11 things you must know about Social Security

Whether you already receive Social Security retirement benefits or not, below are 11 things to know so you can maximize your retirement benefit and sound erudite at your next cocktail party.

General

1. Social Security is believed to be solvent for another 30 years without changes to the system. It is far healthier financially than Medicare.

For Those Already Receiving Benefits

1. You will enjoy a 3.6% inflation increase in benefits in 2012.
2. Your benefit may be taxed. Find your tax filing status and “provisional” income bracket below to find out what you might be in for.

For Those Not Yet Receiving Benefits

1. The Social Security tax is 12.4% (employer + employee) of the first $110,100 of annual income. There is no Social Security tax on income above $110,100, which makes it a regressive tax – the more you make the less you pay proportionally.
2. To qualify for Social Security benefits you need 40 credits. 1 credit is earned for each $1,130 of earnings, but a maximum of 4 credits can be earned each year. In other words 10 years of even reasonable income gets you your 40 credits.
3. Your benefit is based upon your 35 highest earning years. If you have 30 years of earning $75,000 and 5 of earning $5,000, working an additional 5 years to replace the $5,000 years with $75,000 years will have a noticeable impact on your benefit.
4. Due to budget cuts the Social Security Administration has suspended the practice of mailing annual Social Security statements for those under the age of 60 as well the ability to request a statement. You can however get a benefit estimate via http://www.socialsecurity.gov/estimator/ or by calling 800-772-1213, and surprisingly, those answering the phones are quite helpful and knowledgeable.
5. Each worker has a “Full Retirement Age” (“FRA”), which is currently 66. Social Security is based upon taking benefits at this age. However, you can elect to begin benefits anywhere from age 62 to 70. Each year benefits are not taken increases your benefit by roughly 8%, which is a VERY good return, particularly considering the return is not subject to stock market risk.
6. Whether you take your benefit at 62, 70 or anywhere in between is mathematically identical if you die at the age Social Security expects you to die. Your life expectancy can be found via http://www.socialsecurity.gov/OACT/population/longevity.html. If you don’t expect to reach this life expectancy, you are generally better off taking your benefit earlier. If you expect to outlast this life expectancy and can afford to postpone taking your benefit, you are generally better off doing so.
7. If you take your benefit prior to FRA you are subject to the earnings test, which can reduce your benefit. In years prior to FRA, your benefit is reduced $1 for every $2 earned in excess of $14,640. In the year of FRA, your benefit is reduced $1 for every $3 earned in excess of $38,880 until the month of FRA.
8. If you qualify for your own benefit, but it is nothing to write home about, you may be able to get more money by piggy-backing a spouse or ex-spouse’s benefit. You are able to receive the higher of your own benefit or 50% of your spouse’s benefit or your ex-spouse’s benefit if you were married 10 years and haven’t remarried. The benefit is reduced if you take it before your FRA.
   

Social Security benefits are complicated and important. Spend time getting to know how it works so you can maximize your benefit for yourself and your loved ones. Oh, and have fun at your next cocktail party….

* All figures are 2012 based and change each year

Contributed by Kevin Mahoney, CFP^®, Integris Wealth Management