The debates about Social Security run loud and long.

The first is whether or not it will even be available to you when you retire – no doubt you’ve seen the headlines that say it will bankrupt in 2030 or before. My suggestion is to ignore those and continue to save money in your 401(k) plans and IRAs. We have no control over social security, and it is subject to the whim of our political leaders. Since that can change at any moment, all we can work with is what we know now.

The second debate is When should I start taking Social Security? And like most answers about the timing of anything, the answer is – it depends. Every situation is unique, I’ll give you the tools, but you still must decide for yourself.

Let’s start with the basics.

Social Security is a system that is paid for by all workers. Whether self-employed or an employee, you contribute to the system. It is federally mandated, and the feds take employment taxes very seriously.

If you are an employer, you already withhold taxes from your employees’ checks; those are held in trust by you until you pay them to the IRS. If you are ever going to get behind on paying your taxes, do NOT let these get behind. To the government, this was never your money; you just have a fiduciary responsibility to hold them and pass them on. The penalties are severe for failing to do that.  

If you are an employee, your checks are 7.65% less than your gross – 6.2% is social security; 1.45% is withheld for Medicare. In addition, your employer matches those amounts as a contribution. This amount is withheld on your first $142,800 of pay currently. The maximum number changes annually.

If you are self-employed, you are responsible for the combined amounts of 12.4% or a total of 15.3% when adding Medicare as your self-employment taxes reported with your annual Form 1040.

The monies paid by you and your employer are pooled to pay the approximately 64 million people currently being paid from the Social Security fund.

Minimum to be eligible for social security payments

You must have earned a minimum of 40 credits to be eligible for social security at retirement. You can only earn four credits per year, so the simple math says you must work ten years to be eligible. In each of those ten years, you must earn a minimum of $5,880 to gain your four credits. You can earn more, but that doesn’t change your credits, although it may change your potential payments.

Once your credits are earned, you will be eligible to receive Social Security benefits at retirement age. The first age you can apply for benefits is age 62. Your full retirement age is somewhere between age 66 and 67, depending on your date of birth. If you were born before 1954, it is 66; after 1960 it is 67. Born between ’54 and ’60 puts the age between 66 and 67. 

And, let’s not forget that although you can take reduced benefits at age 62, full benefits at 67, you will get delayed retirement credits if you wait to age 70. It’s why the decision is so difficult.

At 62, your benefit is reduced by 25% to 30% of your Full Retirement Benefit. If you delay taking benefits after Full Retirement Age, your benefits will increase by 2/3 of 1% each month to age 70. That’s 8% a year for three years.

Here’s an example: 

Full Retirement Benefit = $1500/month – take at 62 and you will receive $1050/month – take at age 70, that increases to $1860/month.

That’s a big swing and why the decision is so important. Here are some factors to consider.

  • What is your life expectancy?
    • Does your family have a longevity streak – maybe it makes sense to wait to collect benefits?
  • What is your health?
  • Are you still working?
  • Do you have other sources of income you can use while you delay?
  • How does your benefit compare to your spouses?
    • Perhaps you would be better off taking a spousal benefit because they had higher earnings? If so, delay on your own if possible to maximize that benefit – any reduction you take on yours automatically applies to the spousal benefit.

Did I mention it’s complicated…and personal? Everyone is unique to their earnings record, employment history, marital status, and retirement years.

The number one thing to do right now is to be more informed. You can start to learn your status by signing up for MySocialSecurity. This will help you estimate and plan; the record is online and personal to you. It shows your earnings record, your estimated benefit, your spousal benefits, and potential disability benefits. You can sign up here: https://www.ssa.gov/myaccount/