With millions of people beginning to look towards retirement and economic uncertainty surrounding the coronavirus – it’s no wonder that many potential retirees are looking at Social Security for economic relief. With 40% of older Americans relying solely on Social Security income this is the perfect opportunity to review what you need to do to receive and maximize your benefits.
How do you qualify? What are your benefits? How much does it cost? What do you need to do? Read on to find out.
Table of Contents
- An Introduction to Social Security
- How Much You Receive
- Applying for Social Security
- Earning Beyond Social Security
- Medicare
- Social Security Outside the United States
- The Recent CARES Act
- Final Thoughts
An Introduction to Social Security
The modern Social Security program was signed into law under the Social Security Act on August 14, 1935 by President Roosevelt. The goal of the program was to pay retired workers age 65 or older an income after retirement; this goal continues into the 21st century.
Funding for this program is paid by workers from each paycheck. Ever wonder what FICA (Federal Insurance Contributions Act) was for? This is it!
FICA pays for Social Security and Medicare programs and includes workers, survivors, spouses, retirement, and disability payments. Workers earn 1 credit for each $1,410 in earnings with a maximum of 4 credits per year. To be eligible for retirement benefits, 40 credits (or ten work years) is required.
For most workers, qualifying for Social Security is a very reasonable goal to attain. Employees, self-employed, military, and other job functions (with special rules) all qualify to participate.
Certain work, however, will not count towards Social Security Benefits: most federal employees hired before 1984, railroad employees with more than 10 years of service, and some employees of state and local governments choosing not to participate in Social Security.
As long as you were qualified to work in the United States (not necessarily a US citizen) and paid taxes into the Social Security system, you will be eligible for retirement benefits.
How Much You Receive
The key question you must answer for yourself is when to start receiving Social Security benefits. This is an individual decision based on your own unique financial situation.
- Some retirees will need money sooner and may decide to begin Early Retirement at age 62.
- Some retirees will wait until age 65 and receive benefits at Full Retirement Age (FRA).
- Others will want to wait until age 70 for Late Retirement.
Each retirement level has its pros and cons and it is up to you to decide which level of retirement is best for you. Some things to take into consideration before deciding is your current cash needs, your health, other sources of retirement income, and your future financial needs.
Think and plan very carefully because the decision when to start your retirement benefits will determine the base of benefits for the rest of your life.
- For 2020, the maximum retirement benefits at age 62 is $2,265/month.
- At FRA it is $3,011/month
- At age 70 it is $3,790/month.
This gives you a general idea of the difference between the different retirement ranges and how much is paid out. As you can see, you generally will receive more Social Security Benefits the later you wait to start receiving benefits.
Social Security’s “bonus” for delaying benefits until age 70 is called a delayed retirement credit (DRC) and can be an appealing reason for retiring later, if you are able to.
Cost of Living Adjustments
Social Security also includes a cost of living adjustment (COLA) every year where your benefits are increased to keep pace with inflation. This increase is based on a governmental consumer price index and readjusted every year based on economic conditions. For 2020, this COLA adjustment is 1.6%.
Applying for Social Security
As you near the age of 62 (early retirement) or age 65 (full retirement), you will need to apply for Social Security. You can apply online at https://www.ssa.gov/myaccount, call the Social Security Administration (800-772-1213), visit a local US office, or visit a Federal Benefits Unit (if you are outside the United States).
Generally, you want to apply for Social Security benefits early to make sure you get your full retirement benefits. For the FRA of 65, the window you have to apply is 3 months before the month you turn 65.
What happens if you don’t? You will be penalized for applying late for the rest of your life. This means your benefits will be reduced (less money) EACH month. This can be a costly mistake – especially if Social Security is your sole source of income.
Therefore, it is in your best interest to apply early and make sure you get all of your entitled benefits.
Filing an Appeal
If you do not agree with your Social Security benefits amount you can file an appeal. You have 60 days (and 5 days for mailing) from the date of the decision to file an appeal in writing.
The first part of the appeal is a Request for Reconsideration. You can then move on to a Request for Hearing before an Administrative Law Judge and then an Appeals Council review of the Judge’s Decision if you do not agree.
Earning Beyond Social Security
But what happens if your monthly Social Security benefits are not enough each month?
The good news is you can still work and add to your monthly income while still receiving Social Security benefits.
