Have you ever clocked into work, only to spend the entire day imagining your retirement? You stare at your computer screen while dreaming about traveling the country in your RV, or spending more time volunteering for community service, or training to golf like a pro. And yet those exciting dreams can easily be smothered with a sense of panic. Will I make enough to continue living comfortably? Will I have health insurance? I’ve heard of Social Security benefits, but will they carry me through retirement? How and when should I apply for them?
If you feel overwhelmed by all of these questions, you’re not alone. That’s why we’ve created this list of the top ten things you need to know about your Social Security retirement benefits.
#1: What is Social Security?
Imagine you could automatically set aside a small percentage of each paycheck for retirement. On some level, that’s basically what Social Security does.
The Social Security Administration (SSA for short) was created after the Great Depression to help provide for future retirees. In its current model, each working person and their employer contributes a small fraction of his or her paycheck toward Social Security taxes. When you reach the age of retirement, the amount of Social Security benefits you receive will be based on what you’ve already put into the system through Social Security taxes.
#2: When should I apply for social security retirement benefits?
You are eligible to apply for Social Security retirement benefits any time between the ages of 62 and 70.
That being said, there are pros and cons to applying earlier versus later. Here are two main factors to consider:
- How is your health, and do you come from a long-lived family? If you anticipate living until 90, it might work well to apply later in life. However, if you anticipate living until 75, you might want to apply earlier so you have time to fully enjoy your retirement benefits.
- What kind of salary are you making now, when compared with the rest of your career? Your Social Security benefits will be calculated from the most lucrative 35 years of your career. So, if you are making your highest salary now and therefore decide to work for a few more years, you could increase the amount of Social Security that you earn later on.
Whether you apply earlier or later, you will still receive the same total amount of income, calculated from your most lucrative years. This means that if you apply earlier, you will receive a smaller paycheck each month, as your payments will be stretched out to cover more years. If you apply later, you’ll receive a larger paycheck each month, but over the course of fewer years.
There’s one exception to this rule: You can receive credit for waiting until age 70 to apply for your benefits. In some cases, this could potentially raise your yearly income by up to 8%.
Before deciding when to retire, try giving the SSA a call at (800) 772-1213 or check out their Retirement Estimator Calculator. These tools can help you figure out your best retirement age.
#3: How can I apply for Social Security benefits?
You can apply online, over the phone, or in person. If you want to apply in person, you should call and set up an appointment before going in to your local SSA. Applying online may be the easiest option– you won’t have to wait in line and you can always take a break, save your progress, and return to the application later.
No matter how you do it, you will need to apply four months before you’d like to start receiving benefits. Unfortunately, you cannot apply any earlier than that or your application may not be processed. However, applying later could postpone when you begin receiving payments.
#4: What information will I need for my application?
The application consists of questions about yourself, your spouse (if applicable), and your children (if applicable). You’ll need to provide some documentation, including proof of birth (like a birth certificate), proof of U.S. citizenship or lawful alien status, your W-2 or self-employment tax return for the previous year, and your U.S. military service papers (if applicable). You should also have your direct deposit account and routing numbers handy if you plan on receiving your benefits through direct deposit.
#5: How will my Social Security benefits be paid?
Typically people receive their Social Security benefits through direct deposit. This is a free and easy way to receive payments, without the hassle of waiting for a check to arrive in the mail before having to then go to cash it.
#6: How much of my Social Security benefits will I be paid?
This depends on the person. Your annual Social Security statement shows how much you should expect to receive if you retire at the age of 62, compared with how much you would receive if you wait until age 70.
#7: When will my Social Security benefits be paid?
Social Security is paid out the month after it is due, meaning that you’ll see August’s payment come through in September. The exact day when it comes through each month (i.e. the beginning or end of the month) depends on your date of birth and whether or not you started getting benefits before May of 1997.
#8: Will I need to pay taxes on my Social Security benefits?
This depends on several factors: How much you are making annually (between Social Security and other work), whether or not you are married, how you file (e.g. individually, jointly, etc.), and whether or not you have children who you claim as dependents. About 40% of people need to pay taxes on their Social Security benefits. Talk with an accountant or tax professional to find out if you would be one of them.
#9: Can I still work while collecting Social Security benefits?
Yes, but the amount of income you are allowed to make while receiving Social Security benefits is limited. Learn more about working while collecting Social Security benefits here.
#10: Medicare and your Social Security benefits
Regardless of when you apply for Social Security retirement benefits, you will need to apply for Medicare three months before you turn 65. If you were planning to wait until later to apply for Social Security benefits, just make sure you still apply for Medicare three months before turning 65 to avoid being charged a late-enrollment fee.
We hope these ten tips will relieve any sense of fear while empowering you to plan for retirement. Those dreams of an RV, golf championship, and opportunities for service might not be so far away after all!
Get a Green Dot card today and enjoy receiving your Social Security benefits right on your card with FREE direct deposit!