Social Security – Understanding the Benefits
Most people who’ve had paid employment in the course of their lives now have a Social Security savings fund available to assist them when they’re no longer earning a regular wage. While having the account can assure a steady income after retirement, the value of that stream can be markedly different based on how and when those funds are withdrawn. If you’re contemplating drawing on your social security funds, remember these points to ensure you maximize – and enjoy – the fullest possible value from those carefully saved dollars.
How the Government Calculates the Value of Your Social Security Benefits
Firstly, the social security income (SSI) amount you’re qualified for isn’t just the value of the dollars you’ve invested over the course of your working career. That would mean your benefit would be paid out at the same value it had when you made your contribution to it. However, a dollar invested in 1965 is now worth $9.75, and that increase in value is also reflected as a rise in the prices you’re paying now versus then. Accordingly, the government ‘indexes’ your annual wages over time and then establishes a payout value that reflects both your inputs and the economic changes that impact their value. The product of that equation becomes the value of your SSI benefit.
Another factor impacting the value of your benefit is when you elect to begin drawing on that account. Most people realize that the longer an asset remains invested and untouched, the more valuable it becomes (usually). That premise holds true with your social security money. The longer your SSI account remains untouched, the more value it gains, which can lead to a payout of higher benefits in the long run. Note, too, that it’s not just that the amount of available funds escalates as you continue to make payments before claiming your benefits. You’ll also receive a higher monthly payout because you’ll be receiving those funds for a shorter period of time. Not surprisingly, the challenge many people have is calculating when is the best time for them to begin making those withdrawals.
FRA – What It Is and Why It Matters
The phrase ‘Full Retirement Age’ (FRA) actually refers to the moment when you become entitled to 100% of all your SSI benefits. Today, people born in 1956 reach their FRA at age 66 years, four months. Those born in 1957 get an additional two months (66 years, six months), while those born in or after 1960 qualify at age 67. People who wait until they reach their FRA will receive the maximum value of those benefits. But actual age is just one factor to consider when deciding on the best time to begin making your SSI claim:
- You don’t have to wait until you actually reach your FRA to begin drawing on that resource. You can elect to take an ‘early retirement’ and start drawing your benefits as early as the age of 62, and many people consider early retirement necessary due to health or family concerns. There’s a penalty for doing that, though. The government can reduce the value of your monthly benefit by as much as 30% if you begin claiming it before your FRA.
- To counterbalance that early-claiming penalty, however, the government also offers an incentive for delaying claiming your benefits. By waiting until after your 70th birthday to make your claim, your SSI benefits can grow by as much 32% (depending on your actual FRA).
- You also don’t need to stop working when you reach your FRA. The government calculates your benefit value based on the highest annual wages you’ve earned in your best 35 years of working, whenever those occur. If you do not have 35 years of paid employment by the time of your FRA, then your benefit is calculated based on the average annual wages of the years you have worked. Years with no earnings count as ‘zero’ dollars, which reduces the overall benefit value even further. If you’ve not accumulated 35 years of work and you’re approaching your FRA, consider continuing at your job for as long as possible to make up for that deficit.
Evaluating your current income, expenses, job opportunities, and other economic and financial factors can help you determine when you might want to start drawing on your SSI benefits.
Expert Advice – Accessing the Services of the Chesapeake Growth Network
SSI benefits are often just one element in a person’s retirement planning strategy, and those who contemplate the happiest retirement ensure that their plans are comprehensive of all available options and obligations.
- For example, SSI benefits can also trigger tax issues if the beneficiary has other significant financial assets available, such as investment income or dividends, self-employment income, or ongoing wages.
- Social security benefits can also play a significant role in estate planning. Surviving spouses, for example, can claim a portion of their deceased spouse’s SSI benefits. Likewise, the children or parents of a deceased worker might be eligible to receive some of the SSI benefits of their deceased parent or child, depending on the circumstances of the potential beneficiary.
The financial management professionals at Chesapeake Growth Network are available to help you work through these challenging issues and come to decisions that will benefit both you and your family while providing you with the confidence and peace of mind you want as you continue to live your best life.
Recent events have many people reflecting on how they’re going to spend their retirement years. Some are also considering how best to spend their retirement funds. Call us today to start the conversation if you’re looking at a possible retirement age and want to maximize your financial resources. And keep your eye on this blog. If you’re an employer, you’ll want to learn more about expanding employee benefits at no cost to you or your business.