There are income limits and if you exceed these limits, your benefits will decrease each month depending on how much you earn over this limit.
- If you are under your FRA and receive wages above $18,240, $1 is deducted from your Social Security benefits for every $2 above $18,240 you earn.
- If you have reached FRA and receive wages above $48,600, $1 is deducted from your Social Security benefits for every $3 above $48,600 you earn.
- In the FULL year you reach FRA age, there is no income limit on what you can earn.
Once you reach age 70 there is no longer any additional Social Security benefit to continuing to work. Due to the extra years of work and extra tax money you paid into Social Security, you will receive additional Social Security Benefits.
The Impact of Pensions
Instead of working extra years, others may rely on pensions earned during their working years for extra income. In general, pensions will not affect your Social Security benefits; the jobs you worked would have already paid the Social Security tax.
Other pensions, jobs that have not paid Social Security taxes, will reduce your benefits. Federal, state, and local government employment are examples of these types of jobs.
But if you have paid Social Security taxes on 30 years of “substantial earnings,” WEP will not affect you.
Income From a Spouse
Social Security may also pay benefits based on your record to an ex-spouse in the case of divorce (even if you are remarried).
- You must be entitled to Social Security benefits and were married for at least 10 years.
- Your ex-spouse must also be unmarried, older than 62 years, and their benefits must be lower than yours.
- Your ex-spouse must have been divorced for at least 2 continuous years to be able to receive benefits on your record.
- Even if you remarry your ex-spouse may be eligible to receive benefits. This is just a reminder to be careful who you marry.
Benefits for People with Disabilities
In addition to divorcees, Social Security also assists those with disabilities through the Social Security Disability Insurance (SSDI) and the Social Security Income (SSI) programs. These two programs provide benefits to the disabled or blind.
Both programs, look at the person’s disability and the ability to participate in any substantial gainful activity (SGA) due to mental or physical impairments that may be expected to result in death or has lasted for at least 12 months.
SGA is a general way to describe the amount of activity and earnings (or the intention of profit) a person can participate in to help determine their eligibility.
SSDI Requirements
With SSDI, SGA requirements must be met to become eligible.
Once eligible, the disabled person will receive Medicare benefits. These Medicare benefits include Part A, Part B, and prescription benefits.
Benefits are based on the worker’s lifetime average earnings covered by Social Security. One key feature of SSDI is that other income or resources do not affect the payment you receive.
Oftentimes recipients of SSDI will become disabled and begin receiving SSDI before FRA. Once you reach FRA, your benefits from SSDI will cease and your retirement benefits transfer to Social Security.
SSI Requirements
Recipients of SSI face similar requirements as SSDI but differ in some key points. To qualify recipients must meet SGA requirements but also must have limited income and resources.
To figure out the payment amount certain calculations must be made that take into account the Federal Benefit Rate (FBR), countable income, and allowable deductions.
Certain state Medicaid (state low income assistance programs) programs coordinate with Social Security and can combine all benefits into one deposit/check.
Other Programs For Support
Medicaid is a state-sponsored program to help financially challenged individuals. Each state has its own program and different requirements, so it is best to search for your state’s program.
Social Security benefits do not affect Medicaid eligibility as long as the income threshold for Medicaid is not exceeded.
The federal government does help these Medicaid programs with a food program called Supplemental Nutrition Assistance Program (SNAP). SNAP is administered by the USDA and provides nutrition benefits to low-income individuals and families. Assistance is provided by SNAP and is used to purchase food at the stores with the elderly over age 60 being eligible.
Medicare
Once you decide to start receiving Social Security benefits, not only will you receive cash benefits each month, but you will now be eligible to apply for Medicare benefits. Medicare is the federal health insurance program for Social Security retirees and in some situations can also help care for the physically and mentally disabled.
Medicare is made up of various parts – some are automatically given to you, some have to sign up for, and some you have the option of choosing.
To sign up for Medicare, you must contact Social Security up to 3 months before, during your 65th birthday month, and up to 3 months after your 65th birthday month.
You can sign up for Medicare through ssa.gov website or at the local Social Security Office.
If you have other health insurance, it is highly recommended that you wait until your Medicare insurance is approved before canceling the current policy. This is to ensure that there is no lapse in your medical insurance.
After you receive your Medicare card (currently white with blue and red stripes) you need to see an insurance broker to add to your Medicare benefits.
