Solving the Mystery of Medicare and Social Security - Part 2 of 3 - Wage Benefits

Welcome to part 2 of our series "Solving the Mystery of Medicare and Social Security"  where we look at Social Security Wage Benefits

There are four main types of Social Security Wage benefits:

1. Retirement benefits: Available to workers who are at least 62 years old and have earned enough work credits through your employment career (typically 40 credits).  The benefit amount is based on your average lifetime earnings over your 35 highest-earning years

2. Social Security Disability Insurance (SSDI): Benefits to adults 18 or older who are unable to work due to a physical or mental disability expected to last at least 12 months or result in death

3. Supplemental Security Income (SSI): Needs-based program for people with limited income and resources who are over age 64, blind, or disabled

4. Survivors Benefits: Available to family members of deceased workers who qualified for Social Security

How Social Security Retirement Benefits Work

Social Security retirement benefits are designed to replace a portion of your pre-retirement income.  The amount you receive is based on your lifetime earnings.  Some key points to understand:

• Eligibility:  To qualify for retirement benefits, you typically need to earn 40 credits, which is equivalent to about 10 years of work
• Full Retirement Age (FRA): Your FRA depends on your birth year and ranges from 66 to 67 years old. (Born between 1943-1954 - age 66; gradually rises to age 67 for those born in 1960 or later)  NOTE: You can start receiving your Social Security retirement benefit as early as age 62, but the amount you receive will be less than your full retirement benefit amount.
• Benefit amount: The average monthly retirement benefit was $1,869.77 as of June, 2024.
• Claiming Wage Benefit While Still Working: If you are younger than full retirement age and earn more than the yearly earnings limit ($22,320 for 2024), your wage benefit will be reduced.

Planning for Retirement with Social Security 

While Social Security provides a foundation for retirement income, it shouldn't be your sole source of funds. Here are some strategies to incorporate Social Security into your retirement plan:

1. Estimate your benefits: Use the Social Security Administration's online calculator to get a personalized estimate of your future benefits.
2. Decide when to claim: You can start receiving benefits as early as age 62, but your monthly amount will be reduced. Waiting until your FRA or even up to age 70 can significantly increase your benefit amount
3. Consider your overall financial picture: Social Security typically replaces only a portion of your pre-retirement income. Aim to have additional sources of retirement income, such as 401(k)s, IRAs, and personal savings
4. Verify your earnings history: Regularly check your Social Security earnings record to ensure accuracy, as your benefit amount is based on this information.  Access your earnings history at www.ssa.gov  (you must set up an account)
5. Understand the impact of working in retirement: If you claim benefits before your FRA and continue working, your benefits may be temporarily reduced depending on your earnings.
6. Plan for taxes: Up to 85% of your Social Security benefits may be subject to income tax, depending on your total income

Maximizing Your Social Security Benefits

To get the most out of Social Security, consider these strategies:

• Delay claiming: Your benefit increases by 8% for each year you delay claiming after your FRA, up to age 70.
• Coordinate with your spouse: If you're married, carefully consider how and when each spouse should claim to maximize your household's total benefits.
• Work for at least 35 years: Since your benefit is based on your 35 highest-earning years, working longer can potentially increase your benefit if you earn more later in your career.

Remember, Social Security retirement benefits are just one piece of the retirement puzzle.  It's crucial to have a retirement plan that includes other savings and investment vehicles.  We recommend you consult with a financial advisor to create a strategy tailored to your unique circumstances and goals.  

By understanding how Social Security retirement benefits work and planning accordingly, you can make informed decisions that will help ensure a more secure and comfortable retirement.

Next up, Part 3 where we will discuss what you need to know about Medicare. 

 Retirement Ready? Know Your Social Security Benefits

Knowledge is power ~ #TeamKoppinger