Few government programs are as misunderstood as Social Security. Some of the confusion is understandable, considering the many moving parts within the program. However, Social Security is relatively straightforward at its roots as long as you understand its basic components and intent.
A Quick History of Social Security
Within the throes of the Great Depression, the federal government was looking for ways to stimulate the economy and help the American workforce prepare for their future as well. The Social Security Act was signed into law in 1935 to provide income to retired workers and meet those goals.
Social Security Benefits
As a rule of thumb, the longer you wait to receive your benefits, the higher your benefits will be, and the greater your lifetime benefit will be as well. However, no matter when you elect to receive those benefits, you are considered fully covered if you have collectively worked for a minimum of 40 calendar quarters in a covered job or jobs.
If you are considered retired, the youngest age you can start receiving benefits is 62. You are eligible to receive maximum benefits if you elect to delay your benefits until 67. If you are married and your spouse accumulated their own Social Security benefits through work, they are entitled to the greater of their own benefits or an amount equal to half of your benefits.
Similarly, survivor benefits are available under certain circumstances for surviving spouses, children, and even ex-spouses.
Taxes on Your Benefits
Although the numbers are subject to change from year to year, taxation on your benefits can range from entirely tax-free to 85% of your benefits being taxed, in a worst-case scenario, according to your income tax bracket.
To be more exact, the IRS allows you to have a certain amount of income before your benefits become taxable. Once you reach that initial income threshold, 50% of your benefits will be taxed. If your taxable income surpasses both that initial income threshold and a secondary, higher one, 85% of your benefits are taxable. Thankfully, it is possible to withhold for tax purposes on your benefits to ease the burden come April 15th.
Although increasingly difficult to qualify for, Social Security can provide early disability benefits if you are considered incapable of working due to a physical or mental diagnosis that is expected to last at least 12 months or ultimately result in death. Qualifying for Social Security disability benefits should never be assumed a given, however, as the Social Security Administration is exceptionally frugal with whom they grant disability benefits.
Have questions about how you should claim Social Security or want to run projections to maximize your benefit, or need help with your financial plan? We’re here to help! Simply click here or call (763) 445-2772 to schedule a complimentary consultation today!