This blog discusses content from CBM’s Maximizing Social Security Benefits and Avoiding Mistakes webinar. To watch the webinar click here. Previous webinars can be found here. Like the content? Get alerts about future webinars here.
Anyone who gets a paycheck knows that Social Security exists, by the little tax line. But do you know how it works? An important part of financial planning is knowing where your money is going and what you will get in return. This post discusses the basics of Social Security, why it takes your money, how it works and the best way to optimize your earnings. We want to provide you with the knowledge to make smart financial decisions for your future. After learning the basics, you will want to see the best strategies for maximizing social security. If you have already applied for social security and run into some issues, these solutions may help you.
President Franklin D. Roosevelt created the Social Security Administration in August 14, 1935. It’s creation stood as a response to the Great Depression, so the elderly and disabled could find financial stability.
Social Security is a work-based system, workers give a portion of their earnings to the government and when they retire, the government gives them money back. The money put in is not the same money you receive later. Think of it as a shared bank account . Younger generations put money into the bank account and retiring generations take money out. Social Security’s plan requires a growing population, so 2 or more people pay for one person’s benefits.
As previously mentioned, working generations put money into the system. The amount of money put into the system matters determines whether you qualify to receive Social Security when you retire. 40 credits are required to qualify for the program. Each credit is equal to $1,640 with a 4-credit limit per year. To qualify, you must work a minimum of 10 years, paying $6,560 of Social Security tax a year.
When you start collecting from the program, you receive a determined amount of money every month for the rest of your life. The amount is based on your average indexed monthly earnings over a period of 35 years. If you worked more than 35 years, years with the lowest rate of earning will not be included.
You have a few choices of when you can apply for Social Security. You can collect your benefits when you are:
Although increasing your benefits by delaying when you apply may look promising, it may not be the best decision for everyone. It is important to consider your financial wellbeing, age expectancy and more, before you decide. We recommend you talk to one of our financial planners to ensure you are making the best decision for your future.
Please contact Judith P. Barnhard via our online contact form for more information about Social Security and financial planning.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.