Friday, May 6, 2016

Understanding Social Security

At Bogetto and Associates, we understand how important retirement planning is for you and your families piece of mind.  We have several financial strategies and planning tools to help you work toward achieving your retirement goals, and social security income may be part of that strategy.  It's important to understand how Social Security works and what you can expect when you become eligible for Social Security benefits.  Here is some information directly from the Social Security Administration's website to help you understand this complex system (www.ssa.gov).



Social Security reaches almost every family, and at some point, touches the lives of nearly all Americans. Social Security helps older Americans, workers who become disabled, and families in which a spouse or parent dies.

Today, about 168 million people work and pay Social Security taxes and about 60 million people receive monthly Social Security benefits. Most beneficiaries are retirees and their families — about 42 million people. But Social Security was never meant to be the only source of income for people when they retire. Social Security replaces about 40 percent of an average wage earner’s income after retiring, and most financial advisers say retirees will need 70 percent or more of pre-retirement earnings to live comfortably. 

To have a comfortable retirement, Americans need more than Social Security. They also need private pensions, savings, and investments.  The current Social Security system works like this: when you work, you pay taxes into Social Security. Social Security then pays benefits to:

• People who already have retired; 
• People who are disabled; 
• Survivors of workers who have died
• Dependents of beneficiaries. 

The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. Social Security uses your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.

Your Social Security taxes 


Social Security taxes that you and other workers pay into the system are used to pay Social Security benefits. You pay Social Security taxes based on your earnings, up to a certain amount. In 2016, that amount is $118,500. 

Where your Social Security tax dollars go 


When you work, 85 cents of every Social Security tax dollar you pay goes to a trust fund that pays monthly benefits to current retirees and their families and to surviving spouses and children of workers who have died. The other 15 cents goes to a trust fund that pays benefits to people with disabilities and their families. From these trust funds, Social Security also pays the costs of managing the Social Security programs. The entire amount of taxes you pay for Medicare goes to a trust fund that pays for some of the costs of hospital and related care of all Medicare beneficiaries. The Centers for Medicare & Medicaid Services, not the Social Security Administration, manages Medicare.


How you become eligible for Social Security 


As you work and pay taxes, you earn Social Security “credits.” In 2016, you earn one credit for each $1,260 in earnings — up to a maximum of four credits a year. The amount of money needed to earn one credit usually goes up every year. Most people need 40 credits (10 years of work) to qualify for benefits. Younger people need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivors benefits when the worker dies.

Retirement benefits 


Choosing when to retire is one of the most important decisions you’ll make in your lifetime. If you choose to retire when you reach your full retirement age, you’ll receive your full benefit amount. Your benefit amount if you retire before reaching full retirement age may decrease. 

Full retirement age 


If you were born from 1943 to 1960, the age at which full retirement benefits are payable increases gradually to age 67. If your birth year is 1948 or earlier, you already are eligible for your full Social Security benefit. Here is more info on finding your full retirement age:

Year of birth is 1943 - 1954       Retirement age = 66
Year of birth is 1955                  Retirement age = 66 and 2 months
Year of birth is 1956                  Retirement age = 66 and 4 months
Year of birth is 1957                  Retirement age = 66 and 6 months
Year of birth is 1958                  Retirement age = 66 and 8 months
Year of birth is 1959                  Retirement age = 66 and 10 months
Year of birth is 1960 or later      Retirement age = 66

Delayed retirement 


If you choose to delay receiving benefits beyond your full retirement age, you will increase your benefit a certain percentage, depending on the year of your birth. Social Security will add the increase automatically each month from the time you reach full retirement age, until you start taking benefits or reach age 70, whichever comes first. For more information on delayed retirement credits, go to www.socialsecurity.gov/retire2/delayret.htm

Early retirement 


You may start receiving benefits as early as age 62 but Social Security will reduce your benefits if you start early. Your benefits will be reduced about one-half of 1 percent for each month you start your Social Security before your full retirement age. For example, if your full retirement age is 66, and you sign up for Social Security when you’re 62, you would only get 75 percent of your full benefit.


Can I still work and get benefits? 


You can continue to work and still receive retirement benefits. Your earnings in (or after) the month you reach full retirement age won’t reduce your Social Security benefits. In fact, working beyond full retirement age can increase your benefits. Your benefits will be reduced, however, if your earnings exceed certain limits for the months before you reach your full retirement age. 

If you work, but start receiving benefits before full retirement age, their is a deduction of $1 in benefits for each $2 in earnings you have above the annual limit. In 2016, the limit is $15,720. In the year you reach your full retirement age, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($41,880 in 2016) until the month you reach full retirement age. Once you reach full retirement age, you can keep working, and your Social Security benefits will not be reduced, no matter how much you earn.

Source:  www.ssa.gov 


Contact Bogetto & Associates for your retirement planning

There is much more that you can learn about your Social Security benefits such as how your benefits will be taxed, family benefits, disability benefits, benefits for widow and widowers and much more.  If you need a trusted financial adviser to help you understand your benefits, then please contact us.  We can help explain how Social Security is just one tool for retirement and give you options to work towards your retirement financial goals...Now and for Tomorrow!

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