Social Security is a huge program. It pays about 62 million Americans about $955 billion in benefits annually, the lion's share of them retirees collecting retirement benefits. According to the Social Security Administration (SSA), 62% of retired workers get at least 50% of their retirement income from Social Security. Even more eye-opening, 21% of married ones and 43% of unmarried ones get fully 90% or more of their income from it.
Your own retirement likely will be supported significantly by Social Security benefits. Thus, it's important to have a good grasp of the program and what it can do for you.
Here are five frequently asked questions about Social Security.
1. How much money can I expect to get from Social Security?
The average monthly retirement benefit was recently $1,371, amounting to $16,452 per year. Benefits are increased over time to keep up with inflation, with the most recent increase, announced this month, being 2%.
Of course, if your earnings have been above average, you'll collect more than the average benefit -- but the overall maximum monthly Social Security benefit for those retiring at their full retirement age in 2017 is still just $2,687 -- or roughly $32,000 for the whole year. Those who retire at age 70 in 2017 can collect monthly checks as large as $3,538, for $42,456 per year. That's the maximum.
But what will you collect? To get a clearer idea of that, go to the horse's mouth, the Social Security Administration. Sign up for a my Social Security account at www.socialsecurity.gov and you can see your estimated benefits based on your own earnings record so far.
2. Is there any way to increase my Social Security benefits?
There are lots of ways to boost your benefits. One way is by delaying starting to collect, and we'll tackle that in the next section. Another is to look up the SSA's record of your income and taxes paid into the Social Security system, to make sure that they're correct. If they're not, you might end up receiving smaller benefit checks than you've actually earned. Get them corrected, and voila -- increased benefits!
You can also boost your benefits by working for 35 or more years. That's because the formula that Social Security uses to compute your benefits is based on your earnings in the 35 years in which you earned the most. If you only earned income in 28 years, the formula will be incorporating seven zeros, which will shrink your benefits to some degree. Thus, working for at least 35 years should increase your benefit. Meanwhile, since the formula for your benefits considers your 35 highest-earning years (adjusting for inflation), if you're earning a lot more as you approach retirement than you did when you were young (again, adjusting for inflation), you might want to work a few more years, so that each extra high-earning year can kick out a low-earning year, resulting in bigger checks.
3. When should I start collecting Social Security?
You can make your retirement benefit check bigger or smaller than what you'd get if you started collecting at your full retirement age -- by starting earlier or later. You can start as early as age 62 and delay up to age 70. Each of us has a "full" retirement age (typically 66 or 67 these days), and for every year beyond that that you delay, your benefits will grow by about 8%. Delay from age 67 to 70 and you'll get benefits 24% bigger, enough to turn a $2,000 benefit check into a $2,480 one. Start collecting early, and your benefits will shrink -- by as much as 30%, if you start at 62 instead of 67.
Here's an important caveat, though: If you live an average life span, you won't come out ahead much by delaying, because you'll get fewer checks, in total, than those who start earlier with smaller checks. The system is actually designed so that total benefits received are about the same no matter when you start collecting, if you have an average life span.
If you live much longer than average, waiting for bigger checks will have been worth it. But since most of us can't know how long we'll live, if you think you have a decent chance of living an average-length life or a shorter-than-average life, or you simply need the money, go ahead and start collecting early. You may get more total benefits that way than if you waited for bigger checks.
4. Will my Social Security benefits be taxed?
If Social Security benefits make up all or vast majority of your income, you likely won't be taxed on them at all. But if your income surpasses a certain level while you're receiving Social Security benefits, those benefits may end up taxed. No more than 85% of your benefits will ever be taxed, though.
To determine whether you'll have to pay taxes on Social Security benefits, you need to calculate your "combined" income, which is your Adjusted Gross Income ("AGI") plus non-taxable interest plus half of your Social Security benefits. The table below shows the taxation you can expect:
5. Is Social Security going bankrupt?
Many headlines and news stories give the impression that the Social Security program will run out of money soon. That's far from true. Between taxes taken in and interest earned on that money, less benefit checks written, the Social Security trust funds have been running a surplus in every year since 1982. In 2016, that surplus was a sizable $35 billion.
We're likely to stop seeing surpluses around 2019, though, at which point the Social Security system can rely on incoming interest payments to make up the deficit -- for a while. According to several government estimates, Social Security funds are likely to be depleted by 2034 -- if no changes are made. If that happens, payment checks won't disappear, but they'll likely shrink by about 25%, according to the Social Security Administration, leaving beneficiaries with about 75% of what they were expecting.
Fortunately, changes can be made to shore up Social Security -- some more popular than others. Hiking the full retirement age to 69, for example, is a less popular option. Alternatively, it's estimated that fully 76% of the trust funds' shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from 6.2% to 7.2% in 2022 and to 8.2% in 2052. Taxing all of each worker's income, instead of just the first $127,200 of it (as of 2017), would also wipe out much of the shortfall. (In 2018, only the first $128,700 that you earn will be taxed.) It's been estimated that 74% could be wiped out by eliminating the earnings cap over a 10-year period.
The Social Security program as it is is not likely to ever pay you nothing. Remember -- the program is funded by taxes. As long as workers are paying taxes to the Social Security program, it will have at least some money to pay out to retirees.
Keep learning more about Social Security, because the more you know, the more money you'll likely be able to receive from the program.
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