consider when thinking about your monthly government check.
Social Security is in trouble. As the baby-boom generation nears retirement
age, Social Security is getting ever closer to negative cash flow, meaning there
will be more people taking payouts from the system than there are workers paying
in. The turning point will probably occur in 2016 or 2017.
However, the Social Security Administration reports that the current schedule
of benefits will be payable up until 2041, even if nothing is done to amend the
system.
The SSA reports that beyond 2041, benefits will still be payable, only
reduced by 22%—further reductions would occur in subsequent years. As a result,
it’s important to consider the impact Social Security will have on your
retirement plans .
First, you need to make sure you get what you deserve in terms of benefits,
which means actually checking the Social Security statement that arrives in your
mailbox each year, about three months before your birthday.
The amount of your benefits depends on your earnings history, so you’ll want
to make sure the SSA has the right amount listed for each year you earned
taxable income. If you find an error, contact the SSA at 1-800-772-1213.
For more information about your statement, check out the SSA website .
Your next big decision is choosing when you receive benefits—you can get a
check from the SSA as early as age 62, or you can wait until you turn 70. The
earlier you receive your benefits, however, the less money you’ll get in each
check.
In fact, if you were born in 1960 or later, you must wait to collect benefits
until you turn 67 in order to receive 100% of your retirement benefits. For
every year you delay receiving benefits, you’ll get an additional 8% added to
your monthly check (up to age 70, after which there are no benefits to further
delays).
Consider your financial situation in retirement as well as your general
health when deciding when to start taking benefits. If you need the money to
make ends meet, receiving your benefits early may make the most sense.
You should also consider receiving the benefits early if you are in poor
health or have a family history of lower life expectancy. Delaying your benefits
in order to receive higher payments makes sense only if you live past your
break-even age. (The SSA has its own break-even calculator.)
Also, consider the tax implications of receiving Social Security payments. If
you have other sources of income in retirement (e.g., a pension or IRA
distributions), you’ll probably have to pay at least some taxes on your
benefits.
Your benefits are taxable (at whatever income tax bracket you fall under)
when half of your Social Security benefit plus all of your other income exceeds the base personal limit—$25,000 if you’re single, and $32,000 if you’re married filing jointly.
You can calculate just how much of your benefits are taxable by using the IRS online worksheet. If your total income is above $34,000 and you’re single ($44,000 if you’re married filing jointly), you’ll be liable for taxes on 85% of your benefits—the top rate.
Once you have a clear picture of the impact Social Security benefits will have on your finances, you can decide to start receiving them at the time that works best for you.