Social Security benefits are a primary source of income for many Americans. For a quarter of married couples and almost half of unmarried persons, this benefit provides more than 90% of income during retirement.
Therefore, it is important to understand how the program works. In particular, you should at least understand how your benefits are calculated, and why the number “35” is important.
These benefits are earned benefits, which means you don’t get them unless you have qualified. You need to earn at least 40 work credits to become eligible for Social Security, and as of 2018, you earn one credit for each $1,320 in earnings up to a maximum of four credits per year. While earning work credits is a prerequisite to qualifying for benefits on your own, working 35 years isn’t enough to maximize your benefits. In fact, if you work less than 35 years, your benefits will be much lower had you worked more. There are some exceptions to this rule that will be explained later.
The Social Security Administration uses an AIME (averaged indexed monthly earnings) to calculate your benefit amount. This takes your top 35 years of earnings, adjusts for wage growth, and applies an index divided by 420 to determine your basic benefit amount. This is the amount you will receive at your Full Retirement Age. So, if you did not work the entire 35 years, there will be some years of $0 earnings factored into your calculation. This will have a substantial impact on your benefit.
While working less than 35 years can have a big impact on the benefits you receive from Social Security, it is not always feasible to continue working for this long. If you are at least 62 years old and your spouse is receiving Social Security retirement benefits or disability benefits, you could be eligible for benefits on your spouse’s work record – this could be 32.5% – 50% depending on when you decide to file. What needs to be emphasized is that you may have many options and you need to know which option is best for you and which option will bring you the most benefit.
If you are divorced, at least two years, after a marriage of at least 10 years and have not remarried, you may qualify for these spousal benefits based on your ex’s work record. Again, you may have several options, and need to make sure you are filing for the right benefit at the right time – once you have filed, it is basically a done deal.
If you want to maximize your Social Security benefits, making sure you get 35 years of work is essential. Working longer can also make it possible to delay claiming your benefit, which can make a big difference in your income stream, and your Survivor benefit amount.
Pillars LLC is in the Corinth, MS area but service all 50 states. Roy and Diane are both National Social Security Advisors and Roy is a former CPA of over 40 years. You may contact them at dthompson@pillarsllc.com, on their website at www.pillarsllc.com or call at 601-954-0699. KNOW before you GO!!
