The right
time to draw Social Security benefits
|
| By Jay
MacDonald
• Bankrate.com |
|
It may not look much different from your standard piece
of junk mail, but the Social
Security statement that arrives in your mailbox shortly before your birthday
every year is far from junk. While many will trash it sight unseen, those who
are nearing retirement may want to instead sit up and take notice.
The closer you get to decision time
on when you will officially retire and begin tapping the Social Security benefits
you've accrued over the years, the more this simple statement can help you determine
when retirement might make the most sense -- in dollars and cents -- for you.
Yes, Social Security figures prominently as a safety net for
you and your family, should you die suddenly or become disabled. It is also the
place to enroll in Medicare; you want to do that at age 65 regardless of whether
you retire.
 |
Social Security: When to begin |
|
|
|
But, determining when to start collecting regular
Social Security retirement benefits requires some forethought. Here's how to work
through the math to determine when to officially retire and begin receiving your
monthly checks:
How
benefits are calculated
Let's start with the basics: your Social Security
number. It has been used on every tax form you and your employers have sent in
since your first day of work to keep track of your earnings. To be fully insured,
you need 40 credits earned over your lifetime. You get up to four credits per
year based on your earnings. For 2007, you receive one credit for every $1000
you earn, so you max out your four credits with an annual income of $4000 or more.
That's a pretty easy bar to clear by design: Social Security
sprang from the depths of the Great Depression to enable all working Americans
to survive when their prime earning years are behind them. Financial planners
estimate that Social Security benefits today provide, on average, about 40 percent
of what you'll need to maintain your lifestyle once you hang up your dancing shoes.
OK,
so just about everybody approaching retirement age qualifies for Social Security.
However, the Social Security Administration calculates your benefit amount based
on your average earnings over 35 years, not on your number of credits or how much
you paid in taxes. That's why it is important to look at page
three of your statement, which lists your earnings history year by year, and
make sure the figures match up with what you actually earned.
Jack
Carney, 57, an accredited asset management specialist with M.W.
Boone and Associates in Bellevue, Wash., explains that in calculating your
eventual benefit amount, Social Security caps the maximum wage contribution each
year. For 2007, the wage contribution cap is $97,500, and the maximum monthly
benefit amount at full retirement is $1,998.
"The way
it works is, if I made $7,200 my first year out of college, that counts as much
toward my Social Security as someone this year making $85,000," says Carney.
"If the (wage contribution) cap was $8,000 and you earned $6,000, you get
credit for three-fourths of a maximum Social Security benefit year." |
