Mention “Social Security Benefits” and some folks’ eyes will glaze right over while others’ ears will prick up with interest. Put on your explorer hat and venture along as we explore the jungly wilds of the U.S. Social Security system.
Our mission: Take as much money off the Social Security table in retirement as possible!
First, a few words about just what the heck is Social Security?
To cut to the chase, Social Security is income paid out to eligible older workers who made partial contributions from their wages for a qualifying number of “look-back” years. FICA (Federal Insurance Contributions Act) taxes are collected from every form of all reported earnings to pay for other people’s Social Security retirement benefits.
Most recipients get back from the Social Security system far more than they paid in while working and paying in toward a future retirement income stream. But let’s not get ahead of ourselves.
After the American stock market tanked in 1929, the U.S. was plunged into ten years of the worst economic hardship the country had ever seen, followed by the wretchedly-prolonged drought known as the Dust Bowl that scoured the crops right off the Western plains year after year throughout the 1930s.
By the mid-1930s, Democrat Franklin Delano Roosevelt was President. He had bested the Republican incumbent, Herbert “A Chicken in Every Pot” Hoover, in 1932 with a campaign of hope, promising Americans a New Deal.
Part of that election promise turned into the Social Security Act, signed August 14, 1935, by the President.
The Social Security Act was – and is – nothing short than social welfare. But, goodness knows, We the People needed it in 1935. Every other senior citizen residing in the U.S. lived in poverty at a time when young, able-bodied people could not find work. Today, thanks to the Social Security program, the number of U.S. impoverished elderly has shrunk to 10 percent.
The Social Security Act was crafted to lift the elderly population out of poverty by providing supplemental income based on previous employment earnings:
The Social Security Act (Act of August 14, 1935) [H. R. 7260] An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes.
The Social Security Administration (SSA) is an independent agency of the U.S. federal government that administers Social Security, a social insurance program consisting of retirement, disability, and survivors’ benefits. It was created after the Act passed to manage money flowing in and out of two separate trust funds: one to provide “Old-Age and Survivors Insurance” benefits and another to dispense disability insurance payouts to qualified beneficiaries and their surviving spouses.
The trusts are administered by the Social Security Board of Trustees. About 22 million Americans receive $1 trillion in payments annually as Social Security checks or direct deposit in retirement.
As I learned while providing licensed retirement services, many people receive Social Security payments well below the maximum allowed by law.
There are three options open to every eligible applicant for federal old-age income, provided they have at least 10 years of work history:
- As soon as possible
2. At full retirement age
3. As late as possible
SSA benefits are computed from the 35 top earning years of your work history. People with an uninterrupted work history longer than 35 years have years of low earnings dropped from the calculation, increasing the averaged benefit. Those with fewer than 35 years of income look-back get goose-eggs (zeroes) in place of a positive number – which lower the benefit amount.
The window to file for Social Security benefits is from age 62 to age 70.
Many people are really tired of working by age 62 and leap at the chance to get a federal check every month. But the ultimate payout is far less than could be attained by waiting a few more years. However, if family history or personal health suggests a short life expectancy, taking the money off the table at the earliest opportunity may be the course of wisdom.
Here’s an example of how SSA benefits are calculated in 2019:
Monthly Benefit starting at age 62: $750 ($9,000 annually)
Monthly Benefit starting at age 70: $1,320 ($12,000 annually)
Dig this: there is no benefit to be gained by waiting until after age 70!
People born in 1955 or later can receive full retirement benefits when they are age 66 or 67, depending on the date of birth.
Check out the SSA Benefits Planner Calculators to help figure out the age at which you can take the most money off the Old-Age and Survivors fund table with the highest-possible payments for the rest of your life and that of your eligible survivors.