Most Americans don’t give Social Security a second thought, especially if they are in their 20s, 30s and 40s, but once someone reaches their 50s the first thoughts about Social Security benefits may pop into the head, but people should learn about Social Security well before that. Decisions made about Social Security benefits can determine the amount someone will receive for the rest of their lives. The Motley Fool recently published a list of things every American needs to know about Social Security. Below we provide a synopsis of these important notes about Social Security benefits.
It’s Not Just About Retirement Benefits
The first thing that comes to mind when Social Security is mentioned is retirement benefits, but there are also disability benefits and survivor’s benefits should a family member die. Most people don’t want to think about these things, but they happen more frequently than people think. Social Security estimates that more than 25 percent of all 20-year-olds will become disabled prior to reaching full retirement age, so many more people are impacted than we would like to think.
Social Security Is Not Disappearing
There has been a lot of talk for years about Social Security running out of money. It is true that Social Security will be paying more money than it is taking in and sometime around 2034 it is projected that Social Security won’t be able to meet 100 percent of benefit obligations, and benefits could be cut by about 20 percent. First of all, a 20-percent reduction in benefits is the worst-case scenario. Second of all, that will happen only if Congress does not act to ensure 100 percent benefits payable in the future, and it is likely that something will be done before that. Social Security will be around much longer than some people have pontificated about.
Should Not Be Your Only Retirement Income
Because Social Security retirement only replaces about 40 percent of a person’s working income it was not meant as a sole source of income for retirees. Replacing work income is a struggle for millions of Americans and some rely too heavily on Social Security benefits. Younger workers should plan accordingly and setup other retirement income sources such as 401Ks or pensions.
The 35 Year Rule
When determining someone’s retirement benefit, Social Security averages out a person’s 35 highest-earning, inflation adjusted years. If a person does not work 35 years $0 income will replace as many years as it takes to get to 35, which will significantly lower a person’s monthly retirement benefit. Working at least 35 years will ensure no $0 is reported in determining monthly amounts.
When You Collect Is A Big Decision
People can begin collecting Social Security retirement benefits at age 62. This is considered collecting early because it is before someone reaches full retirement age. Because someone is collecting early they pay a penalty and will receive about a 20 percent reduction of benefits. On the other end of the spectrum, people can continue to work and delay receiving benefits all the way up to age 70 when the monthly benefit reaches its highest level.
