5 Things to Know Before Applying for Social Security Benefits
If you're approaching retirement, then it's time to start thinking about Social Security -- and, specifically, about when and how to apply for it. With this in mind, I've drawn up a list of five things that someone on the verge of submitting an application might like to know.
1. Your benefits are safe
Much has been made of the solvency of the Social Security system over the last few years -- and for good reason. According to the most recent report from the commission in charge of the Social Security trust funds, the retirement fund could run dry within two decades if remedial measures aren't taken.
But even though this seems scary, there's absolutely no reason to be concerned that your benefits will cease to exist. First, even assuming that policymakers allow this to happen -- which seems unlikely, given the political clout of retirees -- there will still be enough money flowing into the system on an ongoing basis to fund 75% of projected benefits.
Secondly, you can take comfort in the fact that the Social Security system has been on the verge of insolvency before, specifically in 1983, but has never actually met that fate thanks to the intervention of the legislature. In fact, not only was insolvency avoided, but the corrective measures taken at the time yielded decades of surpluses and a current trust fund balance of $2.7 trillion.
2. Applying is easy
Given the reputation of governmental bureaucracy, you'd be excused for thinking that applying for Social Security is a long and frustrating experience. Fortunately, this isn't the case.
Here's how the Social Security Administration explains the process:
Social Security offers an online retirement application that you can complete in as little as 15 minutes. It's so easy. Better yet, you can apply from the comfort of your home or office at a time most convenient for you. There's no need to drive to a local Social Security office or wait for an appointment with a Social Security representative.
In most cases, once your application is submitted electronically, you're done. There are no forms to sign and usually no documentation is required. Social Security will process your application and contact you if any further information is needed.
3. To qualify, you need 40 credits
While it's tempting to assume that everyone qualifies for Social Security retirement benefits -- it is, after all, a social safety net -- this isn't necessarily true. This is because you have to accumulate 40 credits in order to be eligible for the program in the first place.
You're awarded credits for earning a certain amount of money each year. In 2014, for instance, workers receive one credit for every $1,200 in covered income, up to a maximum of four credits a year. Consequently, assuming you've earned about $5,000 or more each year for a decade, then you've likely accumulated enough credits to qualify for benefits.
It probably goes without saying at this point that most people end up with more than 40 credits after a lifetime of work. That's great, but unfortunately, additional credits have no bearing on the size of your benefits. The 40-credit threshold is binary; you either satisfy it or you don't.
4. When you can apply and start receiving benefits
While this seems like a relatively straightforward issue, there are a couple of nuances that muddy the water.
First, even though 62 is the official age at which you can begin receiving benefits -- and it's the most prevalent age for people to do so -- you can apply for the program as early as three months before your 62nd birthday. As a general rule, in fact, the Social Security Administration encourages all retirees to apply for benefits three months before they want to begin receiving them, as this allows time to address any complications that arise in the process.
Second, you won't actually receive benefits the month of your 62nd birthday. This follows from the fact that benefits are only paid for months in which you qualify for the entire month. As a result, unless your birthday falls on the first day of the month, then you don't officially qualify for benefits until the following month.
Moreover, even if your birthday is on the first day of the month, your check won't arrive in your mailbox until a month later, as benefit payments are made in the month after the one they cover. Thus, if you turn 62 on Oct. 10, then your first check will come through in December -- one month after your first full month of eligibility.
5. How big will they be?
The size of your monthly Social Security check is a function of two things: how much you earn during your working life and when you begin receiving benefits.
The most important number here is your primary insurance amount. This is the amount you'll receive each month if you wait until reaching your full retirement age to apply for benefits. It's determined by way of a three-tiered formula that gives you progressively less credit for higher levels of income.
It's important to remember, however, that your primary insurance amount will only equal your actual benefits if you wait until your full retirement age to take them. If you apply for benefits before then, they're reduced by a predetermined amount each month. Meanwhile, if you apply for benefits at a later age, then they will be larger than your primary insurance amount. To learn more about this, click here.
These are known as actuarial adjustments, and they're made by the Social Security Administration in an attempt to ensure that people receive roughly the same amount in cumulative benefits regardless of when they choose to apply for them.
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