Looking toward retirement

SOCIAL SECURITY AND RETIREMENT

When can I begin to collect and how much will I receive? Can I even count on Social Security being available when I retire? These are common questions even young folks should be considering.

Retirement may be quickly approaching or just a distant dream. Regardless, it is important for retirement planning purposes, to consider the impact of your Social Security benefit. 

How do I qualify?

Working and paying Social Security tax earns you Social Security credits. You need 40 credits to be deemed “Fully Insured” by Social Security. What, 40 credits! Don’t worry, this can be achieved fairly quickly if you work full time and pay Social Security tax. You receive 1 credit per quarter or 4 credits per year, so after 10 years, you have met your “Fully Insured” requirement. Whew! How does it look if you only work part-time? “In 2020, you receive one credit for each $1,410 of earnings, up to the maximum of four credits per year” (How You Earn Credits 2020 ssa.gov). Let’s do some math: $1,410 ÷ 3 months (one quarter) = $470 per month ÷ 4 weeks per month = $117.50 per week required earnings to receive the quarterly credit. The U.S. Department of Labor indicates minimum wages ranging between low’s such as $5.15 per hour in Georgia and highs around $12 to $13 in California (State Minimum Wage Laws). At the $5.15 per hour a person in Georgia would need to work approximately 23 hours per week to qualify for the full quarter credit to be applied to Social Security. So even when you are young and going to college full time while working part-time, you may be contributing enough to earn yourself valuable Social Security credits. Cool.  

Here is a slight hitch, if you are a state or government employee, and you receive a state or government pension which did not require Social Security tax be paid, the Government Offset Pension applies. Your benefits will be reduced (Government Pension Offset). Call me, I’m happy to help you calculate this reduction based on your specific situation.

When do I qualify?

We covered the ‘how’ of qualifying, now let’s consider the ‘when’ aspect. Full retirement age (FRA) is the age you qualify for 100% of your benefits. FRA depends on the year you were born and ranges between ages 66 and 67.  

You can begin taking your Social Security benefit as early as age 62, but this will forever lower your benefit amount by as much as 30%. A reduction of 30% is quite significant so be vary careful to properly run your retirement budget before applying early. Seek the advice of both your financial planner and tax professional before you apply.  

Conversely to taking Social Security early which will decrease the amount you receive, you can wait past FRA and your benefit will increase by as much as 32%. The year you were born will determine how much of an increase you will be eligible to receive (Retirement Benefits ssa.gov).

Is there a perfect sweet spot age for a person to begin taking Social Security? You may be able to determine your optimal age when taking into consideration a variety of factors. Do you have a spouse who is preparing to collect or already collecting? Are you healthy? Do you have longevity in your family history? Do you have other assets available as a source of income when you retire? These circumstances and more should be considered carefully prior to determining your maximized Social Security start date. Again, seek the advice of both your financial planner and tax professional before you apply.

Anticipated benefit & cyber security

Your current estimated benefit at early start age of 62, full retirement age (FRA), and age 70 can be viewed on your Social Security statement when you log into ssa.gov. It is easy to set up your online access. This is very important for a couple of reasons.  

First, it allows you to understand what you can expect to receive for budgeting projections and retirement planning purposes.  

Second, by logging in to ssa.gov you may be protecting yourself from identity theft. If you don’t do it first and your Social Security number is acquired by cyber thieves, they can go to ssa.gov and set up your online access account using a user name and password of their choice. At that point, they will have full access to your critical and private information. Even young people who think their Social Security days are light years from today, they should set up their online access at ssa.gov. Set up your account access before the cyber thieves try do do this for you-themselves. If you successfully set up your Social Security access, thieves trying to hack your account will only be allowed a few attempts before the account is locked-out and you are notified. Don’t be their next victim.

Social Security as a supplement to your retirement goals 

In a December 2019 fact sheet provided by the Social Security Administration, the average monthly benefit is $1,503 (Fact Sheet ssa.gov). For most, this will not be enough money to meet monthly expenses without an additional source of an income stream. This is why it is so important to start your retirement savings strategy today. There are several investments which can help you gain financial freedom in retirement. Are you contributing to your employer 401(k) and making sure you qualify for and maximize their “free money” employer match? If you make contributions to your Traditional IRA you potentially will receive a deduction on your taxes. Have you considered a taxable Roth IRA contribution which allows for tax free earnings and distributions for retirement? Check with your financial advisor and tax professional to see what will be of the most benefit for you.

Will Social Security even be there when I retire?

Many Americans worry that Social Security is not a sustainable government program. The baby boomer generation is retiring at the rate of about 10,000 people per day and starting to draw on their Social Security benefits (Haass, 2019). Analysts have estimated the Social Security trust will be depleted by 2035 (Malito, 2019). Does this mean Social Security will stop? No, Congress has options to maintain payout of Social Security benefits. Congress, “can pass a law to keep benefits at the same level, which would increase the country’s deficit” (Malito, 2019). The benefit age could be raised again or payroll tax of those currently working could be increased. “If nothing is done, which experts say is unlikely, all beneficiaries would get 80% of scheduled benefits” (Malito, 2019).

Conclusion

Social Security is a benefit which can provide a much needed income stream to many Americans when they retire. Potentially just 10 working years are required for you to earn the full 4 credits per year to build enough earned income credits to be considered Fully Insured with at Social Security. Reviewing your options for the best strategy on timing the start date of Social Security may have a big impact on how much you collect in retirement. Set up your online access at ssa.gov so you are aware of your anticipated benefits and do this before the cyber thieves do it ‘on your behalf’. Social Security is intended to be a supplement, not your total source of livelihood in retirement. Begin a retirement saving strategy as soon as possible to maximize your chance of a confident and comfortable retirement. Get advice about how best to proceed, contact a financial planner to help.  

About the Author

Author, Marianne Martini Nolte, Certified Financial Planner ™ practitioner, provides fee-only, fiduciary, independent financial services. Her firm, IMAGINE FINANCIAL SERVICES (IFS) is a registered investment advisor offering advisory services in the State of California and in other jurisdictions where exempted. Marianne’s focus is serving Women and Young Professionals from generations X, Y, and Z. This article is intended as a high-level view. 

All written content is for information purposes only. Opinions expressed herein are solely those of IFS, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. 

For more in-depth information, please reach out:

Marianne Martini Nolte, CFP®

Imagine Financial Services 

Website, www.imaginefinancialservices.com 

Email, mnolte@imaginefinancialservices.com

Phone, (760) 472-5155

Reference

Fact Sheet. (n.d.). Retrieved September 04, 2020, from https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

Government Pension Offset. (n.d.). Retrieved September 04, 2020, from https://www.ssa.gov/pubs/EN-05-10007.pdf

Haass, D. (2019, September 03). Council Post: Retirement Trends Of Baby Boomers. Retrieved September 06, 2020, from https://www.forbes.com/sites/forbesfinancecouncil/2019/09/03/retirement-trends-of-baby-boomers/

How You Earn Credits. (2020). Retrieved September 04, 2020, from https://www.ssa.gov/pubs/EN-05-10072.pdf

Malito, A. (2019, May 31). Don’t believe this myth about Social Security. Retrieved September 06, 2020, from https://www.marketwatch.com/story/dont-believe-this-myth-about-social-security-2019-04-23

Retirement Benefits. (n.d.). Retrieved September 06, 2020, from https://www.ssa.gov/pubs/EN-05-10035.pdf

State Minimum Wage Laws. (n.d.). Retrieved September 04, 2020, from https://www.dol.gov/agencies/whd/minimum-wage/state