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4 Things To Know About Social Security

Perhaps the best place to start on Social Security is with a brief history. The Social Security Act was signed into law by President Franklin D. Roosevelt on August 14, 1935. Spurred by the Great Depression of 1929 which the nation was still climbing out of, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income.

Social Security is a ubiquitous financial planning topic. Why? Most people in the US are either paying into it now, have paid in the past, or are currently receiving it. In fact, 97% of Americans age 60-89 receive Social Security benefits in one form or another. We wanted to present 4 frequently asked questions about Social Security below:


Will Social Security be here in the future?

This topic shows up a lot in the media, so we wanted to address it first. The short answer is YES. Carolyn Colvin—former acting commissioner of Social Security states, “I take this question very seriously, and I am sure Social Security will be there in the future.” The program currently operates with a surplus. However, the more important thing to understand is that there are options available for ensuring the program remains solvent into the future. Some of these options were utilized in the 1980s when Congress shored up the program by gradually increasing the full retirement age from 65 to 67 and started to tax benefits based on income levels. There are various other levers that can be used incrementally to ensure the program can pay out promised benefits. You should feel confident this system will be here for you, no matter your age.


How are Social Security benefits calculated?

Three things factor into future Social Security benefits.

  • How long you work – You must pay into Social Security for a minimum of 40 quarters (with a minimum income of $1,410 per quarter) to be eligible.

  • How much you earn - The higher your earnings, the higher your retirement benefit is likely to be, but there is a cap of $137,700 in 2020. If you want to see your Social Security earnings history, you can do so here.

  • What age you file for benefits – You can claim benefits as early as age 62, but the benefit increases until you reach age 70. Exactly how much you get at what age depends on your full retirement age (FRA) which varies by year of birth.

Are you taxed on Social Security?

Well, it depends. If Social Security is your only income, it is unlikely you will have to pay taxes on it. If you have other sources of income, which most people do in some way, you might have to pay taxes on between 50-85% of your Social Security. You will never pay taxes on more than 85% of your Social Security. On the state level, most states do not tax Social Security (including California), but some do. More info here.

Claiming Social Security Benefits (between age 62 and FRA) while still working:

There are reductions in your social security for doing this. Again, this only applies if you are claiming SS and between age 62 and your FRA. For 2020, you will lose $1 in benefits for every $2 in wages you earn over $18,240 per year until the month you reach the normal retirement age. You could lose $1 for every $3 in wages earned in excess of $48,600 in 2020.


Please let us know if you have any questions about Social Security, or forward this to anyone who may be interested in learning. We hope you’ve found this article insightful!

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