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Five Things to Know About Social Security

Posted on September 18, 2014

Just about anyone who works for a living pays into Social Security, which is effectively a government-run retirement savings program. Here are a few things you should understand about Social Security:

  1. Where does the money come from? The money comes from the individual taxpayer – you! If you’ve had an employer, they’ve deducted social security payments from your pay and also made payments themselves. Self-employed people are responsible for their own Social Security payments.Social Security benefit claim graphic with Approved stamp
  2. How much will I get? The amount of monthly Social Security payments you’ll receive upon retirement depends on your earnings history, specifically the highest 39 quarters of earnings.
  3. Are Social Security payments taxed? Yes – sometimes. Social Security payments are considered income, so when you start to collect, there’s a chance the payments will be taxed. What determines whether and how much you are taxed will be based on your other earnings (pensions, investments, rental income, etc.). For example, in 2013 if you’re married, filing jointly, and making over $44,000 in Adjusted Gross Income, 85 percent of your Social Security payments will be taxed at your current tax rate. However, if you’re married, filing jointly, and you’re making less than $35,000 annually, your Social Security payments will be tax-free.
  4. When do I start collecting my Social Security benefits? The earliest you can start to collect Social Security benefits is age 62. Full retirement age is considered to be 66 years of age if you were born between 1943 and 1954; for those born after 1960 it’s 67, and for those born between 1955 and 1960 it increases gradually from age 66 to 67.
  5. When should start collecting my benefits? When to start collecting benefits depends on a number of factors. For example, if you’re below full retirement age and still working and decide to start collecting, your payments will be taxed $1 for every $2 you make over $14,000 a year, so it usually doesn’t make sense to start collecting that early. On the other hand, it doesn’t necessarily make financial sense to defer collecting beyond full retirement age because you won’t be penalized and you can enjoy or invest the money you collect.
The biggest thing to know about Social Security is that different strategies will work better for different people. For example, if you are widowed, disabled or have disabled child, you may be able to collect your benefits earlier. If you’re divorced, were married more than 10 years, never remarried and you were a homemaker, you can collect up to half of your ex-spouse’s benefits – with no detrimental effect on your spouse’s payments when they retire.

Every situation is different, so it’s important to talk to a professional to best plan your retirement, including your Social Security payments.

Content provided compliments of Tom Valdez, financial consultant at the Investment and Retirement Center at On Tap Credit Union. He may be contacted for consultation at (303) 279-6414 or (800) 770-6414 between 9 a.m. and 5 p.m. Monday through Friday.

Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. On Tap Credit Union and The Investment and Retirement Center at On Tap Credit Union are not registered broker/dealers and are not affiliated with LPL Financial.

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