10 Things You Need to Know About Social Security

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By S.Z. Berg

NEW YORK -- Anxiety that Social Security benefits won't be available in retirement has inspired plenty of fear among American consumers. Amid the gloom, there is cause for slight optimism: the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds aren't projected to run out until 2034, gaining a year of solvency over last year's projections, according to the recently released Social Security Board of Trustees annual report on the health of the Social Security Trust Funds.

Reports like this, combined with media skepticism, have led many Americans to believe that the safety net of Social Security won't be around to catch them when they fall into retirement.

However, some Social Security experts believe that the federal government won't allow Social Security to become insolvent when so many Americans rely in part or in full on Social Security during their retirement years. Rather, they believe that there may be a reduction in pay out or a hike in taxes.

"The Social Security system is good shape," says Louis D. Johnston, professor of economics at Saint John's University. "Current taxes are funding current benefits. When current taxes start to dip below the amount needed to pay current retirees, the Social Security Administration will begin selling some of its holdings of U.S. Treasury bonds and use the proceeds to pay retirees."

At that point, Johnston says it will be necessary to do some combination of increasing taxes slightly, raising or removing the earnings cap on earnings that are subject to Social Security tax or increasing the retirement age.

"I would say that anyone under the age of 55 should adjust downward their expectations for the retirement benefits they will receive," says Ken Moraif, a certified financial planner and senior adviser at Money Matters in Plano, Texas. "Most likely an increase in the eligibility age and some form of means testing would save the system."

Considering and understanding Social Security is of the essence for most consumers: Social Security retirement benefits typically replace 40 percent of pre-retirement income, according to the Social Security Administration.

Whether retirement is around the corner or years down the road, you should know that Social Security decisions are complex, and making a mistake could cost you tens of thousands of dollars. Here are 10 Social Security tips to consider:

1. You may have to pay tax on your Social Security income. About 40 percent of Americans pay taxes on their Social Security income. If you're married and file a joint return, you'll have to pay taxes if your total income is more than $32,000. If you're single, that number drops down to $25,000.

2. You may qualify for Social Security even if you're divorced. If you were married for at least 10 years, you're eligible to collect Social Security based on your ex-spouse's record, if you're not married when you become eligible for Social Security. To top it off, your ex-spouse doesn't have to know about it. It won't affect his or her Social Security income. Further, if you signed a divorce decree relinquishing your rights to Social Security on your ex-spouse's record, those clauses won't be enforced. To boot, you may collect a higher rate of Social Security, if your ex-spouse predeceases you.

3. File and suspend for increased income. Married couples can increase their Social Security retirement income by implementing a little-known strategy. When one spouse turns 66 years old, he or she can file for Social Security retirement income and then immediately suspend it. This allows the second spouse to claim spousal benefits (35 percent of the first spouse's benefits) at age 62, even if the second spouse never worked. By waiting until age 66 years, the second spouse can collect 50 percent of her spouse's benefits. Meanwhile, if the second spouse worked, his or her benefits continue to grow.

4. How old you are when you start to collect Social Security has a big impact on the amount of your monthly benefit. In general, the older you are when you decide to start collecting Social Security, the larger your check. You can start collecting Social Security as early as age 62, but if you want a bigger check, you must wait until your full retirement age, which is 66 years for individuals born between 1943 and 1954 and 67 years for individuals born in 1960 or later. For those born in between 1955 and 1959, there's a gradual climb in age qualification. Social Security benefits are said to increase 8 percent for each year you delay collecting pay after your full retirement age.

5. You must work for at least 10 years to qualify for Social Security retirement income. However, they don't have to be consecutive years.

6. You can increase the amount of your Social Security check. By working longer, you can replace low-income years with higher-income years. This is good news for individuals who were unemployed for a period of time and those who got better jobs or promotions. Further, years with no income won't replace years with income, even if they come closer to retirement.

7. There is a maximum benefit that you can receive. This year, individuals who have reached full retirement age can collect as much as $3,501 a month.

8. Teachers and other government workers may not qualify for full Social Security benefits. The Windfall Elimination Provision, or WEP, reduces the amount of Social Security that retired and disabled workers get who receive pensions from employment not covered by Social Security.

9. You can get an idea of how much Social Security retirement income you'll get by using the Social Security Administration's retirement estimator.

10. You can view your Social Security information online. If you're 18 years old or older, you can see your earnings record, estimates for how much Social Security income you'll have at retirement and more at www.socialsecurity.gov/myaccount.
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