Social Security 101
In order to plan appropriately for your successful 2nd Half, it is important that you understand what Social Security is and what it’s not.
Social Security is a social insurance program operated by the Federal government. It was established over 75 years ago in response to the challenges of the Great Depression and has evolved over the decades since. Like it or not, Social Security remains a major source of income for most of America’s retirees.
The Social Security program was designed to provide a minimum level of income to those who could not work for themselves to make an income: the elderly, the disabled, and surviving family members.
Throughout your working years, you pay into the Social Security program through payroll deductions. At the same time, your employer makes a matching contribution for each employee.
One of the greatest advantages of Social Security is that it provides guaranteed benefits, which are adjusted each year for the rise in costs of living. Social Security provides guaranteed benefits to the following categories of people:
- A retirement benefit to you upon reaching retirement age
- A benefit to your spouse when he or she reaches retirement age
- To your minor, dependent children when you retire
- A disability benefit if you are disabled
- Survivor benefit to your dependent family members if you should die
There are unique terms important to understanding how Social Security applies to an individual. Each of us has a specific age in which you are classified as Full Retirement Age (FRA). If you were born prior to 1955, FRA is 65 years. FRA ramps up a bit if you were born between 1955 and 1959. Your FRA is 66 plus some months, depending on the year you were born. If you were born in 1960 or later, your FRA is 67.
Your benefit amount is called the Primary Insurance Amount (PIA). Your individual PIA is based on your highest 35 years of annual earnings. When the Social Security Administration makes their calculations, your salary history is indexed to account for varying wages and inflation over the years.
PIA is not just a straight average of your income, rather the Social Security benefit is weighted. The system provides an advantage to lower income workers. When they retire, their benefit is a higher percentage of their pre-retirement income as compared to a earning who has earned more throughout their working years.
You can start collecting Social Security benefits as early as age 62. However, the monthly payment will be reduced by approximately 32%. Your full PIA is only available at your Full Retirement Age. If you decide to delay collecting your benefit until after your FRA, the monthly benefit will increase by 8% per year up until age 70, when they are maxed out.
One of the primary decisions you can make is when to claim your Social Security benefits. This is a crucial decision in your retirement planning process. There are numerous factors that impact your decision. This is not something you want to do yourself, but should discuss with a financial professional who can help you weigh all the factors.
As always, we are here to help create your Best 2nd Half. Call Wealth Advisors at (719) 630-0600 to schedule a no obligation appointment to discuss the possible strategies for collecting Social Security benefits.
#2ndhalfwealth
7/31/2016 1-403726
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the near future.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
