Benefits and Social Security
Social Security was designed as a “safety net” of sorts. Aside from your personal savings, and an employer pension, Social Security provides you with the money you’ll need during your retirement. This benefit plan reaches nearly every family in America and is a significant source of income for many seniors.
There are about 38 million people who rely on Social Security for at least part of their income, and this number continues to grow as more and more people retire. Understanding how your benefits work will allow you to make the most of it.
More Than Retirement
The most popular view of Social Security is that it is merely retirement income. However, there are actually several types of benefits paid out under the Social Security plan. The program pays benefits for the disabled, pays money to a spouse or child of someone who receives benefits, pays money to a spouse or child of a worker to died, or pays money to a dependent parent of a worker who died.
Because Social Security provides more than just retirement income, you may be eligible for Social Security prior to retirement, depending on your circumstances.
Retirement Income
During your working lifetime, you pay Social Security tax and earn “credits.” As of 2012, you earn 1 credit for every $1,130 you earn. You get a maximum of 4 credits per year. You will generally need 40 credits to be eligible for Social Security. This usually translates into at least 10 years of work.
Choosing when you retire dramatically impacts some of your benefits. If you choose to retire before your full retirement age, for example, you’re retirement benefits paid under the Social Security system will be lower than if you had waited until your full retirement age.
If you were born between 1943 and 1960, for example, your full retirement age would start out at age 66 (if you were born in 1943) and gradually increase to age 67 (if you were born in 1960). If you delay taking benefits beyond your full retirement age, you’ll receive a gradual increase in your benefit amount until you start taking benefits or until you reach age 70, whichever comes first. On the other hand, you can always decide to take your Social Security benefits early. However, if you do, you’re income will be chopped down. At age 62, you may start taking benefits at a reduced rate of 1 percent for each month you start your benefit payment before your full retirement age.
That means that if your full retirement age is 66, and you sign up for Social Security when you’re 62, then you would only receive 75 percent of your full benefit amount.
You may also continue working while receiving benefits. However, if you do, you may receive reduced benefit payments. In general, if you receive benefits before your full retirement age, $1 in benefits will be deducted for each $2 in earnings you have above the annual limit. In 2012, this limit is $14,640.
In the year you reach full retirement age, your benefits are reduced $1 for every $3 your earn over the annual limit. Obviously, working and receiving benefits is possible, but far from idea. You paid in a lot of taxes. Consider holding off on taking benefit payments until you absolutely need them.
Disability Benefits
Social Security pays a disability benefit if you become disabled. This benefit payment is a little different from the private plans you might be used to. If you qualify for benefits under another government or private disability plan doesn’t, you will not necessarily qualify for benefits under Social Security. For example, most companies and government agencies consider a note from your doctor as mostly or totally satisfying the requirements for disability. The Social Security Administration does not consider this an automatic qualification for benefits. If you do become disabled, however, don’t wait to apply. The process may officially take several months, but many people see waiting times of up to a year before benefit payments begin.
Benefits For Family
Your family might be able to receive benefits under Social Security if you’re receiving benefits. For example, your spouse may receive benefits if:
- he is age 62 or older, or
- at any age if she is caring for your child (child must be younger than 16 or disabled)
Your unmarried children can also get benefits if they are:
- under age 18
- between 18 and 19 but enrolled in college as full-time students, or
- 18 or older and disabled (i.e. dependent on you for financial support)
In general, your family members are eligible for up to half of what you receive for retirement or disability up to 150 or 180 percent of your total retirement or disability benefit. The exact maximum benefit depends on various factors including the age you claim retirement benefits and the age of the family member claiming benefits under either the retirement or disability benefit program.
Survivor Benefits
When you die, your family receives survivor benefits. These benefits are like beneficiary payments to your spouse and child under a private retirement plan. Your family can collect benefits if:
- 60 or older and have been married to you for more than 10 years
- 50 or older and disabled(the 10 year requirement still applies)
- any age if she is caring for your child and the child is younger than 16 or disabled
If you are divorced from your spouse, she may still get benefits after you die. In general, your spouse must be:
- 60 or older and have been married to you for more than 10 years
- 50 or older and disabled(the 10 year requirement still applies)
- any age if he is caring for a child who is eligible for benefits and
- not eligible for an equal or higher benefit
- not currently married unless she remarried after age 60 (50 if disabled)
Death Benefits
Your beneficiaries are also entitled to a one-time payment of $255 at your death. While this doesn’t pay for much, it is still a benefit payable under the Social Security Benefits program. The payment is normally paid to your spouse or surviving children.
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