Social Security (Part 3): What You Need to Know About Benefits

Social Security benefits replace a percentage of your earnings when you retire, become disabled, or die. Each year, the U.S. Social Security Administration (SSA) will send you a Social Security Statement showing your earnings history and an estimate of the retirement, disability, and survivors benefits you and your family may receive based on those earnings.

When you receive your statement, check your earnings history carefully. Make sure all of your earnings are accurate. Be sure to report any errors to the SSA. That is important because your benefits will be based on your lifetime earnings. Your statement also is useful in helping you plan your financial future.

Retirement Benefits

Choosing when to retire is one of the most important decisions you will make in your lifetime. If you choose to retire when you reach full retirement age, you will receive your full retirement benefits. If you retire before reaching full retirement age, you will receive reduced benefits for the rest of your life.

Full Retirement Age

If you were born in 1942 or earlier, you are already eligible for your full Social Security benefit. If you were born from 1943 to 1960, the age at which full retirement benefits are payable increases gradually to age 67. The following chart will guide you in determining your full retirement age.

Note that although the full retirement age is rising, you should still apply for Medicare benefits within 3 months of your 65^th birthday. If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you more money.

Delayed Retirement

If you choose to delay receiving benefits beyond your full retirement age, your benefit will be increased by a certain percentage, depending on the year you were born. The increase will be added in automatically from the time you reach full retirement age until you start taking benefits or reach age 70, whichever comes first. If, for example, you were born in 1940, your benefit would increase 7% for each year, between your full retirement age and age 70, that you do not get retirement benefits.

Early Retirement

You may start receiving benefits as early as age 62. However, if you start your benefits early, your benefits are reduced permanently. Your benefit is reduced about ½ of 1% for each month you start your Social Security before your full retirement age. For example, if your full retirement age is 66 and you sign up for Social Security when you are 62, you would only get 75% of your full benefit.

Take note that the reduction will be greater in future years as the full retirement age increases.

If You Work and Get Benefits

You can continue to work and still receive retirement benefits. Your earnings in (or after) the month you reach full retirement age will not reduce your Social Security benefits. In fact, working beyond full retirement age can increase your benefits. However, your benefits will be reduced if your earnings exceed certain limits for the months before you reach your full retirement age.

If you work but start receiving benefits before full retirement age, $1 in benefits will be deducted for each $2 in earnings you have above the annual limit. In 2010, the limit is $14,160.

In the year you reach your full retirement age, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($37,680 in 2010) until the month you reach full retirement age.

Once you reach full retirement age, you can keep working, and your Social Security benefit will not be reduced no matter how much you earn.

People who work and receive disability or Supplemental Security Income payments have different earnings rules. They immediately must report all of their earnings to Social Security no matter how much they earn.

Retirement Benefits for Widows and Widowers

If you are receiving widow's or widower's benefits, you can switch to your own retirement benefits as early as age 62, assuming your retirement benefit is more than the amount you receive on your deceased spouse's earnings. In many cases, you can begin receiving one benefit at a reduced rate and then switch to the other benefit at the full rate when you reach full retirement age. The rules are complicated and vary depending on your situation, so talk to a Social Security representative about the options available to you.

Disability Benefits

If you cannot work because of a physical or mental condition that is expected to last at least 1 year or result in death, you may be eligible for Social Security disability benefits.

SSA's disability rules are different from those of private plans or other government agencies. The fact that you qualify for disability from another agency or program does not mean you will be eligible for disability benefits from SSA. And having a statement from your doctor indicating you are disabled does not mean you will automatically be eligible for Social Security disability benefits. For more information about Social Security disability benefits, visit http://www.ssa.gov/pubs/10029.html. You can apply for Social Security disability benefits on SSA's Web site at http://www.ssa.gov/disability/.

People with disabilities (including children) who have little income and few resources also may be eligible for disability payments through the Supplemental Security Income (SSI) program.

If you become disabled, you should file for disability benefits as soon as possible, because it usually takes several months to process a disability claim. The SSA may be able to process your claim more quickly if you have the following when you apply:

• Medical records and treatment dates from your doctors, therapists, hospitals, clinics, and caseworkers
• Your laboratory and other test results
• The names, addresses, phone, and fax numbers of your doctors, clinics, and hospitals
• The names of all medications you are taking
• The names of your employers and job duties for the last 15 years

Your benefits may be taxable.

Some people who get Social Security will have to pay taxes on their benefits. According to the SSA, less than one third of the current beneficiaries pay taxes on their benefits.

You will have to pay taxes on your benefits if you file a federal tax return as an individual and your total income is more than $25,000. If you file a joint return, you will have to pay taxes if you and your spouse have a total income that is more than $32,000. For more information call the Internal Revenue Service's toll-free number, 1-800-829-3676.