Social Security is a program that provides financial support for Americans in various seasons of life. This program provides a source of income for millions of retirees after they leave their working years behind. Every U.S. Citizen receives a Social Security Number (SSN) that serves as a unique identifier.
5 Types of Social Security Benefits You Should Know
Social Security benefits provide income to individuals after they retire or if they cannot work due to disability. There are five types of Social Security benefits.
- Retirement benefits apply to individuals who have reached legal retirement age.
- Disability benefits apply to individuals who cannot work due to a prolonged or permanent medical condition.
- Survivor benefits apply to spouses and other immediate family members after a person has died.
- Medicare provides health insurance to individuals 65 or older or who meet other criteria for the program.
- Supplemental Security Income (SSI) provides a source of income to people who meet certain criteria.
After qualifying for retirement benefits, individuals receive a monthly check that supplements or replaces their working income. However, Social Security may not cover all expenses, so it’s important to consider other ways to pay for the cost of living after retirement, like personal savings and investment accounts.
How Are Retirement Benefits Calculated?
Retirement benefits are based on several factors, including an individual’s lifetime earnings, the age at which they retire, and whether or not they continue to work while receiving benefits. To be eligible for retirement benefits, an individual must be 62 or older and have worked for ten years or more while paying into Social Security.
Social Security retirement benefits are not uniformly distributed. Instead, they are calculated based on Average Indexed Monthly Earnings (AIME). This method calculates the average of a worker’s highest-paid years, pulling data from up to 35 years of work. The result of that calculation is applied to the Primary Insurance Amount (PIA) formula, which is based on general wage levels throughout the individual’s working years. Together, these two calculations create the monthly retirement benefit a person will receive.
When Should I Apply for Social Security Benefits?
Applying for Social Security is an individual calculation — there is no “one size fits all” for every worker. Before deciding when to apply for Social Security benefits, individuals should keep in mind that they do not have to stop working to begin collecting retirement.
While individuals can begin to receive retirement benefits at age 62, the full retirement age is reached at 66 or 67, depending on birth year. If someone waits until full retirement age to begin receiving retirement, their monthly benefits will be higher. The amount will continue to increase until age 70. Additionally, an individual can continue to work after reaching full retirement age without seeing a reduction in their benefit payment.
The Social Security Administration recommends individuals apply for Medicare three months before they turn 65, even if they are not planning to retire or receive other Social Security benefits until later.
Calculating when you’re ready to retire can be difficult to navigate on your own. If you’re unsure of when you should apply for retirement, talk to your retirement planning advisor. They can help you review all of your income sources for retirement and determine when it makes the most sense for you to begin receiving your Social Security benefits.
You can also ask them if you’ll need to pay taxes on your retirement benefits, if any of your family members are eligible to receive money through your benefits, and how much income you can anticipate from your monthly payment.
Once you decide, remember you may apply for retirement benefits up to four months before your designated start date for receiving them. You can apply for Social Security retirement benefits online or over the phone.
Planning Well for Retirement
Planning early for retirement can give you confidence about the future and provide financial freedom after you stop working. Create a plan with a trusted financial advisor to make sure you’re on the right track.
At Marietta Wealth, we believe in easing the stress of financial decisions. That is why our team spends the time helping our clients reach their financial goals both today and in the years to come.
Our comprehensive financial planning, investment, and retirement services are here to serve you and help you reach your financial goals. Get in touch with us today to get started.
Marietta Wealth is a registered investment adviser. Registration of an investment adviser does not imply any level of skill or training. For additional information about Marietta Wealth’s financial planning and advisory services, please see the Marietta Wealth Disclosure Brochure or ADV Part 2A for full details, which is available upon request or by visiting our website.
This article is not intended to be used, and should not be used, as the sole basis for legal advice. The reader should seek and rely upon the guidance and advice of legal counsel before making decisions regarding any estate planning tools or documents.