Social Security provides financial security to tens of millions of Americans per year, but that doesn't mean that everyone knows everything they should know about this important program. For example, do you know how much you can earn without it reducing the size of your Social Security check? Read on to find out the answers to nine must-know Social Security questions.
No.1: Is my Social Security money safe?
Social Security isn't a bank account and it isn't a workplace retirement plan. Instead, Social Security is a pay-as-you go program in which payments made to current recipients are largely funded by payroll taxes on current workers.
In short, the money you paid in payroll taxes in the past wasn't set aside for your future Social Security payments. Instead, that money was used to pay your parent's Social Security payments. Therefore, the "safety" of Social Security isn't based on how thick a vault's steel walls are, but on the strength of the U.S. economy.
No. 2: Isn't Social Security broke?
Social Security isn't broke in the traditional sense, but it is tapping into its savings.
Payments to recipients have outstripped payroll tax revenue since 2010 and as a result, the gap is being made up for by money set aside in the Social Security Trust Fund. That trust fund, however, is expected to run dry in 2029 and absent changes to Social Security, the Congressional Budget Office estimates benefits will have to be reduced by roughly 30% across the board beginning in 2030.
No. 3: How do I qualify for Social Security?
In order to receive Social Security in retirement, you need to qualify for payments and in order to qualify, you need to have accumulated 40 Social Security credits. Typically, that number of credits translates into about 10 years worth of working and paying payroll taxes. Those 10 years, however, don't need to be worked consecutively. So, if you left the workforce to raise a family, you may still qualify. Also, non-working spouses can qualify for Social Security on their working spouses record, even if their working spouse has passed away.
No. 4: What age should I claim Social Security?
The age at which to claim Social Security depends on your personal situation, including your health and your other sources of retirement income. 100% of your Social Security benefit is only paid if you wait until your full retirement age to claim. Full retirement age ranges between 66 and 67, depending on when you were born. If you opt to take Social Security early, then you will receive less than 100% of your benefit. For instance, a person born in 1960 that claims Social Security at age 62 would receive 70% of what they would receive at their full retirement age of 67. Claiming after full retirement age can increase your benefit. For example, a person born in 1960 who waits until age 70 to claim Social Security will receive 124% of their full benefit.
No. 5: How big will my Social Security check be?
Social Security payments are calculated using a complex formula that adjusts your 35 highest earning years into current dollars. Therefore, how much you receive in Social Security depends on your earnings. In February 2016, the average Social Security check paid to a retired worker was $1,345 per month. However, the following chart shows that the range of payments varies widely.
No. 6: Can I work and collect Social Security?
Yes. In fact, if you're over your full retirement age -- the age at which you qualify for 100% of your Social Security benefit -- then you can earn as much money as you like without it reducing your Social Security check.
However, if you're younger than your full retirement age, you can only earn up to $15,720 this year without it reducing your payment. If you earn more than that, then your Social Security check will be reduced by $1 for every $2 you earn above that amount. That money, however, is simply being withheld and that means that once you reach your full retirement age, it will be used to increase the size of your Social Security payment.
No. 7: Are Social Security and Medicare the same?
Social Security and Medicare are two different programs. Social Security provides income in retirement, while Medicare provides insurance for medical care to Americans over 65. However, Social Security works with Medicare to sign people up for it.
Regardless of when you claim Social Security benefits, you must sign up for Medicare within the three months of turning age 65. If you've claimed Social Security early, you'll automatically be enrolled in Medicare at age 65. Medicare part A, which helps pay for costs associated with hospitalization, is free for most Americans, but there's a nominal monthly payment for Medicare part B, which covers some of the expenses not covered by part A, such as doctor visits. Any premiums that are owed for Medicare are subtracted from your monthly Social Security benefit.
No 8: Can I file and suspend Social Security benefits?
Unfortunately, the file and suspend strategy that many Social Security recipients have used in the past to increase their Social Security benefit is coming to an end this month.
Historically, this strategy allowed an individual who has reached full retirement age to file and then suspend their benefit so that the spouse could begin collecting spousal benefits while the individual's benefit continued to grow until age 70.
Because this loophole is closing, for a spouse to receive their spousal benefit, the primary filer also needs to receive their benefits too. Similarly, suspending now suspends payments to both the individual and the spouse.
No. 9: How much will I pay in Social Security income taxes?
If you're single, and your combined income (adjusted gross income + nontaxable interest + one half of your Social Security benefit) is between $25,000 and $34,000, you may have to pay taxes on up to half of your Social Security benefit. If you earn more than $34,000 in combined income, you could be taxed on 85% of your benefit.
If you're married with a combined income of between $32,000 and $44,000, then you could pay taxes on up to half your benefit. If you earn more than $44,000 in combined income, you may be taxed on up to 85% of their Social Security benefit.
Overall, no one pays the taxes on more than 85% of their Social Security income, however, because income thresholds are pretty low, many Americans will have to pay taxes on at least some of their Social Security benefit.