Monday, March 18

4. Social Security

Social_SecurityThe Social Security program in the United States is an insurance program that provides basic retirement benefits for older Americans as well as survivor benefits for minors and basic support for certain disabled individuals. The health insurance program Medicare is related to Social Security. Benefits are funded by payroll taxes paid by employers and employees and self-employed people.

What benefits will you receive? The amount of the benefit you'll receive upon retirement depends on the age at which you retire and your reported earnings for each year after you turned 21. This latter fact is one of the reasons that it's important to check your statement of earnings and estimated benefits from the Social Security Administration.You can access it online anytime through your My Social Security Account.

How can you compare estimated benefits for different retirement ages? If you wish to compare how benefits may differ for retiring at different ages (for example, age 62 compared to age 66), use the online Retirement Estimator. The Social Security website also has a useful FAQ When to Start Receiving Benefits on the effect of retiring at different ages.

When should you apply for Social Security benefits? The Social Security Administration recommends that you apply for benefits four months before the first month you wish to receive benefits. You can make the application online at

Every year you work after full retirement age, your social security benefit will continue to increase up until age 70. At age 70 you must begin to claim Social Security benefits. For example, if your full retirement age is 66, for each year you delay claiming benefits, you will increase your annual benefit by about 8% up to age 70. After age 70 there is no incentive for delaying; however, cost-of-living increases do take place. The significant growth in annual income for waiting to claim your Social Security benefits for a year or more beyond your full retirement age (FRA) is a reason to consider this option as part of your retirement strategy.

Can you continue to work while receiving Social Security? Yes. But if you receive benefits before full retirement age, some benefits may be withheld if your work income exceeds certain limits. However, after you reach full retirement, these withholdings will result in a higher benefit when you reach full retirement. If you have reached full retirement age before receiving benefits, you can earn as much as you like without any reduction to your benefits. For more information see How Work Affects Your Benefits from the SSA.

When should you apply for Medicare? No matter when you plan to apply for Social Security benefits or when you reach full retirement age for Social Security, you should apply for Medicare benefits three months before you turn age 65. If you apply later than this time, you typically have to pay about a 10% higher premium. You can apply online at Read the online Medicare guide from SSA.

Next: 5. Tax-Advantaged Retirement Plans