Preparing for retirement can seem intimidating, especially when you don’t understand the importance of Social Security planning. So, to make it easier for you, we’ve gathered everything you need to feel confident and empowered in collecting Social Security payments later in life. Read on to learn what Social Security benefits are, when and how to collect them, and more!
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What is Social Security?
There are several different parts to the Social Security program. The first part is the Old-Age, Survivor, and Disability Insurance program (OASDI), referred to as “Social Security.”
This program provides benefits to retired workers and their spouses. Additionally, it provides benefits to survivors of deceased workers and disabled workers of all ages.
The second part is the Supplemental Security Income (SSI) program. SSI benefits low-income individuals who are blind or disabled, as well as low-income seniors and widowers.
To qualify for Social Security benefits, workers must earn credits by working and paying Social Security taxes. The number of credits needed depends on the worker’s age and whether the benefit is for retirement, disability, or survivors. Once a worker has earned the required number of credits, they are considered “insured” for lifelong benefits. The government uses your Social Security number to track these credit earnings and benefits. 
Credits toward Social Security benefits are earned based on your income and the total time you have worked. In 2022, workers earned one credit for every $1,510 of revenue, up to a maximum of four credits per year. Once a worker has earned 40 credits, they are considered fully insured and eligible for benefits. So, if you made at least $6,040 and paid Social Security taxes on your revenue, you would earn the maximum annual credit amount.1
Based on this, most workers will have earned enough credits to receive full retirement benefits after ten years. Benefits are paid out by the Social Security trust fund, which consists of money collected from payroll taxes and interest earnings.
Social Security benefits are critical to your financial plan, as these payments replace the income you earn when you retire or become disabled.
So, How Do SSI Benefit Amounts Work?
As mentioned above, your Social Security benefits are based on your lifetime earnings, and you become eligible to receive them when you retire. The amount of your benefits is calculated using a formula that considers your average earnings over time and is adjusted for inflation.
For example, in 2022, the Social Security tax rate was 12.4%. If you are an employee, you and your employer will split the bill. But if you’re self-employed, then you alone are responsible for paying the entire 12.4%. As a result, you can claim the “employer” half of the tax as a tax deduction.
There is a limit on income subject to the Social Security tax for high-income earners. For 2022, only the first $147,000 is taxed for Social Security.
This is important because your taxes do not fund your future Social Security benefits. Instead, your payroll taxes fund individuals receiving Social Security benefits (aka beneficiaries).
According to the SSA website, “There are currently 2.7 covered workers per each Social Security beneficiary. By 2035, there will be 2.3 covered workers for each beneficiary.”2
Hopefully, you can now see why so many people are concerned about receiving Social Security and believe it may not be around for future generations.
Benefit Amounts
According to the Social Security Administration, the current average monthly retirement benefit in 2022 is $1,657 or about $20,000 annually.3 This is something to consider when deciding how you would like to spend your retirement years.
While it may be hard to believe, according to the SSA, 79% of elderly people receive 50% or more of their income from SSI and 27% of elderly individuals rely on Social Security for 90% or more of their income in retirement.4
The purpose of Social Security is to supplement your retirement income. It is not an income replacement. The bottom line is that it is your responsibility to secure your retirement. Your retirement plan is the foundation and primary source of your retirement – not Social Security!
What Can I Expect from Social Security When I Retire?
As our population ages and more baby boomers retire, it is projected that the number of Americans 65 and older will increase from about 57 million in 2021 to about 76 million by 2035.5
If nothing changes, Social Security will run out of money in 2035.
Depending on what Congress does (or doesn’t do), retirees should have a Plan B. This means preparing for the possibility of reduced benefits, a later retirement date, and a rise in Social Security taxes.
Again, you cannot rely on Social Security to fund your retirement. Do you want to rely on the government to oversee your “golden years?” Probably not.
If Social Security is still around when you retire, you can use that money for travel and fun, but relying on Social Security for your retirement plan is probably not the best plan.
