Social Security was signed into law by President Roosevelt on August 14th, 1935.
Social Security is an integral piece in retirement planning. I think it is important to know how your benefits are calculated and how to manage your account.
Your Benefit is Based On our Lifetime Earnings
The Social Security Administration looks at 35 years of earning history. If you work longer than 35 years, then they use earnings for your highest paid 35 years. If you work less than 35 years, then they will use $0 for the years you do not work. Next, they apply a formula to your earnings to arrive at your basic benefit, or “Primary Insurance Amount” (PIA). The PIA is what you are entitled to receive at your full retirement age – which is 65 or older, depending on the year you were born.
Factors That Can Change Your Benefit
- Taking benefit s prior to your full retirement age. You can begin receiving Social Security as early as 62 but at a reduced rate.
- Delay receiving benefits past your full retirement age will increase your benefit by 8% per year – a 32% increase in your PIA!
- You are entitled to receive a Cost of Living Benefit starting in the year that you turn 62. This is true even if you do not take benefits until age 70.
- If you are a government worker with a pension, you will receive reduced social security benefits. This applies to a person who is also eligible to receive a retirement or disability benefit for which they did not pay into Social Security. To find out how this Windfall Elimination Provision (WEP) works, you can go to www.scialsecurity.gov/gpo-wep.
Other Considerations
Social Security can be complex if you are married, divorced after ten years of marriage or widowed. Here are a few (but not all!) considerations:
- You are entitled to receive the higher of your benefit or 50% of your spouse’s benefit.
- If you are widowed, you are entitled to receive the higher of your benefit or your deceased spouse’s benefit.
- The above is true were married for ten years, divorced, and never remarried.
- You are entitled to survivor benefits, even if you have only been married for nine months.
Check Your Benefits
To estimate your benefits you can go to the Social Security website, create an account, and calculate your benefits: https://www.ssa.gov/planners/benefitcalculators.html.
It is very important to check your benefits on an annual basis. What happens if there is an error in your earning history? Let’s say you made $91K, but your earnings were entered as $19K. Ordinarily, you cannot correct your earnings after three years. Social Security has gone to a paperless system. I encourage you to sign up and stay active with your account.
If you have questions or would like to explore your highest and best social security options, please do not hesitate to reach out!
Barbara Norman, CFP®, ChFC®