Happy Monday! It's been two weeks since I suggested you build a budget by tracking your expenses for a month. In another two weeks I will post about the next step of building your Fourth Quarter budget. Today I'm beginning a series of blogs about sources of income in the Fourth Quarter. This week it's Social Security. The debate rages in our country on the best way to administer the program and there are even those who question whether the program should exist. I'm going on the supposition that the program will continue to exist in a form similar to what we have today.
I am not an expert on the Social Security system but I am going to highlight a couple of key points to keep in mind as you start to plan for the Fourth Quarter. First, don't wait until six months before you want to retire or cut back on work to explore your benefits. The Social Security Administration has an easy to read and information packed website with the latest information on requirements and benefits. It also compiles "Your Social Security Statement"; this is your personal statement that has information like years worked, taxed social security earnings and estimates of payouts depending on age or other factors. You can set up an account with the SSA to view your SS Statement. Use these tools to plan at least 5 years out.
Next, remember that full retirement age for people born between 1943-1954 is 66 and will gradually increase to 67 for people born in 1960 or later. You can retire as early as 62 but your monthly payout will be less. If you retire later your monthly benefits will be larger. If you enjoy your job and your health is good, it may be to your advantage to work until 66* or beyond.
Third, you can work and still receive retirement benefits but your earning limits will be effected if you retire prior to full retirement age. What this means is if you retire at 62 instead of your full retirement age of 66, the amount of money you can earn and still receive social security benefits will be subject to limits. Once you reach full retirement you can keep on working, and your social security benefits will not be reduced no matter how much you earn. As you can see, the government is trying to entice workers to remain in the workforce until full retirement age.
Finally, social security benefits are income. How much money you make in the Fourth Quarter dictates whether you pay taxes or not on your social security income. SSA reports that about 40% of the current beneficiaries pay taxes on their benefits. As you develop your plan or talk with your financial advisor, keep in mind that after a certain amount of income whether filing as an individual or joint SS income is taxable.
There's more information to be found on the SSA website to help you make decisions about when to retire and how to maximize your benefits. The Social Security Act was put into place by Franklin D. Roosevelt to offer old-age assistance as well as helping blind persons, dependent and crippled children. It was never intended to fully cover the living expense of those who were part of the program. As you plan for the Fourth Quarter, keep in mind that your social security benefits may not cover your living expenses. You may need to explore other sources of income to finance the Fourth Quarter.
*66/67 is the current full retirement age. Congress continues to debate changes to the Social Security program so listen out for any changes.