by Karen Telleen-Lawton, Noozhawk Columnist (read the original in Noozhawk by clicking here)
At last! After researching and writing about Social Security for years, my husband and I are in our prize lap. As enticing as it would be to turn on the spigot, we will wait until age 70 to collect benefits. I believe and trust that the system will continue to work reasonably well throughout our senior years.
Social Security is the workers’ long-despised paycheck-eater which becomes your best friend at retirement. Ninety-seven percent of seniors aged 60-89 do or will collect Social Security.
The benefit replaces 35%-40% of the average worker’s prior earnings; a percentage slightly lower than the average of Western countries. You provide the rest by some combination of family savings, pensions, and lower expenses.
How do you actually switch from paycheck deductions to benefit deposits?
As long as you are receiving wages, you pay Social Security tax, even if you are receiving Social Security income. Social Security recipients who are still working and under their Full Retirement Age (between ages 66 and 67) collect reduced benefits. However, those lost benefits are figured into their full benefit when they reach FRA.
The start date for Social Security benefits depends on your circumstances. The youngest Social Security recipients are children who have lost a parent. Until they are 18, children collect a check depending on how much and for how long the deceased parent had been paying into the system.
Disability benefits are also provided through the Social Security program. The definition of disability is stricter than for most private insurance companies, requiring an applicant to be unable to do any substantial gainful activity. Together, survivor and dependent benefits comprise about one-fifth of Social Security beneficiaries.
Widows and widowers can collect a reduced survivor’s benefit as early as age 60. Surviving spouses should understand how to maximize their income by considering the timing of the survivor versus their own benefit.
Divorced spouses have these same options as long as the marriage lasted at least 10 years. The benefits paid to an ex-spouse do not affect any benefit due a subsequent spouse. After age 60 (50 if disabled), a divorced or widowed spouse can remarry and choose the highest benefit available.
If working, savings and pensions can cover your expenses, your best bet is to delay starting Social Security until age 70.
The benefit rises 8% per year from FRA to age 70: an unheard-of return for a low-risk investment. The File and Suspend loophole is gone, but seniors born before Jan. 2, 1954 can still collect spousal benefits, allowing their own benefit to grow until they’re 70. The spouse must be collecting Social Security.
Receiving your first check can be pretty easy in theory. You can apply online or go to the Social Security office on West Figueroa Street in Santa Barbara up to three months before you plan to collect.
Understand the benefits reported in your SSA online account. If you believe there’s an error, be prepared to defend with work evidence from your previous employers. This will take patience and fortitude.
Each year since 1975, Social Security payments have included a Cost-of-Living-Adjustment (COLA) using the Consumer Price Index (CPI-W). A zero adjustment accompanies low inflation years, but the 2022 increase is expected to be the highest since 2008 at 4.5%.
Your net increase could be less than this if your Medicare coverage cost rises, since Medicare is deducted from your Social Security benefit.
Seniors’ groups advocate switching the COLA to the CPI-E, which better reflects the increased health and housing costs for Elders versus Wage earners. This index would increase payments as much as 0.25% per year more than CPI-W.
Social Security rules and regs are important in the detail. Become familiar with the SSA website and the tools it offers. If your situation is atypical, seek advice from a financial planner or guides like “Social Security for Dummies.”
Then enjoy the fruits of your labor!
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.