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Social Security: 4 Facts to Know

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By Al Chingren - March 27, 2019

Al Chingren
Al Chingren

Waiting until you get closer to retirement before you figure out Social Security's rules and requirements? That might work but putting it off could have an adverse impact on your future. Instead, make sure you understand the basics and start planning:

  • Do I qualify?
  • What is my official "full retirement age?"
  • What happens if I retire earlier—or later?
  • How could my spouse's benefits impact mine?

Get the facts now to make retirement easier down the road.

1. Social Security Is Not a Given

You have to work (enough) to qualify for benefits. Once you earn it, your family can also receive benefits based on your earnings. Learn more at www.ssa.gov .

You need 40 credits to qualify for Social Security. You receive one credit for each $1,360 you earn in income, with a maximum of four credits earned per year. At a minimum, you need to have for ten years to qualify for Social Security benefits.

* 2019 wages/self-employment income. Source: How You Earn Credits, 2019, www.ssa.gov 

2. Full Retirement Age Doesn't Mean 65

Your Full Retirement Age (FRA) depends on when you were born.

FRA is 65 for people born on or before 1937. The FRA for people born 1938-1942 is 65, plus two months for every year after 1937. FRA for people born between 1943 and 1954 is age 66. Those born between 1955 to 1959 add two months to age 66 for every year between 1954 and their birth year. Finally, the FRA for people born after 1960 is 67.

Source: Social Security Administration (www.ssa.gov ) as of March 2019.

3. Drawing Social Security Early May Not be the Best

You can start before your Full Retirement Age, but delaying your benefits lets you collect more.1

Below are the percentages of the total benefit amount you will collect by age:

If you start drawing Social Security at 62, you will receive 75 percent of your monthly benefit amount. You will only receive 100 percent of your benefit amount if you wait to your full retirement age, which is determined by when you are born. However, if you wait until age 70 to take Social Security, you will receive 132 percent of your monthly benefit.

1 Increased benefits for delaying Social Security max out at age 70.
Source: www.ssa.gov  as of March 2019.

4. Spouses Can Take a Team Approach to Maximize Benefits

An individual earner can extend benefits to his or her spouse—to add to his or her own earned benefits, or to use alone. How much each spouse earned and their anticipated life expectancy helps determine how and when to take Social Security.

Spousal Benefits Can Boost Your Bottom Line

Sam's Benefit Amount = $2400 | Kathy's Benefit Amount = $700

Chart shows how couples can strategically start their Social Security benefits to maximize the total spousal and survivor benefits. At age 62, Kathy brings in $525 per month. When Sam turns 70 and starts to claim Social Security, he brings in $3,166 which is added to Kathy's $525 and a spousal benefit for Kathy at $500 (total: $4,191 per month). When Sam passes away, Kathy receives a survivor's benefit of $3,166 per month.

2 Surviving spouse benefits are similar to spousal benefits except they will receive the higher of their own benefit or their deceased spouse's benefit. The surviving spouse must be at least 60 years old and the couple must have been married for at least nine months prior to the non-surviving spouse's death (with exception for accidents).

Source: American Century Investments, www.ssa.gov .

Plan for Retirement as a Couple

Will your money cover expenses deep into retirement? In general, women live longer than men, so make your plan as a couple rather than as individuals.

Chances of Living Beyond Age 65

The chart shows the chances of Sam and Kathy living to specific ages, based on actuary tables. For example, Sam has an 84 percent chance to live to 75, Kathy an 89 percent chance, and they a combined 98 percent chance that either of them will make it to 75. For age 85, Sam has a 55 percent chance, Kathy a 65 percent chance, and either of them an 84 percent chance. For age 95, Sam has a 17 percent chance, Kathy a 26 percent chance, and either of them a 39 percent chance.

Sources: American Century Investments®, 2019. Society of Actuaries and American Academy of Actuaries, March 2019 (https://www.longevityillustrator.org/).

The Bottom Line

Taking Social Security at age 62 might not be the best choice. Evaluate your options and make Social Security a part of your overall retirement planning strategy. Knowing when—and how—to claim benefits can give you a better chance of making your retirement money last.

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      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.