If you are nearing retirement age, you’ve probably started thinking about filing for social security. There are nearly as many myths floating around out there as facts about what social security is and does. Before you make any decisions, you need to understand exactly what social security is and how it works. Then, you can make the right decision about when to file.
What Is Social Security?
Social Security is a federal insurance program that provides benefits to people when they retire. Many seniors count on their social security benefits to pay for the essentials once they no longer receive an income. For some, their benefits are the only source of income they have. A small percent of Americans have savings for their golden years. Without social security benefits, many would have problems paying for the basics, and funding unexpected needs would be an even greater challenge. In many cases, it would put a financial burden on other family members.
The social security program is “pay-as-you-go”, meaning that a percentage of your income is deducted every time you get paid. Currently, we have a 12.4% social security tax, but you don’t pay it on your own. You pay 6.2% up to a cap of $127,200 annually. Your employer matches the payment for a combined amount of 12.4%.
The money you pay into social security today doesn’t go into a savings account marked with your name. It goes to the retirees who collect benefits now in return for what they paid into it during their working years. Once it’s your turn to collect, your payments will come from what new taxpayers contribute to the program.
Only those people who pay into social security for at least ten years can draw benefits later on. One exception is that if you have a spouse who dies and qualifies for social security benefits, you may be able to draw them too. These are called survivors benefits. They include a percentage of the deceased’s social security benefit.
If you paid into the program, the amount of benefits you receive depends on how much you paid in. Since social security tax is based on a percentage of total income, those who earned more money will also get the highest benefits. But that isn’t the only factor that determines how much you can draw.
The Best Time to File
The earliest you can receive social security benefits is at age 62. If you want your benefits to begin as soon as you turn 62, you can file 3 months before your 62nd birthday or 4 months before you want your benefits to start. Filing for social security benefits as soon as you are eligible will prevent you from getting your maximum benefits. For each year you wait, your benefits increase by 8%.
You are eligible for full benefits at age 66 if you were born between 1943 and 1954. For those born in 1960 and later, the full retirement age is 67. The full retirement age gradually increases for those born in between 1954 and 1960. For example, those born in 1955 reach full retirement at 66 and 2 months while someone born in 1959 reaches full retirement age at 66 and 9 months.
Three Ways to Apply
Once you decide you’re ready to apply, there are three ways to go about it. You can apply in person at your local social security office, over the phone, or online. Filing for social security benefits online is probably the fastest option. Go to http://www.socialsecurity.gov/retireonline/ and follow the step-by-step instructions. It usually takes about 30 minutes to complete the application.
If you prefer to talk with a social security worker, go here to find your local social security office using your zip code. You will need to make an appointment and show up with all the required documentation. To apply over the phone, call 1-800-772-1213 between 7 am and 7 pm, Monday through Friday. Before applying for social security, gather the following information:
- Your original birth certificate to show your date and place of birth
- Your social security number
- Your spouse’s social security number and date of birth
- Location of your marriage
- Names of unmarried children under the age of 18 years or 19 years if still in high school, and disabled children under the age of 22 years
- Date of divorce or death of your spouse
- The name and address of your employer(s) for the current and previous year
- Your income for the current and previous year, along with an estimate of your earnings for the following year
- The previous year’s W-2 or self-employment tax return
- Your earnings record
- Records of any active duty military service prior to 1968, including your military service papers
If you want to have your benefits directly deposited into your bank account, you will need your bank account information as well. If there are special circumstances surrounding your case, there will be additional requirements.
Supplemental Security Income
Supplemental security income, or SSI, is a different type of social security program. It pays benefits to people over the age of 65 years who have low or no income and people of any age who are blind or otherwise disabled. SSI benefits aren’t based on your past earnings or tax payments. These benefits come from other tax revenue. Anyone who meets the eligibility requirements can obtain SSI.
To prove that you qualify for SSI, you must show that you have low or no income and that you have limited resources. Before you get SSI benefits, you must apply for regular social security benefits, along with any other type of benefits for which you might be eligible.
Where Medicare Comes In
Medicare is another government-run program that provides healthcare insurance to people aged 65 and older. Like social security, you must work and pay into the program for at least ten years before you qualify for benefits. Also, as is the case with social security, spouses can get Medicare coverage based on a deceased spouse’s work history. One difference is that people who haven’t paid into the program for ten years can purchase coverage. Medicare is also available to younger people with disabilities, ALS, or kidney failure.
