We hear so many people today say that Social Security is just not going to be there! Further, most people approaching retirement are nervous about how to maximize their Social Security benefits. And then there is the problem of taxation on your Social Security benefits as you receive them. What to do? I will make a case that your Social Security benefits are a huge value to you, and they provide the very foundation of your entire retirement income.
First, let me address the ability for the Social Security Administration (SSA) to pay the amount of income they now forecast for you on your statement of benefits. Here is the what is said right on SSA’s website:
“Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.”
This is what was given to our U. S. Congress. My assumption from this statement is that there is not the “cliff” that our nation gets to and all of a sudden we fall off, so no one gets any more benefits at all. What it sounds like, is we will get something, but maybe not what is currently projected.
Second, allow me to discuss my observations on how you can maximize our Social Security benefits. Few people know anything about what the rules are surrounding Social Security. We hear a lot, but do not know anything for sure. This means we all need to study a competent source that will guide us in making good decisions. I suggest you study up on what the SSA says about your benefits, and then visit face-to-face with a person at the SSA office in your local neighborhood. Ask questions, get documentation, then once you feel you can talk intelligently about Social Security, go to a different qualified source outside the SSA and get their perspective.
Studies show that most people lose an average of $30,000 of benefits by not knowing they even exist. Read, review, study, visit competent sources and be prepared before you reach age 62, the earliest age you can receive these benefits.
Third issue surrounding Social Security benefits is taxation. If you make too much income from other sources, then your Social Security benefits will be subject to income tax. GoTo http://www.ssa.gov/planners/taxes.html and see what the SSA tells us:
Benefits Planner: Income Taxes And Your Social Security Benefits
Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.
No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:
- file a federal tax return as an “individual”and your combined income*is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.
- file a joint return, and you and your spouse have a combined income*that is
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
- more than $44,000, up to 85 percent of your benefits may be taxable.
- are married and file a separate tax return, you probably will pay taxes on your benefits.
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your “combined income“
Each January you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.
If you currently live in the United States and you misplaced or didn’t receive a form SSA-1099 or SSA-1042S for tax year 2014, you can now can get an instant replacement form by using your online my Social Security account. If you don’t already have an account, you can create one online. To get your replacement form SSA-1099 or SSA-1042S, go to Sign In or Create an Account. Once you are logged in to your account, select the “Replacement Documents” tab to request the form.
If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.
For more information about taxation of benefits, read page 14 of our Retirement Benefits booklet or IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
After this brief discussion of whether the benefits will be there, how to maximize your benefits and the horrible situation of having to pay tax on what was already taxed, allow me to prove to you the incredible value of the Social Security benefits.
Look at this chart showing life expectancy. This means what is the likelihood of you living to be age 90, and beyond? When the SSA built the mortality tables to determine the amount of tax you are to pay to establish your retirement benefits, men died at age 69 and women at 72. If your monthly retirement benefit was to be $2,000 a month, it only had to last four years. Math: 4 years, X 12 months a year = 48 at $2,000 a month = $96,000 to be paid out. SSA would have to extract $96,000 during your working lifetime.
Now look at a real life situation and compare it to yours. At age 66/67, or full retirement according to Social Security, projects you to receive $1,680 a month. If you live to what is on this Life Expectancy Chart, men will be age 82 and women will be 86.
Let’s calculate this together. A man retires at age 66/67 and lives to age 85, making the number of eighteen years. 18X12X $1,680/month = $362,880 paid to you or your spouse.
Referring back to this Life Expectancy Chart again, if a married couple retires at age 66/67, statistics prove one of them will live to be age 92. Age 92, minus age 67 = 25 years X 12months a year X $1,680/month of income = $504,000.
I am referring the SSA website and using their example entitled WANDA WORKER, located at 456 ANYWHERE AVENUE, MAINTOWN, USA 11111-1111. WANDA paid in during her working years $31,322, and her employer paid $33,112. Add these two pieces of money of money, that has been deposited into Social Security Trust Fund = $64,434. Now divide by $1,680 a month and you get 38 months that you will have received back all that was deposited. However, since you only put in $31,322, this means you will retire at age 66/67 and be completely paid back in one-and-a-half-years!!!!
Let me summarize this for you. You put in $31,322 during you working life, and on average, across the nation, you will receive as a single person $363,880, or as a married couple $504,000. This is a great deal!!! We can guess that the SSA will not disrupt or disturb any citizen that has already reached age 55 or above, simply because they have already paid into the Social Security Trust Fund most of their working life. To alter this now, at their age, would cause mutiny in the streets. Now I offer you SSA national statistics. 91% of all people retired are totally dependent upon this Social Security monthly income.
I hope that you can see that the average worker in America will receive over $350,000 in their retirement years. This number will be larger than any pension or 401(k) income. And this income is not subject to market risks or fluctuations. So until the government goes broke, Americans have a sweet deal.
It is so very important that you know what your benefits are and how to maximize them.