Social Security may seem relatively straightforward: You work for a long time, pay into the system, and collect benefits in retirement. But many of us still have a lot of questions about it. Here are some common Social Security questions -- and their answers, a few of which might surprise you.
How much will I receive in retirement?
You can get the latest estimate by visiting the Social Security Administration website and its "my Social Security" page, where you can keep track of your earnings and your estimated future benefits. For context, know that the average monthly benefit for retirees in January 2015 is $1,328 per month, or $15,936 per year. Thus, if you don't think you're far from an average wage earner, you probably shouldn't count on Social Security supporting a comfy lifestyle, at least not by itself.
When can I start receiving my Social Security benefits?
Well, it's not 65, as many people assume. The Social Security system sets a "full" or "normal" retirement age for people based on their birth year. If you were born in 1960 or later, your full retirement age is 67. If you're older than that, it might be 65 or 66 or somewhere in between. Note, though, that you don't have to start collecting your benefits at your full retirement age. You can start as early as age 62, or as late as age 70. Which leads to the next question...
Is there a way to increase my monthly payout?
Payouts receive cost-of-living increases regularly, but there are several other ways to boost them. First, since your Social Security benefit is based on the wages you earned over several decades, you can up your eventual payout by earning more and paying more into the system. (We generally pay into the system via paycheck withdrawals of 6.2% from our salaries, with employers chipping in an additional 6.2%. Self-employed people pay double, 12.4%, as they pay the employer portion, too.)
Another way to tinker with the amount of your monthly benefit is by strategically timing when you start collecting. If you start earlier than your full retirement age, your checks will be considerably smaller, while late starters will get much bigger checks. (They increase by about 8% for each year between your full retirement age and 70.) While it might seem like a no-brainer to delay if you can for higher benefits, remember that you'll get more of the lower ones, which can make up much of the difference. Note that if you're already collecting your benefits and you're not yet 70, you can elect to "suspend" receiving benefits and let the value of your benefits increase until you restart them.
Are Social Security benefits taxable?
They can be. Some states will tax benefits received by residents, and even Uncle Sam will tax your benefits if you earn over a certain amount. Currently, individuals and married folks filing jointly will have 50% of their benefits taxed if they earn between $25,000 and $34,000 or between $32,000 and $44,000, respectively. A bigger portion, 85%, will be taxed if they earn, respectively, more than $34,000 or $44,000. Thus, it sometimes makes sense to not earn quite as much as you'd like to, or to delay collecting benefits for a while, while you're earning. Note that withdrawals from Roth IRAs aren't counted as earnings, but withdrawals from 401(k), 403(b), traditional IRAs, and other tax-deferred accounts are. That might influence where you start drawing from in retirement.
How do I apply for Social Security benefits?
You can do so at your local Social Security office, but easier options are available, such as applying online or by phone. You can apply beginning at age 61 and 9 months, and you should apply at least three months before you want your benefits to begin.
Will Social Security run out of money, leaving me with no benefit checks?
Nope. Right now the Social Security Trust Fund is on track to run out of reserves in 2033, but Congress can do things to change that between now and then. Even if nothing changes, the system will still be collecting money from paychecks, and it's estimated that the worst-case scenario is retirees collecting 77% of their benefits due at that time.
Social Security will probably not be all you need in retirement, but it can make most of our retirements considerably better. Take some time to learn more about it. A sensible strategy can help you make the most of it.