Last Week’s Question of the Week: How much can you contribute to a Roth 401k in 2018 if you are under 50 years old? ANSWER: $18,500.
HOST: I know today’s topic is understanding how our social security benefit will be calculated when we are heading into retirement.
KLAAS FINANCIAL: Yes, we always come back to this topic because for many people planning for retirement, this will definitely be an important part of their future income.
Today we thought we would quickly review some facts about Social Security.
www.ssa.gov – Wonderful resource for people regarding social security. Can set up a login to view your own account at any time.
Everyone wants to know when they can take their benefit. So there is a difference from when you can first take it to when it is actually your full retirement age. For anyone born between 1943-1954, your full retirement age is age 66, for those born between 1955 and 1959 your full retirement age is 66 plus some months. After 1960, it is age 67.
Of course, you can choose to take your benefit as early as 62, but you need to remember that your benefit will be reduced.
If you start receiving retirement benefits at
- age 62, you will get 75% of the monthly benefit because you will be getting benefits for an additional 48 months.
- age 65, you will get 93.3% of the monthly benefit because you will be getting benefits for an additional 12 months.
An interesting fact to note is that based on a study from 2013 (Center for Retirement Research at Boston College), at least 60% of retirees sign up for benefits before reaching their full retirement age.
HOST: How will my social security benefit be determined?
KLAAS FINANCIAL: Excellent question.
Social Security takes a look at your lifetime earnings, adjusting them for inflation, and then calculates your average indexed monthly earnings during the highest 35 years of employment to determine your benefit.
You’re eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70. Cost-of-living increases to your benefit beginning with the year you reach 62, and up to the year you start receiving benefits.
When you delay your retirement past your full retirement age, Social Security benefits are increased a certain percentage (depending on your date of birth) if you delay receiving benefits until after your full retirement age. (DRC- Delayed Retirement Credits) Your benefit can increase up to 8% per year until you start taking benefits, or until you reach age 70. Therefore, there’s almost not reason to not pull once you reach age 70.
If you’re a government worker with a pension, a different formula is applied to your average indexed monthly earnings. To find out how the Windfall Elimination Provision (WEP) affects your benefits, go to www.socialsecurity.gov/gpo-wep and use the WEP online calculator.
HOST: How many credits do you need to qualify for to even get a Social Security Benefits?
KLAAS FINANCIAL: The amount needed for a credit in 2018 is $1,320. You can earn a maximum of four credits for any year. The amount needed to earn one credit increases automatically each year when average wages increase. If you earn at least $5280 this year, you will max out your credits.
You must earn 40 credits which equals 10 years of work to qualify for retirement benefits through Social Security.
Other benefits through Social Security which can include Survivor and Disability which have different minimum requirements.
HOST: So what if I have not earned enough credits to collect a social security benefit?
KLAAS FINANCIAL: If you have not worked or do not have enough Social Security credits to qualify for your own Social Security benefits, you may be able to receive spouse’s benefits.
To qualify for spouse’s benefits, you must be:
- At least 62 years of age; or
- Any age and caring for a child entitled to receive benefits on your spouse’s record who is younger than age 16 or disabled.
If you start receiving benefits as a spouse at your full retirement age, you will get 50% of the monthly benefit your spouse would receive if their benefits started at full retirement age. Your benefit will be permanently reduced, if you start receiving benefits at:
- age 62, you will get 35% of the monthly benefit instead of 50% because you will be getting benefits for an additional 48 months.
- age 65, you will get 45.8% of the monthly benefit instead of 50% because you will be getting benefits for an additional 12 months
If you do have enough credits to qualify for your own Social Security benefits and you apply for your own retirement benefits and for benefits as a spouse, YOUR benefits are paid first. If your benefits as a spouse are higher than your own retirement benefits, you will get a combination of benefits equaling the higher spouse benefit.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
