If you’re nearing retirement (or even just planning ahead for when you do), then understanding Social Security is critical. How much will you get paid? When will you receive it? Will it be enough to support your lifestyle once you exit the workforce? Answering these questions is vital and should be done well ahead of retirement.
Do you need help understanding Social Security and what it might mean for you once you stop working? This guide can help.
Social Security Eligibility
To qualify for Social Security benefits, you have to meet two requirements. First, you have to have worked for at least 10 years (or 40 quarters) and paid into Social Security during that time.
Second, you have to be 62 or older. Once you turn 62, you can begin receiving a portion of your Social Security payments each month. Unless you become disabled, you cannot claim Social Security benefits any earlier than 62 years of age.
How Much Will You Get?
The amount of Social Security money you’ll receive depends on how much you paid into the fund during your lifetime as well as at what age you retire. If you retire before full retirement age (65 to 67, depending on when you were born), then you can only receive 70-80 percent of the payment you’re eligible for. If you wait beyond full retirement age to collect Social Security, your payments will actually go up 8 percent every year you delay.
You should get an estimate of your projected payments from the Social Security Administration annually in the mail. You can also use the SSA’s online estimator to help calculate what you might be eligible for upon retirement.
How to Get Your Social Security Benefits
In order to start receiving your benefits, you’ll need to apply online or directly with a Social Security office in your area. You should plan to do so a few months before your birthday to give SSA time to process your application. This usually takes about six weeks or more.
401(k) vs. Social Security
If you have a 401(k) account, then you’re in luck: You’ll enjoy two income streams during retirement. With 401(k)s, you can set up regular distributions or make lump-sum withdrawals as you need them. You can begin withdrawing penalty-free money as early as 59.5 years of age (if you withdraw before this, you’ll pay a 10 percent fee).
Your 401(k) won’t impact your Social Security benefits, nor influence how much you can receive. The two are completely separate entities and can be used in tandem.
If you have access to both Social Security and a 401(k), here are a few tips to maximize your benefits:
- Use your 401(k) first, if you plan on retiring early. You can withdraw money as early as 59.5.
- Consider delaying your Social Security benefits until 70 (if your 401(k) savings can support it). This will increase your Social Security payments by 24 percent by the time you start claiming them.
- Know your returns. Once you hit retirement age, you should use only the benefits that earn you the least. For example, if your 401(k) earns 3 percent annually, but you’ll get 8 percent more in Social Security by holding off, then use your 401(k).
Social Security and most 401(k)s require you to start withdrawing funds by age 70, so you’ll need to use both benefits simultaneously at this time.
Other Social Security FAQ
Can you pay for nursing home care with Social Security?
Unfortunately, Social Security is usually significantly reduced if you enter a nursing home or other care facility. In these scenarios, Medicaid would cover your care, and you would only be entitled to the Supplemental Security Income, which is $30 per month.
What can you spend Social Security on?
There’s no limit to how you can use your Social Security payments, and many retirees use it to cover housing, utilities, groceries, and more.
What month do Social Security benefits begin?
Once your application has been processed, you’ll get your payment the first month after your birth date, and then every month thereafter. The exact date depends on your birthday.
If you were born between the 1st and 10th of the month, your payment will be issued on the second Wednesday of the month. If you were born between the 11th and 20th, it’s the third Wednesday, and for those born between the 21st to 31st, payments go out on the fourth Wednesday.
Can I use my spouse’s Social Security after they pass on?
Social Security does offer what's called “survivor benefits.” If you’re of full retirement age, then you can claim your spouse’s entire monthly benefits. If you’re 60 to 64, you’ll receive 71.5 percent of them until you come of age.
If you receive your spouse’s Social Security check (still in their name) after they’ve passed, then you’ll need to return it. Cashing a Social Security check after death would constitute fraud and could put you in legal trouble. Though you may qualify for survivor and death benefits, you’ll need to apply for these with the Social Security Administration in order to start receiving them.
The Bottom Line
Social Security is a complicated beast but remember: It’s just one of the many ways you can cover your costs in retirement. Both 401(a) and 401(k) accounts can help, and if you’re a homeowner, a 62+ loan might be an option too. Get in touch with 55places Mortgage today to learn more.