Elder law attorneys help people prepare themselves for their senior years, and income is certainly going to be a huge part of the equation. Most people will not be able to live comfortably on Social Security alone, but it is an important piece to the puzzle, so you should know exactly what to expect.
Before we proceed, we should point out the fact that you can register your account on the Social Security Administration website to find out the path that you are on at any given time.
Every American citizen does not automatically qualify for Social Security. When you are working and paying FICA or self-employment taxes, you earn retirement credits. In 2019, you get one credit for every $1410 that you pay taxes on. The maximum annual accrual is four credits.
Once you have 40 credits, you will qualify for Social Security when you reach the age of eligibility. For the record, you would also qualify for Medicare coverage at the age of 65.
It is possible to begin to collect your Social Security benefit when you are as young as 62 years of age under currently existing laws. However, you have to think long and hard before you go this route for a couple of different reasons.
Your benefit would be reduced if you accept Social Security as soon as you can possibly receive some type of payout. The exact reduction would depend on your year of birth, but it is somewhere between 25% and 30% for an individual.
The other major negative is the fact that there is a limit on how much you can earn without being penalized if you take your benefit early. During the current calendar year, this amount is $18,240. Your benefit is reduced by one dollar for every two dollars that you earn above this amount.
Full Retirement Age
While the eligibility age for Medicare is cut and dried at 65, for Social Security, it is quite a bit different. Your age of eligibility will vary depending on the year of your birth. For people born between 1943 and 1954, it is 66 years of age.
It then goes up by two months per year, so someone born in 1955 could start to receive a full benefit a couple of months after their 66th birthday. This two-month per year arrangement goes on until 1960 when it reaches 67, and this is the age for anyone born during that year or later.
As we touched upon in the opening, Social Security in and of itself will certainly help during your retirement years, but the average payouts are modest. This year, the average Social Security benefit is $1503 per month for a single person. The maximum monthly benefit for someone retiring at full retirement age is $3011.
Delayed Retirement Credits
If you are in a position to do so, you may want to exercise some patience with regard to your application for your benefit. Your payout will rise by 8% for every year that you delay after you are old enough to collect a full benefit. You can accumulate delayed retirement credits until you are 70, and after that, there is no reason to delay any further.
The standard benefit amount is based on your 35 highest earning years, and this can add another incentive to delay your application submission. To explain by way of example, let’s say that you earned $15,000 per year at the beginning of your career when you were in your 20s.
For the purposes of this example, we will say that you were making $100,000 per year during the years that you delayed. These higher earning years would replace the years during which you earned the least, and as a result, your benefit would increase when you start to receive it.
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