For some people Social Security benefits are almost an oversight when planning for retirement; they may have bulging savings accounts, healthy and diverse portfolios, 401ks, IRAs, CDs, pensions, real estate investments. I think you get the picture. For many others, Social Security benefits make up most or all of their retirement income.
What is Social Security? How does it work? Does everyone receive benefits? When can I receive benefits? Can I still work if I am receiving benefits? Will I have to pay taxes on my benefits? Will my benefits run out if I live a long time...This article will provide the answers to these and some other basic questions, leaving you with a better understanding of the fundamentals of Social Security benefits.
Social Security was created in 1935 by passage of the Social Security Act, marking the first time in United States history that the Federal Government had demonstrated concern for the financial welfare of older Americans. The underlying principal of the program is that when you are younger in life, and employed, you pay into the program through payroll deductions commonly known as FICA taxes. Later in life when its your turn to retire you get to collect the benefits by way of monthly checks from the Federal Government.
Social Security benefits are not just for retirees, you or even your children could qualify for benefits if there were a disability and you or they were unable to work. In the event of your death your spouse and or your children could qualify to receive benefits For individuals born after 1929, you need to accumulate at least forty credits in order to qualify for Social Security retirement benefits. The credits are granted, based on how much you earn. You can receive up to four credits per year. You will need to work for at least ten years in order to qualify for retirement benefits. The Social Security Administration mails out annual reports to all individuals detailing if and what they are qualified to receive.
You can start to collect benefits as early as the age of 62 however, the amount you collect each month will be less than the amount you would receive if you waited until you were closer to the age of 70. The basic principal here is that the longer that you wait until you start to collect, the more you can collect each month. How do you know at what age would it be best for you to start collecting benefits? This could easily be determined, but for one variable, knowing when exactly you will die. If you wait until your 70 years old to start collecting and then die at age 72 well you should have started collecting earlier because you only to got to collect for 2 years.
You can still work and earn an income even though you have elected to start receiving benefits, however the amount that you receive in benefits will we adjusted based on how much you are earning in additional income. Additional income also comes into play when discussing taxes and your Social Security benefits. Benefits can be taxable depending on how much income you have are receiving from other sources such as 401Ks, IRAs, pensions, annuities etc. etc.
There are many arguments that have been raised questioning the stability of Social Security system; Will it still be around when I retire? Will all the money have be soaked up by the baby boomer generation? Numerous studies have been conducted that both prove and disprove these theories. One basic theory is that if you are collecting benefits now or will be soon, say within the next 10-15 years, you will probably be able to collect the full amount you you entitled to. If you are younger than that, there is a strong probability that the amount of benefits that you would receive, would be reduced to some degree. That being said, regardless of age, the most prudent investors would do everything they can, to make sure, that they don't have to rely on Social Security retirement benefits as a main factor in their retirement planning. I imagine in a perfect retirement world, my Social Security benefits would be just extra spending money; a few thousand dollars a month to travel, help my children and donate to charities. For more detailed information on these topics and many others you can visit the Social Security Administration's web site at www.ssa.gov