Marc Ang discusses Social Security basics and the government benefits we have paid into, some staggering social security statistical facts, criteria to qualify for social security benefits (fully insured versus currently insured) and the decision to take an early retirement or to delay until you’re 70.
Here is a little cheat sheet on Social Security basics and statistical facts for seniors and older couples approaching retirement. For almost every single American, your social security benefit figures into your retirement planning some way or another. For many, it is the major or single source of income and survival. Continue reading to learn about social security basics, statistical facts, categories of social security benefits, being fully insured versus currently insured and retirement.
Social Security Statistical Facts
- In 2015, nearly 59 million Americans will receive $870 billion in Social Security benefits.
- Social Security benefits represent about 39% of the income of the elderly.
- An estimated 165 million workers, 94% of all workers, are covered under Social Security.
Who receives Social Security income?
- Nine out of ten individuals age 65 and older receive Social Security benefits.
- In the senior population that receives benefits, 53% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.
- In the senior population that receives benefits, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income.
The Lack of Preparation Most Americans Have For Retirement
- 51% of the workforce has no private pension coverage.
- 34% of the workforce has no savings set aside specifically for retirement.
Life Expectancy Is Getting Longer, Putting A Strain on Social Security
- In 1940, the life expectancy of a 65-year-old was almost 14 years; today it is almost 21 years.
- By 2035, the number of older Americans will increase from 48 million today to 79 million.
- There are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.1 workers for each beneficiary.
Different Categories of Social Security Benefits
When discussing Social Security basics, most people do not know that Social Security pays out on a wide range of benefits beyond retirement benefits. The six major categories of Social Security Administration benefits are:
- Retirement benefits
- Disability benefits
- Family benefits
- Survivors benefits (includes a one-time death benefit of $255)
- Supplemental Social Security Income (SSI)
Qualifying For Social Security Benefits (Fully Insured versus Currently Insured)
You are entitled to Social Security benefits if you have worked and earned credits. As a tax-paying worker, you can fall into one of two qualifications: fully insured or currently insured. Below are the descriptions of each.
- “Fully insured” means that you have earned at least 40 credits (40 quarters of coverage) by your retirement age.
- In everyday terms, this means you paid into the system (or earned work credits, as SSA calls it) for 10 years, which is 40 quarters.
- There is a maximum accrual of 4 quarters per year.
- You must have made at least $1,260 a quarter (which also means you could make $5,040 in one quarter and that will be good for 4 quarters of eligibility).
- “Currently Insured” means that you have earned at least 6 credits (6 quarters of the coverage) in the previous 13 quarters (3 years).
- In everyday terms, this means you paid into the system about half the time in a 3-year lookback period.
And now, one of the most important in social security basics is when to take your retirement, whether an early retirement or a delayed retirement.
Early Retirement (How It Affects Your Social Security Benefit)
The current full retirement age is now 67, which has slowly creeped up from 66. Many people choose to do an early retirement at 62 though, which is the earliest age you can retire. However, by triggering your Social Security income benefit for an early retirement, you will permanently reduce your benefit.
This is to the tune of 1/180 for each month of early retirement up to 36 months early, and 1/240 for each month of early retirement greater than 36 months, up to 24 months.
- For example, your full retirement age is 67 and your PIA (Primary Insurance Amount) is $1,000/month. You decide to retire 3 years early on your 64th birthday. Your penalty would be 36/180, or 20%, so your lifetime monthly check is only $800/month if you retire at 64.
- With the same example, let’s say you retired 5 years early, on your 62nd birthday. You would incur an extra 24/240, or 10% penalty, so your lifetime monthly check would be $700/month if you retire at 62.
Delayed Retirement (How It Affects Your Social Security Benefit)
Conversely, many decide to wait until they are 70 to collect their benefits for a delayed retirement. There is a great advantage to doing this. You get a permanent increased benefit that ranges from 3% to 8% for each year you delay retirement. If you were born on or after 1943, that benefit is 8% per year.
- Back to our previous example: your full retirement age is 67 and your PIA (Primary Insurance Amount) is $1,000/month. You decide to retire 3 years later on your 70th birthday. Your bonus would be 8% for 3 years, which is 24%. Therefore, your lifetime monthly check will be for $1,240/month.
Taxation of Benefits
This blog you’re reading provides quick facts about social security basics and some fundamental social security statistical facts that will affect us in the near future. Please refer to our blog Taxation of Social Security to get more in depth about the taxation of Social Security benefits.
Marc Ang (Mangus) is a financial planner based in Claremont, CA, focused on spreading the gospel about responsible, educated and smart financial planning.