Deciding when and how to file for your Social Security retirement benefits is one of the most important decisions you’ll make when it comes to your retirement because it will provide a foundational level of income that will last a lifetime. Filing for Social Security can be complex and if you’re like most Americans, you probably have several questions surrounding Social Security. We’ll break down some common questions about Social Security and answers to help improve your knowledge of the topic.
How Does Social Security work?
Your Social Security benefits are based on a percentage of your average income you made over your career, adjusted for inflation. As long as you had at least 10 years of taxable income (Social Security is looking for 40 calendar quarters total), you’ll generally qualify.¹
Qualifying means you’ll gain access to guaranteed retirement income, survivor benefits and income that’s taxed more favorably than other sources of ordinary income. With these benefits in mind, today’s retirees are asking how to get the highest monthly benefit. Beginning in their mid-50s, near-retirees should consider that Social Security is basing benefits on the worker’s highest 35 years of income. If the worker was out of the workforce for a period of years (perhaps caregiving or raising a family), those years of $0 income may be able to be offset by working a few years longer than planned before retiring. To ensure you’re getting the highest level of benefits possible, it’s important to check your earnings history by regularly reviewing www.ssa.gov/myaccount/
2. Will Social Security be around when I retire?
About 70% of American adults worry that the Social Security program will run out of benefits in their lifetime2, so it is no surprise that this is a common question. The latest Board of Trustees report estimates that benefits will remain fully payable until at least 2033, with 76% of benefits payable thereafter.3 Because today’s workers are always paying into Social Security, benefits likely won’t go away, but unless Congress makes changes, the system may not be able to pay the full amount of promised benefits.
For most retirees, Social Security only replaces about 30% of pre-retirement income for the elderly,4 so it is important to have a diversified income stream in the case of Social Security funding not being fully where it is now.
3. If I start collecting Social Security, can I back out and start collecting later?
Delaying benefits as long as possible (up to age 70) can often result in a higher level of benefits, but some may choose to file early. If you started collecting and then change your mind (maybe you decide to work a little longer), you can withdraw your application up to 12 months from when you become entitled to the benefits. The process is called a withdrawal and you can reapply for Social Security benefits later. You are only allowed one withdrawal per lifetime.6
An example of why you might want to back out and start collecting benefits later is if you decide you want to work again. Working can impact your Social Security benefits in a variety of ways. Our blog on Working After Retirement addresses how this impacts Social Security benefits.
4. Will the Social Security Administration ever call me?
For the most part, the Social Security Administration should not contact you by phone. If they do call you, it’s most likely because you requested a call from them or you have an ongoing case with them. Scammers via robocall or live callers have become increasingly prevalent in the past few years, and you should be aware of the signs of what this looks like. If a scammer calls you, they could threaten arrest or legal action claiming there is fraud with your account, and in exchange for help they could ask for wire transfers, retail gift cards, or cash via mail. The SSA provides some additional guidelines on what to watch out for in regards to scammers calling you.
It is important to keep your identity safe. If you receive a questionable call about Social Security, hang up and report it to the Office of the Inspector General. If you believe you’ve been a victim of identity theft, file a police report and then download and fill out the Federal Trade Commission’s Identity Theft Victims’ Complaint and Affidavit. Then send copies to your credit card company and the credit bureaus to let them know about the problem and make sure you’re on track with getting your identity back.
5. What is the Social Security break-even age and what does that mean?
As Americans start to live longer, we are likely to need our Social Security benefits for a greater period. For some people, it could make sense to delay taking Social Security, which could potentially grow your monthly benefit, while helping you accumulate more in total lifetime benefits throughout your retirement. For others with health conditions or lower life expectancies, it might make sense to start their Social Security benefits sooner, even if that means the benefits are reduced.
Fortunately, financial professionals trained in Social Security retirement benefits often have software that can model your total lifetime benefits based on when you file for Social Security. It will show break-even ages that may surprise you, but ultimately will also help you feel more confident about the age you choose to begin receiving benefits.
6. How do spousal benefits work?
For Married couples, they will receive two Social Security benefits per month. When one of the spouses dies, the other will continue to receive the higher of the two checks per month. Since the household will now be going from two checks per month to one, the overall amount they are receiving will decrease, but they will still be able to receive the greater of the two checks. Married couples should strongly consider working with a financial professional to ensure the higher wage earner makes a well-intentioned filing decision and optimizes their benefits.
7. Will I make less from Social Security if I have a pension?
While less common for today’s retirees, pensions have historically been a source of retirement income for many Americans, but some pensions can affect your Social Security benefits. Payroll taxes are used to fund Social Security, and this appears on your pay statement as FICA (Federal Insurance Contribution Act) or OASDI (Old Age, Survivor, and Disability Insurance). If you work for an employer that does not withhold FICA taxes from your wages, such as some government agencies or nonprofit organizations, the pension you receive from that employer may reduce the amount of benefits from Social Security.
8. I am self-employed. Can I still qualify for Social Security?
If you are self-employed, you can still qualify for Social Security. The main difference here is that generally if you are working for a company, that company will pay half of your Social Security taxes and you will pay the other half. Since you are self-employed, you are the employer, and you must pay both halves of the Social Security tax. Beyond that, not much is different when it comes to filing for Social Security, and you would receive it the same way that a traditional employee who worked for a company would.7
9. Can I really earn benefits off my ex-spouse?
You may be able to claim benefits on a former spouse’s record. If you are divorced, you may qualify for benefits based on your ex-spouse’s record if:
| · Your marriage lasted 10 years or longer
· You have not remarried · You are at least age 62 · Your benefit is less than the benefit you would receive based on their work |
Your ex-spouse is entitled to Social Security retirement or disability benefits
10. If I file for reduced benefits at age 62, do they increase when I reach my full retirement age?
Your lower benefits are locked in for life when you file early (outside of any annual cost of living increases due to inflation). According to the Social Security Administration,8 one in four of us file for benefits at age 62 and nearly half of us file before full retirement age. Over a lifetime, the total amount lost in lower benefit payments can be considerable! Especially with today’s record levels of inflation, it’s important to optimize your benefits and get as much help as possible determining the filing strategy that helps you get the most from your Social Security retirement benefits.
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Sources
[1] https://www.ssa.gov/benefits/retirement/planner/credits.html
[2] “The Nationwide Retirement Institute® 2022 Social Security Survey,” conducted by The Harris Poll. This online survey was conducted April 25 through May 23, 2022 among 1,853 U.S. adults aged 26 or older
[3] “The 2021 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,” Social Security Administration (August 2021).
[4] “Social Security Fact Sheet,” Social Security Administration (September 2021). Data as of June 30, 2021.
[5] https://www.ssa.gov/benefits/retirement/planner/withdrawal.html
[6] https://www.aarp.org/retirement/social-security/questions-answers/which-states-do-not-tax-social-security-benefits.html, Accessed June 2022
[7] https://www.thebalance.com/how-social-security-works-for-the-self-employed-5194580, Accessed June 2022.
[8] 2020 Annual Statistical Supplement, Table 6.A4,” Social Security Administration.
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Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.