People often get social security and Medicare confused. Part of this comes from the fact that the Social Security Association (SSA) determines eligibility for both programs. When people begin receiving social security benefits before the full-benefit age of 65, they are automatically enrolled in Medicare when they turn 65.
State laws determining eligibility for Medicare while on SSI vary among the states. In most, SSI recipients are usually automatically eligible for Medicare. Applying for one is also an application for the other. In some other states, the application and establishing eligibility are separate.
What Many Retirees Don’t Know About Social Security Benefits
Retirement accounts act as supplemental income for your social security benefits, not the other way around. Due to a lack of investments and savings, many retirees end up living primarily on their social security benefits. While these benefits might end up being your main source of income after retirement, many people don’t understand some of the conditions that come with them. Consider the following details when thinking about the right time for filing for social security.
- You have to pay taxes on your social security income. Retirees often assume that they’ve already paid taxes on the income and that their benefits come to them outright. But that isn’t the case. For those with an income of $25,000 to $34,000, you may have to pay taxes on as much as 50% of your income. Those making over that amount pay the highest bill, with as much as 85% being considered taxable income. If your taxable income is under $25,000, then none of it is taxable.
- Many people just let their social security benefits take care of themselves until they need them. If you didn’t work and contribute to social security for at least 35 years, your benefits might be less than expected. SSA calculates your entire earning history and bases your benefits on your best 35 years. This number is the Average Indexed Monthly Earnings (AIME). This determines your benefits at retirement age. If you haven’t worked a full 35 years, either from a late start, an early retirement, or time off in-between, they use the amount of $0 in the calculation. Depending on the length of your work history, you might want to invest more time or consider other options before filing for social security.
- You can’t claim any social security benefits unless you work and contribute for ten years or longer. You have to earn work credits with a total of 40 credits to get benefits. In 2018, the SSA considers $1,320 in earnings as one work credit. But you can only earn four credits during any year. That adds up to a ten-year minimum.
- You can claim social security benefits based on your spouse’s record, even if they are deceased (survivor’s benefits) or you are divorced. To obtain survivor’s benefits, you must be aged 60 or older, unless you are disabled, in which case the age goes down to 50. If you are raising a disabled or minor child of the deceased spouse, you can also get survivor’s benefits. While you are married and your spouse is alive, you can claim benefits on their work record as long as you are over 62 and your spouse already receives either regular or SSI benefits.
Nursing Home Vs Aging In Place
Retirement can be an exciting and enjoyable part of your life. People make plans for years about how they will spend their time once they no longer have to go to work every day. Unfortunately, as the retirement age keeps getting moved back, more retirees are facing the effects of aging closer to their retirement.
At some point, many people become unable to care for themselves. Most prefer to age in place. Some spouses, adult children, or other family members face the painful decision of putting their loved one into a nursing home. They may not have the time to think about how the billing for the nursing home works. It may come as a surprise when the nursing home takes all of their loved one’s social security benefits.
Most seniors prefer to stay in their own homes. Adult children don’t always consider aging in place as an option for their parent. But the solution may not only be that which makes the senior the happiest. Aging in place is also the most affordable option in many cases.
Paying for Care
Seniors have different needs, depending on their medical conditions and their capabilities. Some require companionship and help with tasks like walking their dog or running errands. Others have serious medical issues that require both medical and non-medical care. There are solutions for every situation.
Hiring a non-medical caregiver provides the extra help that the senior needs. An experienced caregiver can be there for as many or as few hours through the day as the client needs them. They can also provide respite care if a family member needs a break. Medicare doesn’t pay for non-medical in-home caregivers. But their services are a lot more affordable than you think. They also cost less than paying for full-time nursing home care.
For seniors who need medical care, the good news is that Medicare does pay for in-home health aids. That means the medical costs won’t take away from their social security benefits. You can also hire a non-medical caregiver to take care of other needs.
Filing for social security is a complex decision for everyone to make. Even after receiving benefits for years, seniors don’t always understand their options and limitations. Seniors shouldn’t have to lose their benefits to live their lives in a place where they don’t want to be.
Contact San Diego Compassionate Caregivers to learn more about hiring a caregiver for you or your loved one. Let us help you make the most of your benefits and improve your quality of life.