Social Security is a complicated program, with many ins and outs that require in-depth planning to get the biggest benefits possible. Yet many Americans struggle to get simple answers to even the most basic of Social Security questions. Although some questions just don't have one-size-fits-all answers, it's still important to know how to make the best decision for your situation.
For years, I've been getting questions from readers about Social Security. Below, let's take a look at five of the most common Social Security questions people ask and the answers you need to make the most of your benefits.
1. How much will I get from Social Security?
The most vital question about Social Security is unfortunately the most difficult to calculate. The Social Security Administration requires about 10 years of work to gain eligibility, and to calculate benefits. It then looks at your 35 top-earning years, adjusting for inflation over the course of your career, to come up with an average indexed monthly earnings amount. A formula then produces the primary insurance amount on which your benefits are based. As you'll see below, that primary insurance amount translates to different monthly payments depending on decisions you make.
The best way to find out how much you're likely to get from Social Security is to check your Social Security statement directly from the SSA. By going to the my Social Security website, you can track your earnings and get estimates of what your future earnings will be, based on your past work history and projections about the rest of your career.
2. How will my monthly payments change depending on when I start taking Social Security benefits?
The primary insurance amount defines a worker's benefit at full retirement age, which is currently 66 for those becoming eligible for retirement benefits now. But you're allowed to take benefits as early as age 62 or as late as age 70. If you take benefits early, you'll lose five-ninths of a percent for every month up to 36 months, and then five-twelfths of a percent beyond that. That equates to a 25% drop in benefits if you claim at age 62 versus 66. Meanwhile, waiting until after full retirement age earns you 8% larger benefit payments for each year you wait, up to a maximum of 32% at age 70.
3. What happens if I still work and collect Social Security at the same time?
If you've already reached full retirement age, then working has no impact on your Social Security. But those who collect early Social Security benefits and still work can have some of those benefits taken away if they earn more than certain threshold amounts. Specifically, those who won't turn 66 this year lose $1 in benefits for every $2 they earn above the 2014 limit of $15,480. Those who do hit age 66 lose $1 in benefits for every $3 in earnings above $41,400, but the SSA only counts earnings in months before you reach full retirement age.
Although those Social Security benefits are taken away, they also have the effect of raising benefits in later years. The SSA gives you credit for any month in which you have benefits completely taken away, treating it as if you had starting taking benefits a month later. That boosts your monthly benefits in subsequent years.
4. What will happen if the Social Security program runs out of money?
Current projections show the Social Security Trust Fund running out of money in 2033. Unless the government takes action to bring benefits and tax revenue into balance, taxes under current law won't bring in enough money to pay full benefits after that date.
Even if that happens, Social Security won't go away completely. The program should bring in enough tax revenue to pay just over three-quarters of scheduled benefits. That will obviously be a huge shock to Social Security recipients, but it isn't the complete catastrophe that some erroneously believe would occur.
5. Why is there so much debate about strategies for claiming Social Security?
You'll see experts argue about almost everything concerning Social Security, ranging from when you should file for your own benefits to the best ways that married couples can coordinate their Social Security to get the most from the program. Some use complex mathematical models, while others focus more on real-life experience and anecdotal evidence.
Yet the biggest reason why Social Security is such a heated topic is that there's no way to know in advance what the best strategy is, except in very limited cases. Not knowing how long you'll live makes it impossible to do precise calculations, and even basic assumptions in models can turn out to be wrong. Meanwhile, different people place different values not just on the amount of money they receive but also when they receive it. Because of that, there's no alternative to looking closely at how Social Security works and what it will mean for you and your family, as generic answers that hold true for many Social Security recipients might not be your best move.
In general, asking good Social Security questions is important to make sure you find the best Social Security strategy for your situation. Despite the complexity of the program, knowing the basics will give you at least a sense of what Social Security will do for you.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.