“What you don’t know won’t hurt you”: it might be true in some cases, but when we’re talking about your retirement and your financial security, ignorance is most definitely not bliss.
In 2023, an estimated 67 million Americans—around 25% of the population—will receive some form of payment from Social Security, whether retirement benefits, disability benefits, or survivor’s benefits. And yet, in a recent survey conducted by the financial website GoBankingRates.com, significant numbers of respondents couldn’t answer some of the most basic questions about this very important program, such as when you can start claiming retirement benefits (70% didn’t know), how much the average monthly benefit is (half missed this answer), or how to apply for spousal benefits (43% didn’t even know spousal benefits existed).
It’s slightly encouraging to learn that older participants in the survey seemed somewhat better informed about Social Security than their younger counterparts, but don’t forget that many individuals in their 20s, 30s, and 40s, may need to assist their parents with making smart choices about when to begin receiving benefits, how to file, and other important decisions surrounding Social Security. So, let’s take a look at a few basics that everyone should know.
1. Your free online account. The first step in making more informed decisions about your Social Security benefits is setting up your free online account at MySocialSecurity (https://www.ssa.gov/myaccount/). Even if you’re ten or more years from retirement, you should register for this free, online access to your Social Security information. For one thing, having your account set up will help make it harder for identity thieves to claim benefits in your name. But the principal benefit is the access your account will provide to your official record of earnings, various planning tools, estimates of your Social Security benefits at various ages, calculators, and even online applications for benefits. If you have an older parent, relative, or friend who hasn’t set up their account, help them do it as soon as possible—and while you’re at it, set up your account, too.
2. Receiving benefits. Only 30% of the participants in the GoBankingRates.com survey knew that eligible persons can apply for and begin receiving retirement benefits from Social Security as early as age 62 (“early retirement”). However, if you begin receiving benefits early, your benefits will be permanently reduced. Full retirement age, when you can begin receiving an unreduced benefit, is between age 66 and 67, depending on when you were born:
- Persons born 1943–1954: age 66
- Persons born 1955–1959: somewhere between age 66 and 67
- Persons born 1960 and later: age 67
But you aren’t required to begin receiving benefits at full retirement age. You can wait as late as age 70, and for each year you wait, your full retirement benefit is increased by 8% per year. Once you reach age 70, however, your benefit is capped; it won’t increase any more, no matter how long you wait.
3. Eligibility. If you work for an employer who withholds wages or if you are self-employed and pay self-employment tax, you can become eligible to receive Social Security benefits. In 2023, for each $1,640 you earn, you receive one credit in the Social Security system. You can earn a maximum of four credits per year, and when you have accumulated 40 credits, you become eligible to receive Social Security retirement benefits. For disability benefits, you can become eligible with as few as six credits, depending on your age at the time of becoming disabled. Survivors of young workers who accumulated at least six credits prior to their death may be able to receive survivor benefits.
4. When to start your application. For retirement benefits, you should start the application process at least four months before you intend to begin receiving benefits. To apply, you’ll need:
- Your Social Security number
- Your date and place of birth
- If applicable, your spouse’s name, date of birth, and Social Security number
- If applicable, the name, date of birth, and Social Security number for any former spouses
- Your divorce decree (if applicable) or certificate of death of former spouse (if applicable)
- The month you want your benefits to begin.
There may be additional documentation required in some cases, which is why you shouldn’t wait until the last minute to begin the process.
Making smart choices about Social Security, other pension income, retirement accounts, and other important financial decisions around retirement can seem overwhelming. At Empyrion Wealth Management–Mercer Advisors, we specialize in helping thriving retirees and those preparing for retirement sort through all the options to come up with a plan that’s right for each individual. To learn more, click here to read our whitepaper, “Getting Ready for Social Security.”
