I recently signed up for My Social Security where anybody can track their Social Security benefits online. Even though I don’t count on Social Security in my passive income calculations, I still expect SS benefits to be there for all working Americans who contributed to the system. There would be a civil war if Congress decided one day to stop paying Social Security benefits!
After signing up for My Social Security, I could see the same paper statement form they mail to all of us, but now in PDF form. Here’s what my benefits say:
* $2,566 a month in benefits at full retirement age of 67
* $3,182 a month in benefits at retirement age of 70
* $1,803 a month in benefits at retirement age of 62
* $1,917 a month for my child or spouse if I die today.
* $2,533 a month in disability benefits if disabled right now! This is probably the biggest surprise. What’s really stopping someone from taking a leap of faith if they have health insurance and disability benefits to back them up?
Not enough to live entirely on, but better than mud in the face. In fact, I just realized this is the maximum Social Security benefits one can receive after checking with a couple other friends who all have more or less the same figures.
The caveat emptor written in the Social Security statement is: “At your current earnings rate, if you were to work until age………” In other words, what if I can’t continue earning what I’m earning now? Furthermore, what if I want to no longer work and just live off passive income for the rest of my life? What benefits will early retirees get?
SOCIAL SECURITY BENEFITS FOR EARLY RETIREES
If you ever plan to retire early, hopefully you’ve been wondering these same questions. Lucky for you, you’ve found this post and I’ve got some answers! Here are some key points:
* Everybody’s situation is different. People earn different amounts of money and decide to retire at different ages. As of 2012, we know that Social Security is taxed up $110,100. We also know that the government considers the earliest retirement year for Social Security benefits at 62, and full retirement age for Social Security benefits at 67.
* Sign up for My Social Security to see your benefits like I have done above. In order to plan for retirement, you need to understand the inputs.
* Everyone needs to qualify for 40 credits over their working lifetime to qualify for Social Security benefits. You earn one credit for each $1,130 of wages or self-employment income. You can only earn 4 credits a year maximum, hence the need to work for 10 years or more at the minimum. Doing the math, you must earn $4,520 a year to qualify for for credits. 40 credits is the minimum and maximum threshold ie if you work for 20 years and earn at least $4,520 a year, you don’t get 80 credits.
* Call Social Security to ask about your specific scenario! Once you understand all your benefits, call Social Security at 1-800-772-1213 to get answers to your specific questions. In my case: Do I have to keep working and contributing until age 62 to get benefits? What are my benefits if I stopped working now in my mid-30′s, and when can I collect? I was put on hold for 10 minutes and spoke to a lovely lady who answered my questions.
* Because I have fulfilled the threshold of 40 credits, I am eligible to receive Social Security benefits when I am 62, even if I do not work again. The Social Security lady said that I will receive $1,004 a month at age 62, and $1,450 a month at age 67 if I stopped working. The negative is that I have to wait for 27 years to start collecting, and who knows what my benefits will be! Most early retirees have worked for at least 10 years and have fulfilled the 40 credit qualification threshold, otherwise, they wouldn’t be able to retire!
SOCIAL SECURITY FOR ALL
After reading this post, hopefully you all have a better understanding of how Social Security works. I had a nagging irrational fear in the back of my mind that in order to qualify, I had to work until 62, and if I quit before then I wouldn’t receive a dime. I knew this was not the case, and I finally gave Social Security a call and wrote this post to confirm.
The topic of when to start receiving Social Security benefits (62, 67, 70 or anytime in between) is a personal decision based on the amount of money you have at the time and how long you think you’ll live. Do note that there is a ridiculously low income cap you are allowed to make in order to qualify receiving Social Security from ages 62-66. Only until 67 is there no more income cap and subsequent Social Security deduction.
You can count on Social Security benefits when its our turn to collect. Just don’t include your benefits in your pro forma retirement to keep you focused on saving, diversifying, and building those passive income streams. If the Social Security payments come, fantastic! If not, you never really counted on them in the first place.
Readers, care to share how much in Social Security benefits you will receive in retirement? How do you calculate the benefits, if at all in your future?
Note: There are more nuances to Social Security than discussed here. Hopefully there will be some retirees out there already collecting who can provide more insight.