In the United States, we start planning for retirement as soon as we start working. At one time, planning for retirement meant nothing more than paying into the Social Security Retirement System. Today, however, those benefits typically only represent a portion of one’s retirement plan. Knowing how the system works and how much to expect in Social Security Retirement benefits, however, remains a crucial component of most retirement plans. Toward that end, the Overland Park retirement planning attorneys at Parman & Easterday explain how your Social Security Retirement benefits work.
The History of the Social Security Retirement System
Social Security was established in 1935 by the Social Security Act. Prior to the establishment of the Social Security system, support for the elderly was undertaken primarily by families. The Social Security retirement program is based on contributions workers make into the system. While you are employed, you pay into Social Security and then you receive benefits later on, when it’s your turn to retire. On your paycheck, the contributions will appear as the Federal Insurance Contributions Act (FICA) taxes. For several decades after the birth of the Social Security retirement system many workers could realistically expect to live comfortably on the combined income from an employer sponsored pension and their Social Security benefits. Unfortunately, increases in Social Security benefits have not kept pace with the increases in the cost of living, meaning the average person can no longer expect to rely heavily on Social Security benefits to fully fund the lifestyle you want during retirement.
Qualifying for Social Security Retirement Benefits
To qualify for Social Security Retirement benefits you accumulate credits that are based on your earnings over the course of your working years. The amount you need to earn to accumulate a credit has increased over the years to keep up with inflation. For example, for 2019, you get one credit for every $1,360 you earn, up to a limit of four credits per year. Once a credit is earned it remains on your record forever. If you were born after 1929, you need 40 credits in order to receive Social Security retirement benefits. Therefore, most people alive today must have worked at least ten years over the course of their lifetime to be eligible for Social Security retirement benefits.
Can I Find Out What My Monthly Benefit Amount Will Be?
Several factors can impact the amount of monthly benefits you receive once you retire. If you want to know now how much you have paid in to date and/or what your benefit will be, you can get an estimate at any time. The Social Security Administration (SSA) mails out a summary of your benefits each year, about three months before your birthday. In addition, you can request one by calling the SSA (800-772-1213) and asking for a form SSA-7004, or you can download the form from the SSA website. Your statement provides a record of your earnings history, the number of credits you’ve accumulated to date, and an estimate of the retirement benefits available if you wait until full retirement age. You also have the option to estimate your benefit amount yourself using the Retirement Estimator tool on the SSA website.
How Does Retiring Early or Late Impact My Benefits?
Retiring early or late can have a significant impact on your monthly retirement benefit amount. The earliest you can start receiving payouts from Social Security Retirement is age 62 and the latest is age 70. You may choose to begin anywhere in that eight year span; however, the longer you wait to start getting payments the larger your monthly payments will be. If you wish to receive your “full” retirement benefits you will to wait until age 67 to start collecting benefits if you were born after 1960. If you were born between 1938 and 1960, full retirement age varies depending on what year you were born so you will need to check with the Social Security Administration.
Calculating exactly how much larger your benefit will be if you delay your retirement can get tricky; however, your monthly benefit amount could be reduced by as much as 25 percent if you start collecting your retirement benefits early, and will remain at that reduced rate for the rest of your life. Conversely, your monthly benefits will increase 8 percent for every year that you delay the start of your benefits up to age 70. Therefore, if you were born after 1960, and you wait until age 70 to begin collecting your retirement benefits, your monthly benefit amount will be 24 percent greater than if you had started collecting benefits at the age of 67, providing a strong incentive to delay the start of your retirement benefits if you can afford to do so.
Contact Overland Park Retirement Planning Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions about Social Security benefits and how they fit into your retirement plan, contact the experienced Overland Park retirement planning attorneys at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.