Social Security represents an important part of many Americans’ retirement plans. In fact, Social Security accounts for approximately 30% of senior income nationwide, with more than 65 million people currently receiving benefits.
If you’ve worked in the United States and contributed payroll taxes for at least 10 years, there’s a good chance you’ll be eligible to receive benefits once you reach retirement age. That’s why no matter what stage of life you're in – whether you’re nearing retirement or still in the early stages of your career – it’s a good idea to develop a general understanding of Social Security, how it works, and what role it will play in your retirement.
Continue reading to learn more about the program, who is eligible, how and when to apply, and what documents are required.
What is Social Security?
Originally signed into law in 1935 by Franklin D. Roosevelt, the Social Security Act has been amended several times over the years, but its basic purpose (to provide financial support to those who are no longer able to work) remains unchanged.
The program is designed to provide a source of guaranteed lifetime income to retired and disabled workers, along with their survivors and dependents. As of 2021, approximately 65 million Americans receive Social Security benefits, with a total of more than 1 trillion dollars being paid out over the course of the year.
An estimated 176 million workers (and their employers) currently pay into Social Security in the form of payroll taxes, with additional funding for the program coming from interest earnings and tax revenue paid on Social Security benefits.
Who is Eligible?
In order to qualify for Social Security benefits, you must have amassed enough “credits” during your working years. You earn credits by working and paying into Social Security, earning up to 4 credits per year.
If you were born after 1928, you must have at least 40 credits (10 years of work) to qualify for retirement benefits. If you don’t have enough credits by the time you reach retirement age, you may still qualify for spousal benefits based on your spouse’s record.
When Can I Apply for Benefits?
The earliest you can apply for Social Security benefits is 4 months before you turn 62. Assuming your application is approved, you would then receive your first check about a month after your 62nd birthday. However, while you can apply for Social Security that early, many people choose to wait until they reach what’s called “full retirement age” (which is between 66 and 67 depending on what year you were born) to receive full benefits.
If you choose to claim benefits early (before you reach full retirement age), your monthly benefit amount will be reduced. This reduction, which is based on how many months early you applied, will remain in place even after you reach full retirement age. In other words, you’ll receive benefits for longer, but your monthly amount will always be lower. On the other hand, if you choose to wait and apply after you reach full retirement age, your monthly payment will increase for every month you delay until you reach age 70.
It is worth noting that, even if you decide to wait beyond age 65 to claim Social Security benefits, you should still apply for Medicare within 3 months of your 65th birthday to avoid paying extra for medical insurance and prescription drug coverage.
What documents are required?
The Social Security Administration (SSA) asks for different documents depending on your individual circumstances. Required documents may include:
- Your social security card
- Your original birth certificate or a certified copy
- Proof of citizenship or lawful alien status, if you were not born in the United States
- A copy of your W-2 form(s) and/or self-employment tax return for the most recent year
- A copy of your U.S. military service paper(s) if you served prior to 1968
It’s a good idea to have all of these documents available when you apply, but if you don’t have one or more of them, the SSA still recommends that you apply, as they may be able to help you procure any documents you’re missing.
Chatterton & Associates, Helping you Strategize a More Efficient Retirement
We know planning for retirement can be daunting. Add in complexities like the time horizons involved and taxes and it can seem overwhelming.
It doesn’t have to be! With the proper guidance, you can craft a retirement plan that’s appropriate for you and your needs. Chatterton & Associates is eager to help you understand your retirement options, establish a realistic and comprehensive retirement plan, and have a financially-stable retirement.
Our dedicated and knowledgeable team strives to build an enduring relationship with you. This enables us to learn more about you so that we can serve you better. Together, we can forge a personalized strategy for your retirement savings withdrawals, one that takes taxes into account.
Don’t hesitate to reach out today for a confidential consultation.
The Team at Chatterton & Associates
Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.