When can I collect Social Security is a question many people ask as they hit their 50’s and beyond. For those of us that are nearing retirement age, having a retirement plan in place is vitally important.
The Economic Policy Institute reports that the vast majority of Americans have less than $1,000 in savings, and half of all Americans have put away nothing at all for retirement, even in retirement savings vehicles such as 401k’s, and Individual Retirement Accounts or IRA’s.
35% of American adults have only $400 in a savings account, and 34% have no savings at all. Less than 13% of Americans have a pension plan in place.
In a survey by Bankrate, 22% of Americans said their biggest financial regret was not getting started saving for retirement earlier. So, how will seniors, and almost seniors deal with this? According to Gallup Polls and others, many Americans expect to rely more heavily on Social Security, and contributions from children, and other relatives.
History of Social Security
Originally called the Economic Security Act, the title was changed as Congress considered the bill, Social Security Act was signed into law by FDR, President Franklin Delano Roosevelt on August 14, 1935. This act was designed as a social insurance program to provide a continuing income for retired workers 65 years of age or older.
Social Security taxes were collected for the first time in January of 1937, and the first lump sum, one-time payments were made in the same month. January 1940 was the beginning of on-going, regular benefit payments. Originally, only the primary worker was paid Social Security benefits.
The first person to get Social Security benefits was a man by the name of Ernest Ackerman, whom received a lump sum payment of .17 cents in 1937.
A law change in 1939 included survivors, and the spouses and children of retirees to collect benefits. In 1956 Social Security Disability benefits were also added. The original 1935 law also included the first unemployment compensation program, Aid to Dependent Children program, and health and welfare aid to various states.
Cost of living allowances, COLA, became law in 1972, and was initially paid in 1975. Before this, it took a special act of Congress to increase benefits, and happened on an irregular basis.
November 1936 is when Social Security numbers were first issued. Since this time over 453 million numbers have been issued. From 1937, when payments were first issued, until 2009, Social Security has taken in $13.8 Trillion Dollars, and paid out $11.3 Trillion Dollars.
By law, the the Social Security Trust Funds program assets must be invested in securities guaranteeing both principal and interest. These Trust Funds hold a mix of both short-term and long-term government bonds.
The Trust Funds can hold both ‘special obligation’ securities issued only to federal trust funds, and regular Treasury securities. The majority of the securities in the Social Security Trust Funds are ‘special obligation’ type securities.
In 2015, the program paid benefits to more than 60 million people, made up of 43 million retired workers along with their dependents, 6 million survivors of deceased workers, plus 11 million disability claimants, and their dependents.
Current State of Social Security
You may have heard that Social Security is going broke. This rumor simply isn’t true. According to the 2017 Actuarial Status of Social Security Trust Funds, Social Security isn’t bankrupt or even running out of money. In fact it is currently running a surplus, and is said to be solvent until at least 2034.
You can rest assured that Social Security will be there when it’s time for younger baby boomers, Millenials, Generation Xers, and even younger generations to claim their benefits. There are, however, other schools of thought regarding how sustainable the Social Security Trust Fund really is.
Some feel that after 2034, due to the large amount of draw from the baby boomer generation, that going forward it could cause too large a burden on the system to continue to pay out in full.
Others argue, that due to the smaller family unit of recent, and current generations, as well as abortions reducing the number of potential claimants, that the demand for Social Security will be less. This smaller demand should enable the program to continue with little if any reduction.
When Can I Collect Social Security
The soonest someone can collect Social Security benefits is age 62, as long as you have paid into the program for a minimum of 40 quarters, or approximately 10 years. Full retirement age is 65 – 67 depending on your date of birth.
For each year you delay in taking your pay out, your benefit amount increases by about 8% until age 70.
The latest someone can start to collect Social Security benefits is age 70. If you elect to start taking your benefits at age 62, you will receive a reduced rate at 75% of the full monthly benefit.
The monthly amount you will receive will depend on how much you have paid into the system, and for how long.
If you are a spouse, you will receive 35% of your spouse’s benefit if they begin to take it at age 62. If your spouse waits until full retirement age, you are then entitled to 50% of your spouse’s monthly benefit. Only one spouse can take the spousal benefit.
You can also receive spousal benefits based on an ex-spouse’s benefits as long you were married for at least 10 years, divorced for at least 2, and not remarried, even if they have never filed for Social Security. Widows, and widowers can collect survivor benefits starting at age 60.
You can also work and collect Social Security benefits starting at age 62. However, if you are under your full retirement age, your benefit will be reduced by $1 dollar for every $2 dollars you earn that is over the yearly limit amount, which for 2018 is $17,040
Your Social Security benefit income may increase as your work continues. Your income will be looked at every year, and you will be informed if there is an increase.
Starting with the month that you reach full retirement age, you can receive your benefits with no limits on your work earnings. Earnings are considered wages from your job, or from your business, net earnings are taken into account.
Interest, investment income, annuities, pensions, veterans or other government retirement income are not counted.
For more information considering your Social Security, go to: http://ssa.gov
Other Retirement Plans
Social Security was designed to be a supplementary program to your retirement savings, and/or your retirement pension. It was not designed to be a stand alone program. The truth is though that Social Security is a stand alone program for many people because they have not saved for, or set up a retirement plan.
“We didn’t plan to fail, we just failed to plan.”
I realize that it is not always easy to set up a plan, and stick to it. Life happens, and priorities dictate how the finances are handled. However, most of us, if we live within our means, and devote even a small amount of money monthly towards retirement, we can accumulate some funds that will assist in retirement.
Time is your biggest ally. The sooner you get started with a focus on your retirement, the better chance you will have to provide yourself with a comfortable life in your later years.
If you have some years before you are ready to call it quits in the work a day world, I strongly suggest you attempt to set something up. Talk to a financial planner at your work if they offer a plan, or talk to a financial planner on your own, or someone else that you trust in the finance/retirement plan area.
If you just want to go about it on your own, I recommend you look at dividend stocks, and more specifically, DRIP stocks. DRIPs are dividend reinvestment programs. Some publicly traded companies allow for their stock dividends to be automatically reinvested in the purchase of more stock, instead just paying out the dividend.
Many companies also offer No Fee DRIPs which allow you to automatically reinvest the dividend, and purchase more stock from the company for no fees. This terrific benefit can allow you to accumulate many shares of stock for virtually no additional fees.
DRIP stocks allow for you to take advantage of the power of compound interest.
Know Your Options
It is important to know when to start your social security. The longer you can wait to begin, the larger your monthly benefit will be. As a spouse you are entitled to receive up to 50% of your spouse’s benefits. Even as an ex-spouse, you may be entitled to receive social security payments.
You can also work and receive Social Security benefits. Your benefit amount however, may be affected by the amount of your earnings.
Even though Social Security is the stand alone income for many people in their retirement years, it was not designed as such. Time is your greatest ally when considering your retirement plan.
If you have some years before you retire, you may want to consider setting up a retirement plan at work if possible, or on your own. There are many options to consider, and perhaps the best is DRIP stocks.
With a little planning, and some forethought you can make your later years better than what you may have thought.
You never want to have to say, “I didn’t plan to fail, I just failed to plan.”