For many people, Social Security will be a critical piece of planning for a sufficiently funded retirement. Though a person is generally unable to receive retirement benefits before attaining a certain age, it is still possible for the Social Security Administration (SSA) to estimate the value of those and other benefits they may receive upon becoming eligible. This can aid immensely in the process of planning for your financial future. This article is a brief overview of some tools developed by the SSA to address questions people have regarding social security benefits as well as considerations on how to calculate those estimated benefits.
Registration with SSA
The SSA has designed their website to contain helpful information on a range of benefits. While generalized guides, checklists, helpful tips, and benefits calculators are publicly available on their website, they recommend creating a my Social Security account online. By providing some personal information to set up an account, people may use the SSA website to:
- check the status of a benefits application or appeal;
- review a Social Security Statement to determine estimates of future benefits and taxes paid, or to verify earnings;
- get a benefit verification letter;
- check benefits and payment information; and
- change personal information and payment information online.
The features of the my Social Security account are available for use by both individuals who receive benefits and those who do not.
Available Benefits During Retirement
Social Security Benefits
The SSA is best known for providing benefits to workers upon retirement who have paid into Social Security during their career. Social Security Benefits are paid monthly in an amount based upon a percent of an individual's pre-retirement income based on their lifetime of earnings. However, the amount of that benefit received may vary depending upon when an individual applies to begin drawing their Social Security benefits. Just as choosing to receive benefits at the earliest age of 62 will reduce a person's basic benefit by a certain percentage, so delaying retirement past a full retirement age will increase the amount until the ceiling age of 70.
Additionally, government workers with pensions and other employees of companies whose employer did not withhold Social Security taxes may see their retirement benefits reduced. Known as the Windfall Elimination Provision, the SSA often cannot determine this for individuals before retirement and thus leave it to individuals to estimate for themselves whether their benefits will be affected.
Disability as a Retirement Benefit
SSA disability benefits are provided by the Federal government and are generally distinct from traditional benefits for retirement. They apply to those who have worked jobs covered by Social Security and who have developed a medical condition defined as a disability, rendering them unable to work on a regular basis. In this case, if a person is receiving disability benefits when they reach full retirement age, those benefits automatically convert to retirement benefits in the same amount.
Survivors Benefits
The SSA also provides benefits for the families of workers who have died. Workers in the United States who pay into Social Security are contributing some of that money towards survivors' insurance. Upon an individual's death, qualified widows, widowers, parents, and children may be eligible for Social Security Survivors Benefits based on their deceased spouse's earnings record. Even divorced spouses may be eligible for benefits if the marriage lasted 10 years or more. The SSA website provides planning tips, eligibility guidelines, estimated benefits tools, and a process to apply to aid individuals in educating themselves on what may be available to them.
Benefits Calculation
The SSA includes an extensive number of calculators on its website to aid individuals in estimating various benefit payments and eligibility. However, estimates are not guaranteed benefit amounts. Changes in circumstances and other issues may arise that complicate the amount of benefits you receive or the amount of received benefits is subject to taxes.
If you're the spouse, widow, or widower of an individual receiving a pension from a government job in which they did not pay taxes, some or all of your Social Security benefits may be offset under the Government Pension Offset (GPO). Under the GPO the spouse, widow, or widower's Social Security benefits are offset by two-thirds of the government pension amount. Some exceptions to the offset exist for persons:
- receiving a government pension not based on earnings; or
- who are federal, state, or local government employees with a government pension based on a job where Social Security taxes were paid (and you meet additional conditions regarding your benefits eligibility, employment, or earnings).
Additionally, Social Security benefits are subject to federal income taxes if a person has a certain level of income in addition to their benefits. However, no one pays tax on more than 85 percent of their benefits. The taxable portion of an individual's benefits depends on their federal tax return filing status and their income (or combined income with a spouse) hitting certain thresholds. The tax can either be withheld from the benefits, or estimated tax payments may be made quarterly to the Internal Revenue Service.
Conclusion
The numerous ways individuals may receive benefits from the SSA and the information that agency now provides offer ample opportunity for helping to plan a successful retirement. However, given the variable nature of the requirements for each type of benefits, the different retirement age options, the potential tax implications, and the potential effects of pensions and other income, individuals must proceed carefully. The best path should be laid with advice from retirement planning professionals and in consideration of an individual's goals. If the proper care is taken, SSA benefits can provide people with an immense relief from the burden of retirement planning worries.