Social Security FAQ: Answers to 10 Common Questions

If you’re approaching retirement, you’re probably starting to think about Social Security. It’s a valuable program that plays a large role in most retirees’ financial picture. It will likely be an important resource for you. But how much do you actually know about Social Security?

Below are a few common questions and answers about Social Security. As you approach retirement, take time to research your Social Security options so you can make an informed decision about your benefits.

How many people receive Social Security benefits? According to the Social Security Administration, 9 out of 10 retirees rely on Social Security for income. It also provides income to more than 10 million disabled workers and 6 million survivors.

Do most retirees depend on Social Security for income? Nearly a third of all retiree income comes from Social Security benefits. Almost half of all retired married couples and 71 percent of single retirees rely on Social Security for more than half of their income.

How long do people receive Social Security benefits? Social Security is one of the few retirement income sources guaranteed* for life. When the program first started, however, that wasn’t a very long duration for most people. Social Security started paying regular monthly benefits to retirees in 1940. At that time, a 65-year-old could expect to live for another 14 years. Today a 65-year-old is expected to live an additional 20 years. The number of retirees over age 65 is expected to increase from 49 million today to more than 79 million by 2035.

Once you file, does your benefit ever increase?Social Security offers cost-of-living adjustments (COLAs) to help retirees keep up with inflation. However, the adjustment isn’t guaranteed and may not happen every year. In 2017 the increase was 2 percent. In 2016 it was 0.3 percent. There was no increase at all in 2015.

Do COLAs actually meet or exceed inflation? Social Security COLAs are based on the consumer price index (CPI). However, the CPI doesn’t account for the fact that seniors spend more on health care than the overall population. Thus, the CPI may not weigh medical costs in a way that’s reflective of retirees’ true costs. The result is that Social Security COLAs haven’t kept up with health care inflation in 33 of the past 35 years.

What’s the highest benefit you can receive? The maximum Social Security benefit is currently $2,687 per month, but it’s adjusted regularly based on inflation. You probably don’t need to worry about the cap, though. The average benefit amount is just over $1,300 per month.

When can you file for benefits? The earliest you can file for retirement benefits is age 62, and that’s when many people choose to file. If you file before your full retirement age (FRA), however, you could see a permanent reduction in your monthly benefit. Most people reach their FRA between their 66th and 67th birthdays. If you file before your FRA, your benefit will be reduced, perhaps as much as 35 percent.

How long can you wait to file? You may wonder why anyone would delay Social Security benefits. The main reason is because Social Security offers an 8 percent benefit credit for each year past your FRA that you delay your filing. The latest you can delay your filing is age 70. If your FRA is 66 and you wait until age 70, your benefit could increase as much as 32 percent.

When will Social Security run out of money? We’re only a few years away from Social Security starting to run annual deficits. That means the program will pay out more in benefits than it brings in through payroll taxes. Without changes, the Social Security trust fund will be completely depleted by 2034.

What can be done to make Social Security last longer? It’s possible that Social Security could last to 2090 even if the trust fund is depleted in 2034. However, doing so may require a 21 percent cut in benefits across the board.

Ready to plan your Social Security strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation. 844-Jay-Peak