Social Security — The Basics, The Do’s, and The Don’ts

Aug 15, 2018 ​

Social Security Article

Social Security is like a return on a (very) long-term investment. For decades, you contribute money from your paycheck so that you can receive payments when you retire.

If you’re like 61 million other Americans who plan to rely on this government-backed system, you’ll need to know how to make the most of your money. With that in mind, here is some basic information, and some do’s and don’ts as you prepare to start collecting Social Security:

What are Social Security Retirement Benefits?

Social Security retirement benefits are monthly payments made to workers who have paid Social Security taxes and earned Social Security credits. Most people earn the maximum of four credits per year. Credits are based on how much you earn, however, the amount of earnings needed for a credit increases annually, so be sure to check for the most current numbers. Also important: the number of credits you need in order to receive retirement benefits depends on your date of birth.

Benefits Plus Savings

Bear in mind that Social Security benefits are only meant to make up part of your retirement income. When planning, the general rule of thumb is that you will need about 70 percent of your pre-retirement earnings to maintain your current standard of living. Social Security retirement benefits generally replace only about 40 percent of that sum.

So where should the remaining 30 percent come from? Savings (such as money you’ve set aside in a 401(k), 403(b), IRA, or other investments), and if your company offers it, a pension plan.

How Much Can Be Received

Benefit amounts are based on earnings averaged over your working career. Therefore, the higher your lifetime earnings, the higher your benefits will be. There is no need to guess what your benefits will be -the Social Security Administration is required by law to provide a personalized benefit estimate to each worker once per year.

In most cases you do not have to pay taxes on Social Security benefits. They only would be taxed if you have substantial income in addition to your Social Security benefits.

Here’s some do’s and don’ts to ensure you benefits are working for you as intended:

Do: Calculate your expected benefits (and expenses)

Retirement is not the time to be surprised by your finances. Without your normal stream of income, you’ll want to know exactly how much you can expect from Social Security every month. How do you figure that out? The Social Security website provides calculators to estimate your earnings.

While you should also add up other sources of income that you’ll be receiving from your retirement plan or investments, you need to plan for new expenses as well. Enrolling in Medicare? You may be on the hook for a monthly premium.

Do: Estimate your life expectancy

Let’s be honest — anticipating when you’ll die is no one’s idea of a fun time. However, to maximize Social Security, it’s helpful to figure out at what age you should start collecting.

You’re able to receive reduced benefits as early as 62. But if you’re healthy and have no major family medical issues, you might want to wait until your full retirement age. For more on how the government calculates pay-outs based on age, check out their benefits planner.

Don’t: Retire before you’re ready

Some people can’t wait to wrap up their career to spend more time with family or hit the road in an RV. Others, however, might want to continue working, especially if their job keeps them fulfilled. The bottom line is you should feel confident in your decision. It’s easier to keep working than it is to retire only to change your mind later; re-entering the workforce can be difficult.

Don’t: Forget to organize your documents

Once you’ve decided to start collecting Social Security, you’ll need the right documents. So if you’re unsure where to find things like your Social Security card or birth certificate, you should start looking now.

It’s important to remember that Social Security should be just one layer of your financial retirement strategy. With the right plan, investing your money can prepare you for a rewarding financial future. Through Nusenda Credit Union’s broker-dealer partner, CUSO Financial Services, L.P., (CFS*), we can help educate you on the investment process and advise you on investment options that make the most sense for your financial situation and goals. Set up your complimentary consultation today by calling 505-872-5434 (800-347-2838 outside the Albuquerque area), or visit our Investment page for more information.

* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk, including possible loss of principal. Investment Representatives are registered through CFS. Nusenda Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Content in this article was provided by BALANCE.

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