Initially, all Medicare recipients will have Part A (Hospital Insurance). Part A covers inpatient care, skilled nursing facility care, hospice care, and home health care.
Medicare Part B
Part B (Medical Insurance), must be purchased through an insurance broker during the General Enrollment Period (January 1 – March 31). Part B covers services from doctors/health care providers, outpatient care, home health care, medical equipment, and various preventive services.
You may choose to pay for your Medicare Part B premiums through deductions from your monthly Social Security benefits; this makes it easy for you, so your bills are automatically paid each month. You can also pay for this insurance through a personal check, but doing so is less convenient.
With each doctor or hospital visit, you will be subject to a 20% coinsurance. This coinsurance is your portion of the bill for medical services you receive and depending on the treatment may be quite high.
Many Medicare recipients like to purchase more coverage that pays for this 20% coinsurance. It is called Medicare Supplemental Insurance (MediGap) and must also be purchased through an insurance broker.
Medicare Part D
When you go to the doctor you may need prescription medications. This is where Part D (prescription drug coverage) comes in. This plan covers the cost of prescription drugs and recommended shots/vaccines.
Part D is run by private insurance companies and must follow Medicare rules; some plans you may have to pay a premium and some you won’t have to.
Even if you don’t need the Part D during your Initial Enrollment Period, it is recommended that you enroll when you are first eligible. There are plans where you will pay little to no premium for Part D.
The reason it is recommended you sign up for Part D during the Initial Enrollment period is if you have a lapse of 63 days or more in a row of not having Part D or any other creditable prescription drug plan (any prescription drug plan that is expected to pay similarly to Medicare), you’ll have to pay a penalty for as long as you have Part D (you may appeal this penalty within 60 days from the date of the letter stating your late enrollment penalty).
If you lose your creditable prescription drug plan, you should enroll in a Medicare drug plan.
Some Medicare recipients may also have full Medicaid (which is state insurance) to help cover prescription drug costs. In this case, Medicare covers Part D prescription drugs. Medicaid may cover certain drugs that Medicare doesn’t cover.
TRICARE For Life
Members of the military also benefit through Medicare and the TRICARE For Life health program. TRICARE For Life works like a secondary insurance program for military retirees (family members are also covered) who are also Medicare Part A and Part B recipients; Medicare pays first and then TRICARE For Life pays what is not covered.
TRICARE For Life also pays for prescription drug charges.
To use these benefits all you need is your Medicare Part B coverage and a military ID. The only premium you pay is for the Part B and Social Security can automatically deduct this from your monthly retirement benefits.
If you are living overseas, you must have Medicare Part B coverage to remain eligible for TRICARE For Life.
Social Security Outside the United States
While Social Security, Medicare, Medicaid, and TRICARE For LIFE can all help ease the burdens of retirement, some retirees will not be able to maintain a high quality of life. Some may look overseas to make their Social Security Benefits go further.
The good news is it is possible to live “outside the United States” and still receive Social Security benefits. Living “outside the United States” means you are not in living in one of the 50 states, District of Columbia, Puerto Rico, US Virgin Islands, Guam, Northern Mariana Islands, and American Samoa For at least 30 days in a row.
You must also not be living in certain countries where you can’t be receiving Social Security benefits (such as Cuba and North Korea). The good news is that once you leave these ineligible countries you can start receiving your benefits as well.
The Recent CARES Act
As you can see figuring out your retirement benefits can be a confusing process. To add to this the recently passed CARES Act (due to the Covid-19 pandemic), which makes matters more complicated still.
Thankfully, Social Security retirees and their beneficiaries (as well as SSI beneficiaries) are eligible for rebate payments as long as the $75,000 income limit is not exceeded. This can be a great boost and provide temporary relief.
Final Thoughts
In addition to this recent assistance, many of these federal and state resources may help ease your financial burdens but your financial success is ultimately up to you.
One way to help manage your finances better is write down all necessary expenses and all sources of income. Writing down your expenses will give you a target to help determine if your income is adequate and helps to see how much you can spend each month. Another tip is to pay down your credit cards.
If you have multiple cards with balances, try to pay down one card at a time. This helps you begin to psychologically make progress on your debts. With enough persistence and discipline, enjoying your retirement is very achievable.
Advance Planning Support
It’s never too early to think about the future. Kapok’s Advance Planning service can help you understand the process of advance care planning, including the paperwork involved and important areas to think about.
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