April is National Social Security Month
With April designated as National Social Security Month, we’re taking the opportunity to highlight the importance of the federal program funded by workers’ income tax that “returns” the money to them in retirement. We’re also sharing tips on how to maximize your Social Security benefits and ensure a smooth transition into retirement.
Long story short, it was the Great Depression of the 1930s that made Americans appreciate the value of collectively providing financial support to those facing life’s hardships – or in the case of retirees – being less up for the rigors of full-time labor.
“Social insurance, as conceived by President Roosevelt, would address the permanent problem of economic security for the elderly by creating a work-related, contributory system in which workers would provide for their own future economic security through taxes paid while employed.”1
Today, an average of almost 67 million Americans per month will receive a Social Security benefit, totaling over $1 trillion in benefits paid during the year, and representing 30% of the income for the elderly.2
To be eligible for Social Security in retirement, you must be 62 or older and have worked and paid Social Security taxes for 10 years or more. Benefit payments will be temporarily reduced if you stop working before your federally determined “full retirement age.” You can apply for benefits until the age of 70, and the amount will be higher the longer you wait to apply.
The Social Security Administration leaves the timing up to you. So you should base your decision on when to apply based on your personal needs. Other factors that you should think about that can affect the amount you receive include:
- Paying for healthcare – Eligibility for Medicare begins when you’re 65, and the sign-up process for Part A (hospital insurance) and Part B (medical insurance) is completed through the SSA. If you plan to sign up for Part B, make sure you know that your benefit amount will be reduced to cover that cost.
- Withholding taxes – You may pay federal income taxes on your benefits if your combined annual income (50% of your benefit amount plus any other earned income) exceeds $25,000 if filing individually or $32,000 if filing jointly. You can request to have taxes withheld from your payment, or pay the IRS directly.
- Knowing your “full retirement age” – Leaving the workforce before you reach this federally defined age means your benefit amount will be temporarily reduced. To calculate when you are eligible for the full amount, visit the SSA’s page on planning for retirement.
The Social Security Administration, like virtually every aspect of our lives, has gone digital to increase access and ease of information management. At my Social Security, you can create a free and secure account that provides personalized tools for everyone, whether you receive benefits or not. You can use your account to request a replacement Social Security card, check the status of an application, estimate future benefits, or manage the benefits you already receive.
However, because retirement is about more than money, we should briefly provide some tips to ensure a smooth transition into this next phase of life. While the promise of fewer responsibilities and more free time may sound like “the dream,” emotional preparation and planning should not be overlooked—especially for those who have defined themselves by their work all their life.
- Think ahead – Many people start thinking about retirement about three to five years before they actually do. This is a good opportunity to think about how you’d most like to spend all the extra time. Are there interests or activities you’ve always wanted to pursue? Are there organizations in your community that you align with that you could volunteer for or work part time?
- Connect – About a year before retiring, when it starts to become real, make sure to form bonds with peers you still want to see, and consider rekindling friendships and family ties that may have been put on the backburner while you were working. Social circles tend to shrink in retirement.
- Don’t unplug – Technology is constantly changing, and it’s easy to think you no longer need to keep up when you no longer have to work for a living. But technology also makes it easier than ever to do things, like create beautiful photos and videos, or keep in touch with anyone around the world.
Of course, there are many ways to mentally prepare ourselves for retirement. But for now, we return to the topic at hand: The fundamental principle that Social Security is based on is a person’s need for financial security, including in retirement.
You can ensure that security and stability by signing up for an employer-sponsored 401(k) plan—and making sure you regularly contribute enough to qualify for the full match, if your employer offers one.
You should also consider diversifying your retirement portfolio by opening an Individual Retirement Account. BluPeak offers a variety of IRAs to suit your specific needs, as well as different types of savings accounts to provide options based on your priorities.
This information is provided for educational purposes only and is not intended to be financial advice. Consult a tax professional regarding your individual tax situation. Must meet membership and account criteria. Insured by NCUA. Medicare and Social Security are federal programs offered by the U.S. government.
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