This is the second part of a two-part series. Click here to read Part 1.

HE SAYS:

Social Security benefits extend to your spouse and children.

Widows and widowers can begin receiving benefits from their deceased spouse’s retirement at age 60 or age 50, if disabled, and can switch to their own retirement benefits, assuming their rate is higher, as early as age 62.

If you are receiving retirement benefits, your family can also receive benefits.   Your spouse age 62 or older; your spouse under age 62, if he or she is taking care of your child who is under 16 or disabled; your former spouse age 62 or older, as long as you were married for 10 years or more and the former spouse has not remarried; your children up to age 18 or up to age 19, if full time students; and your children over age 18, if they are disabled.

A spouse receives one-half of the retired worker’s full benefit unless the spouse begins collecting benefits before reaching full retirement age.   If you are eligible for both your own retirement benefits and for benefits as a spouse, Social Security always pays you your own benefit first.   If your benefit as a spouse is higher than your own retirement benefit, you will get a combination of benefits equaling the higher spouse benefit.  Your eligible children may also receive up to one-half of your retirement benefit; however, there is a limit to the amount of money that can be paid to a family.

Since this can be a very complicated and important decision making process, it is recommended that you discuss your retirement plans with your Social Security representative, at least, one year in advance.

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HE SAYS:

When you work and pay Social Security taxes (usually called FICA), you earn Social Security credits.   Most people earn the maximum of four credits per year.   In order to be eligible for retirement benefits, you need to have earned at least forty credits during your working years.   Your benefit amount is based on your earnings averaged over most of your working career.   Higher lifetime earnings result in higher benefits.

Your benefit amount also is affected by your age at the time you start receiving benefits.   If you start retirement benefits at age 62 (the earliest possible retirement age) your benefit will be lower than if you waited until a later age.   For people born between 1943 and 1954, the retirement age is 66 and for people born in 1960 or later the retirement age is 67.  Social Security calls this “full retirement age”, and the benefit amount that is payable is considered the full retirement benefit.   For example, if your full retirement age is 66, the reduction in your benefits for starting your Social Security at age 62 is about 25 percent; at age 63, it is about 20 percent; at age 64 it is about 13-1/3 percent; and at age 65, it is about 6-2/3 percent.

You may decide to continue working full time beyond your full retirement age.   In that case, you can increase your Social Security benefit in two ways.   First, each additional year that you work adds another year of earnings to your Social Security record.   Second, your benefit will be increased by a certain percentage if you choose to delay receiving retirement benefits.   These increases will be added in automatically from the time you reach your full retirement age until you start taking benefits, or you reach age 70.   For example, if you were born after 1943, Social Security will add 8 percent per year to your benefit for each year you delay signing up for Social Security beyond your full retirement age.

On Friday, Joe continues his comments about Social Security benefits in “Social Security And You, Part 2”.

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This is the second part of a two part series.  Click here to read Social Security, Fact or Fiction, Part 1.

HE SAYS:

I am not suggesting that we have nothing to worry about when it comes to the future of Social Security, but, we do need to separate fact from fiction.   Part of the problem is that Social Security was not intended to be all things for all people.

Myth #4: Social Security will run out of money in 2042.   Social Security will still be receiving payroll taxes from workers in 2042; however, by then the assets in the trust fund may have been depleted.   The Social Security Administration projects the following time line:   By 2018, Social Security will begin paying out more then it collects and will need to use the interest earned on the Treasury bonds in the trust fund.   By 2028, Social Security would have to start redeeming the Treasury bonds.  By 2042 (or 2052 depending on who you talk to), Social Security would have redeemed all of the Treasury bonds and would only have enough revenue to pay out 73% – 78% of promised benefits.

Myth # 5: Social Security would not be having problems if foreigners weren’t able to claim Social Security.    Of the 53 million Social Security checks mailed each year only about 400,000 go overseas.   The real problem with the current system is demographics and add-ons.   In 1950 there were 16 workers paying into the system for every person receiving benefits; however, by 2015 it is projected that the ratio will be down to 3 to 1.    Even more of a problem is the add-ons.  When Social Security was created it was only intended to provide retirement benefits to workers.   Over the years, Social Security benefits have been extended to retirees’ dependents and survivors and to disabled workers.   If these add-ons were eliminated, it is projected that Social Security could continue to pay for itself; however, no such solution could now be politically viable.

What is not a myth is that there is a controversial list of possible reforms such as cutting benefits, raising taxes, or privatizing some or all of the system.

WHAT DO YOU SAY?

HE SAYS:

The debate over Social Security and any proposed reforms to the system has generated much controversy, uncertainty, and outright anger.   Part of the problem is that many beliefs and doubts concerning Social Security are based on myths rather than facts.   Let’s look at some of the common myths regarding the Social Security System.

Myth # 1: There is no Social Security Trust Fund.    The good news is that there is a trust fund called the Old-Age Survivors Insurance and Disability Insurance Trust Fund that collects payroll taxes and invests the surplus.   The bad news is that there is not very much cash in the trust fund.   Three-quarters of the money collected in Social Security taxes is paid out in the form of benefits.   The surplus is then loaned to the federal government to pay for other programs.   In return for these loans, the trust fund gets special-issue, interest bearing Treasury bonds; however, the interest is not paid in cash but with more bonds.    Even though these bonds are backed by the full faith and credit of the US Government, there is so much money owed to the trust fund that when it comes time to redeem these bonds, the government will need to find other sources of cash by cutting spending, or by borrowing money from somewhere else or by raising taxes.

Myth #2: Congress doesn’t pay into Social Security, so it doesn’t care about fixing the crisis.    Before 1984, federal employees, including members of Congress, were not covered by Social Security.   Since then, all federal employees as well as members of Congress participate in Social Security.   The problem with fixing the system is politics.   No matter what reforms are suggested, some group gets upset.

Myth # 3: Age 65 was picked as the retirement age because when Social Security was started in the 1930s, most people did not live to the age of 65.    In 1935, men aged 30 had a life expectancy of 67 and women aged 30 had a life expectancy of 70.   Social Security’s creators picked 65 as being a reasonable retirement age and believed that the system could be self-sustaining if they chose that age.

More myths will be explored in Part 2 of this topic.

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