Social Security: 5 facts you need to know

Thought Leadership on Creative, Comprehensive Financial Planning presented by Creative Capital Wealth Management Group

Social Security can be complicated and, as a result, many individuals don’t have a full understanding of the choices they may have. Here are five facts about Social Security that are important to keep in mind:

1. Social Security is a critical source of retirement income.

Some have the perception that Social Security is of secondary or even tertiary importance in retirement. But according to a report by the Social Security Administration, Social Security replaces about 40% of an average wage earner’s income after retiring.¹

Keep in mind that Social Security makes annual cost-of-living adjustments based on the Consumer Price Index and, under current laws, pays income for your life and the life of your spouse.²

2. You have a choice for when you take Social Security.

You have considerable flexibility for when you can begin receiving your benefits.

As the accompanying illustration shows, the full retirement age, i.e., the age at which full retirement benefits are payable, depends on when you were born.

Age for receiving full Social Security retirement benefits

Year of birth Full retirement age
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67

(Important note: Though full retirement age varies, you also may want to consider applying for Medicare benefits three months before your 65th birthday; if you wait longer, your Medicare medical insurance and prescription drug coverage could cost you more.)

You may begin receiving benefits as early as age 62, though your benefits will be reduced at a rate of about half of 1% for each month you begin taking Social Security before your full retirement age.³

You may choose to delay receiving benefits until after attaining your full retirement age, in which case, your benefits are scheduled to increase by 8% annually. This increase under current law will be automatically added each month from the moment you reach full retirement age until you start taking benefits or reach age 70 — the age at which these delayed retirement credits stop accruing. Plus, your benefit also will increase by any cost-of-living adjustments applied to benefit payment levels during that time.⁴

If you plan on continuing to work, you may still receive the full benefit for which you are eligible. Indeed, working beyond full retirement age can increase your benefits. However, your benefits will be reduced if your earnings exceed certain limits. If you work and start receiving benefits before full retirement age, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($15,720 in 2016).⁵

If you continue to work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($41,880 in 2016) until the month you reach full retirement age.

Once you have attained full retirement age, you can keep working and your benefits under current law will not be reduced, regardless of how much you earn.

As you can see, the decision of when to begin taking Social Security is a critical one.

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