Social Security Strategies
Social Security benefits represent an important, but often overlooked, component of retirement income planning. Signed into law on August 14, 1935, the Social Security Act created the Old Age and Survivors Insurance Trust (OASDI) and the Disability Insurance Trust. Later expanded through the Medicare Act of 1965 to establish the Hospital Insurance Trust (Medicare Part A) and the Supplementary Medical Insurance Trust (Medicare Parts B and D), the combined program provides the bedrock of retirement security for many Americans.
Funded through a Social Security tax of 12.4% on earnings up to the prevailing maximum taxable earnings limit, with the burden shared evenly between employers and employees, the Social Security program pays retirement benefits to those individuals that have accrued ten years or more of qualifying work. Additional benefits are available for non-working spouses, family survivors, as well as benefits that are paid for disability and death.
Retirement benefits are calculated using the highest 35 years of wage history, with earnings prior to age 60 indexed for wage inflation. The resulting retirement benefit is referred to as one’s Primary Insurance Amount (PIA), and is the foundation on which all benefits are calculated. Retired workers are paid their full PIA when they attain full retirement age, which varies based on one’s year of birth. Reduced benefits may be collected as early as age 62. Benefits may also be delayed until as late as age 70 and will qualify for delayed claiming credits that increase the total benefit.
Retirees should consider strategies that maximize their family’s lifetime retirement income stream and protect against the risk of outliving their assets. Those nearing retirement with few assets may find that maximizing their Social Security income is one of the few planning options available, and could mean the difference between maintaining a comfortable standard of living, or living in poverty.
Social Security retirement benefits comprise more than 50% of retirement income for 2 of 3 current retirees, and the sole source of retirement income for 1 in 5. As people age, they are increasingly likely to rely on Social Security to provide for their retirement income needs. Decisions surrounding Social Security retirement benefits are the single most important retirement planning decisions that many Americans will face, so getting it right is critical to success.