Some speculate Social Security benefits will disappear in 20 years which would imply that people in their 40s and 50s paying into Social Security will not receive these payments in retirement. To fix the problem, some say the retirement age should be raised and benefit amounts lowered. Here's a brief explanation of some of Social Security's pitfalls and windfalls.
Windfall Elimination Provision
As of 2015, the new Windfall Elimination Provision explains how your Social Security benefits might be reduced if you work for a government agency or employer that paid into a pension fund and did not withhold Social Security taxes if you turned 62 after 1985. However, the provision does not apply to federal workers who were employed after 1983 or you have made 30 years or more of substantial Social Security payments.
Deciding At What Age To Take Benefits
For people born after 1937, the full retirement age (FRA) is 65 or older. Retirees can begin claiming benefits in what's called early retirement - at age 62, but benefits will be reduced almost 30% as opposed to waiting until their FRA before claiming. Those who wait beyond their FRA, age 66 in most cases, earn a 8% per year delayed retirement credit which increases their payments in retirement by about 80%.
The Spousal Support ConundrumThe spousal support benefit is available to couples that have stayed married for at least 10 years. If couples divorce after 10 years of marriage and one person decides to remarry before the age of 60, he or she will forfeit the right to claim spousal support. This could impact how middle-aged couples make decisions about marriage.
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Social Security Death Benefits
In the event of death, the Social Security survivor benefit can help surviving spouses, dependent children, grandchildren, and the parents of the deceased if they were dependent on the deceased for support. Spouses can start collecting benefits at the age of 60, but waiting until FRA will increase monthly payments by about 70%. A surviving spouse caring for a child under the age of 16 can begin collecting payments immediately. Disabled widowers claiming the spousal support benefit can claim benefits at age 50.
Social Security Income From Disability
Social security disability benefits pay you and your family members if you become injured and are unable to work for at least one year due to injury or if an injury is expected to result in death.
Retroactive Payments vs. File and Suspend
Once you reach FRA -- age 66 in most cases -- your benefits may start to accumulate retroactively. If so, you're entitled to a lump-sum payment of up to 6 months of benefits. With this scenario, you don't have to anything to qualify except file your claim at least six months after you reach FRA. However, if you reach FRA and are still under the age of 70, you can request to file and suspend your benefits which will postpone payments until age 70. You will earn the 8% per year delayed retirement credit and increase your monthly payments.
There are many options when it comes to claiming Social Security benefits. Understanding your choices can be tricky. Consult with a Social Security advisor before filing a claim. They can help you create a strategy to maximize your benefits and not leave money on the table.