When Should I Start Collecting My Social Security Benefits?
This depends on several factors, including your age, income, savings, and life expectancy. Some online calculators can help you determine when to start collecting your Social Security benefits.
But before you take the money and run, please note that you have only one option to change your mind. You can stop taking benefits within 12 months of your start date and repay the benefits you received. Your benefit will then be re-sent when you reapply.
Generally, it is best to wait until you’ve reached full retirement age before receiving Social Security benefits. However, there may be certain circumstances where it makes sense to begin receiving benefits earlier than this. For example, if you have a short life expectancy, you may want to start collecting benefits earlier, so your loved ones can receive them for a longer period.
Currently, you are eligible to start receiving benefits at age 62 (even if you are still working). However, you will not receive the full retirement benefits until you reach the full retirement age. For example, if you were born in 1960 or later, your full retirement age is 67.
If you have questions about Social Security or other financial matters, start here:
Survivor Benefits
A Social Security survivor benefit is a monthly payment made to the surviving spouse or minor children of a worker who has died. If the deceased received Social Security benefits at the time of death, the surviving spouse and minor children might be eligible for a portion of those benefits. Additionally, the earnings of the deceased worker ultimately determine the benefit.
Social Security is taxed as ordinary income. As a result, a woman’s tax rate may increase since she will be filing taxes as a single instead of jointly.
A woman who has been married for at least ten years and gets divorced may receive her former spouse’s Social Security. She may also receive her Social Security. However, she cannot receive both her Social Security and her divorced husband’s.
If a divorced woman gets remarried and her current husband dies, she can choose which Social Security to take. If her former husband is deceased, she may choose between taking her former husband’s Social Security, her recent husband’s social security, or her own social security.
How and When Do I Apply for Survivor Benefits?
If you are a surviving spouse, you can apply for survivor benefits online by calling or visiting your local Social Security office. If you are a minor child, your parent or guardian can apply for you.
You should apply for survivor benefits immediately after the worker’s death. If you wait too long to apply, 
you may lose benefits.
To qualify for survivor benefits, the surviving spouse must be at least 60 years old (50 if disabled).
Minor children may also qualify for survivor benefits if unmarried and under 18 (or under 19 if they still attend high school full time).
More than one person can receive survivor benefits. For example, if a worker dies leaving a spouse and two minor children, each survivor would be eligible for a portion of the deceased worker’s benefits. However, the total benefits paid out cannot exceed the maximum allowed family benefit.
In some cases there are other advanced options available for a surviving spouse or divorcee. A Social Security expert can review your situation and discuss the options so you can make an informed decision.
What Information Will I Need to Apply for Survivor Benefits?
You will need the following information for the deceased worker:
- Death certificate
- Social Security number (ideally, provide their Social Security card)
- Date and place of birth
You will also need your:
- Social Security number
- Your relationship to the deceased worker (e.g., spouse, child, etc.)
- Your bank routing number, account number, and type of account (if you want direct deposit of your benefits)
- Marriage certificate
If you are applying on behalf of a minor child, you will need proof of their relationship with the deceased.
Summary – “What is Social Security?”
To wrap up our coverage of Social Security planning, we will review these key takeaway points:
First, do not plan on Social Security covering your income needs during retirement.
Second, always consult with a Social Security expert to help you create a plan and navigate your choices. Working with an expert can add thousands of dollars to your Social Security benefit.
Third, before you decide when to begin collecting your Social Security benefit, understand the current benefit amount and your retirement age benefit.
Because the rules and factors affecting your Social Security continue to change, it is also important to consult with the Social Security Administration or a qualified financial advisor. They can provide you with up-to-date information so you can make an informed decision.
The SSI Administration’s telephone number is 1-800-772-1213. You can also find more information on their website here: https://www.ssa.gov/benefits/ssi/.
There are several withdrawal strategies for individuals, divorces, widows, and couples to maximize your lifetime benefits. A qualified financial advisors can help you determine the best strategy for you and your family.
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