement, how your assets are invested, and the timing of withdrawals from other retirement accounts.

For instance, a withdrawal from a traditional IRA may lift your income beyond the thresholds described above, subjecting a higher proportion of your Social Security to income tax.⁶

The same is true of investment earnings in non-retirement savings. Retirees who have investment earnings in excess of their current spending needs may be subjecting their Social Security income to taxation. Shifting a portion of those assets to a tax-deferred instrument, such as an fixed annuity, may be one way to manage taxation on your Social Security benefit.⁷

4. Social Security Can Be a Family Benefit

When you start receiving Social Security, other family members may also be eligible for payments. A spouse (even if he or she did not have earned income) qualifies for benefits if he or she is age 62 or older, or at any age if he or she is caring for your child. (The child must be younger than 16 or disabled).

Benefits may also be paid to your unmarried children if they are younger than 18 or between 18 and 19 and enrolled in a secondary school as a full-time student, or if they are age 18 or older and severely disabled.

Each family member may be eligible for a monthly benefit that is up to half of your retirement (or disability) benefit amount. There is a family limit, which varies, but is generally between 150% to 180% of your retirement (or disability) benefit.⁸

Should you die, your family may be eligible for benefits based on your work record. Family members who qualify for benefits include:

  • A widow or widower
    • age 60 or older;
    • age 50 and older if disabled; or
    • any age if he or she is caring for your child who is younger than 16 or disabled and entitled to Social Security benefits on your record.
  • Unmarried children can receive benefits if they are:
    • under 18 years of age;
    • between 18 and 19 and are full-time students in a secondary school; or
    • age 18 or older and severely disabled (the disability must have started before age 22).

Your survivors receive a percentage of your basic Social Security benefit—usually in the range of 75% to 100% for each member, though the limit paid to each family is about 150% to 180% of your benefit rate.

5. A Divorced Spouse May Be Eligible for Benefits

If you are divorced, you may qualify for Social Security benefits based on your ex-spouse’s work record. To be eligible for benefits, your ex-spouse must have reached the age at which he or she is eligible to begin receiving benefits (though he or she does not necessarily need to be receiving them). To qualify, you need to:

  • have been married to your ex-spouse for at least 10 years;
  • have been divorced two years or longer;
  • be at least 62 years old;
  • be unmarried; and
  • not be entitled to a higher Social Security benefit based on your own work history.

If your former spouse is deceased, you may still receive benefits as a surviving divorced spouse (irrespective of the age he or she died), assuming that your ex-spouse was entitled to Social Security benefits, your marriage was at least 10 years, you are at least 60 years old and you are not entitled to a higher benefit amount based on your own work history. If you remarry before the age of 60, you will lose the ability to receive a survivor benefit from your deceased ex-spouse.

If your former spouse is living, the maximum amount that you are eligible to receive is 50% of what your former spouse is due at full retirement age. To receive the maximum benefit, you will need to wait until you have reached your own full retirement age.⁹

Your benefits are unaffected should your former spouse elect to take Social Security before reaching full retirement age or if your ex-spouse starts a new family.

  1. Social Security Administration, September 2016
  2. Social Security Administration, September 2016
  3. Social Security Administration, September 2016
  4. Social Security Administration, September 2016
  5. Social Security Administration, September 2017
  6. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  7. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
  8. Social Security Administration, September 2016
  9. Social Security Administration, September 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

SOCIAL SECURITY: MAXIMIZING BENEFITS

Most understand that waiting to claim Social Security benefits can result in higher monthly payments. However, many don’t know that there are other ways to maximize their benefits, some of which depend on their marital status.

Understanding the strategies for maximizing your Social Security retirement income benefits should be prefaced with a review of the three basic forms of retirement benefits:

  1. The Worker Benefit: This is the benefit you receive based on your own personal earnings history, and for which you become eligible after 40 quarters of work.
  2. The Spousal Benefit: This is the benefit paid to your spouse. For non-working spouses, this is 50% of the working spouse’s benefit. For working spouses, it is the greater of the benefit earned from his or her earnings or 50% of the worker’s benefit.
  3. The Survivor Benefit: This is the benefit paid to the surviving spouse, which is paid at a rate equal to the greater of his or her own current benefit, or the deceased spouse’s current benefit.

The first and most obvious strategy for maximizing your Social Security benefit is to simply wait to reach age 70 before beginning to take benefits. By waiting until age 70 to receive benefits, your monthly payments may increase by 32%, not including any cost of living increases that may be added to this amount.

 

Benefit Maximization Strategies
for Widows and Widowers

Remember, there is no spousal benefit for a widow/widower, but he or she does qualify for a survivor benefit that is equal to 100% of the deceased spouse’s benefit (versus the 50% spousal benefit if the working spouse is still alive). This survivor benefit is available at age 60.1

If you are widowed and also have worked for 40 quarters, you will have a worker benefit and a survivor benefit. This presents you with several choices. One choice is to file for the benefit that provides you the greatest monthly benefit amount.

Another choice may be to start your worker benefit at age 62 and then switch to the survivor benefit once you reach full retirement age. This option is advantageous in instances where the widowed spouse did not accumulate the same level of benefits as the deceased spouse. Choosing this option allows the surviving spouse to take the higher survivor benefit amount. Because there are no delayed retirement credits earned on survivor benefits, there is no advantage to waiting past full retirement age to apply for survivor benefits.

A final choice is to consider starting the survivor benefit at age 60 and then switching to your own worker benefit at age 70. This strategy allows you to begin receiving income based on the survivor benefit as early as possible and provides you time to build up the maximum worker benefit.

As you can see, there are ways you can potentially raise your Social Security benefits. These strategies can help you maximize your benefits beyond what is available to those who simply delay retirement to age 70.

  1. Social Security Administration, September 2017

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.