Understanding Social Security

Basics for making the most of SSI

Understanding Social Security

Many of our clients have told us that the greatest fear they face today is the fear of not having enough money to maintain their lifestyle throughout retirement.

Even in these tough times and volatile market, we have helped our clients take a comprehensive approach to financial planning and offer the service of helping them maximize their social security income.

Understand the real value of Social Security

For most Americans, Social Security will not provide enough income during retirement. However, on average, Social Security accounts for about 40% of income in retirement. This staggering number should not be ignored.
Many individuals will be receiving benefits for 25, 30, possibly even 40 years. Social Security provides valuable protection against this “longevity risk”.

Don’t rush to collect and then regret

You will have the option to collect Social Security between the ages of 62 and 70. Most retirees tend to claim their benefits early and overlook that, once reduction penalties, foregone Delayed Retirement Credits and COLAs are factored in, they could have potentially doubled their initial payments if only they waited until age 70.

We focus around the “optimal retirement age”; the age at which you could receive more income from starting Social Security benefits earlier versus starting them later.

Take advantage of your married couple benefits

As a married couple, you are eligible for many types of retirement benefits and it can get confusing at times. At one time or another, you may be receiving a spousal benefit, a worker benefit, or a survivor benefit. There are ways of optimizing benefits by developing a claiming strategy for when these benefits become available.

Beware of the taxman

The contributions you have made to your 401(k)s and other types of defined contribution plans will eventually have to be withdrawn – and taxed. Not only will these withdrawals be subject to tax, but they’ll likely generate higher incomes which leads to higher taxation of Social Security benefits.
Most people are not aware, but most of these “tax bombs” can be avoided.

How Does Social Security Work?

The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most–at retirement or when you become disabled, for instance.

Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you’re applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

You can find out more about future Social Security benefits by signing up for a mySocial Security account at the Social Security website, www.ssa.gov, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor’s benefits.

Social Security eligibility

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor’s benefits.

Your retirement benefits

Your Social Security retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving Social Security retirement benefits also affects your benefit amount. If you were born between 1943 and 1954, your full retirement age is 66. Full retirement age increases in two-month increments thereafter, until it reaches age 67 for anyone born in 1960 or later.

But you don’t have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is sometimes advantageous: Although you’ll receive a reduced benefit if you retire early, you’ll receive benefits for a longer period than someone who retires at full retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 6 to 8 percent higher. That’s because you’ll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this credit varies, depending on your year of birth.

Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you’re only temporarily disabled, don’t expect to receive Social Security disability benefits–benefits won’t begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Eligible family members may include:

​Your spouse age 62 or older, if married at least 1 year

  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring foryour child who is under age 16 or disabled
  • Your children under age 18, if unmarried
  • Your children under age 19, if full-time students(through grade 12) or disabled
  • Your children older than 18, if severely disabled

Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited.

The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

Getting Started

For more information and to get started on building a brighter future, please contact us by phone at (800) 501-2702 or via email at info@cleardiamondlife.com


Schedule an appointment for a review of your financial plan.