Social Security – it can be one of those topics that people either love or hate to talk about. While retirees generally get excited about a regular Social Security check, understanding all the ins and outs can be confusing and may even cause someone to make a decision that they regret.
That’s why we’re giving you Social Security tips you need to know so you can confidently make the right decision in retirement.
But before we begin, let’s start with the basics of Social Security. What is it exactly?
Social Security is a program run by the government that collects taxes from working Americans. Then, it distributes those funds to qualified people so that they have a reasonable amount of money to fund life after work.
Who is eligible to receive Social Security?
To receive Social Security benefits, you must first earn credits by working and paying Social Security taxes. This generally adds up to about 10 years of work (or 40 credits).
Most jobs will take these taxes directly from your paycheck.
For those who have not worked for 10 years, they may still be eligible for a monthly benefit based on their spouse’s work. The benefit may vary depending on whether you’re married, divorced, or widowed.
Are only retired workers eligible?
No. As of March 2023, 74% of beneficiaries were retirees. The remainder were spouses, ex-spouses, children of retirees, disabled workers and their families, and survivors of deceased beneficiaries.
Spouses may be eligible for Social Security benefits based on their own work history or up to 50% of their spouse’s benefit, depending on their circumstances.
When can I start collecting Social Security?
You can start receiving Social Security benefits at 62. However, because this is before full retirement age, your benefits will be reduced. Once you reach full retirement age, you will receive 100% of your benefits.
How do you know what your full retirement age is? If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1955, that age increases just a bit each year.
You can calculate your full retirement age here.
So while you’re eligible to receive benefits at 62, you may want to wait until full retirement age — if you can. This is when you’re eligible to receive 100% of your benefits.
Should I delay collecting Social Security benefits?
Research found that those who wait until age 70 to collect benefits can see a 76% increase compared to those who take their benefits at 62.
Those who wait to claim their Social Security until after full retirement age will see roughly 8% additional income (adjusted for inflation) each year. So, if an individual who is entitled to $10,000 annually decides to delay their benefits one year, they would receive $10,800 the following year. This continues every year until they reach 70.
How can I make it easier to delay my benefits?
According to the 2023 Schroders U.S. Retirement Survey, only 10% of people plan to claim Social Security at the age of 70 (when they reach their maximum monthly benefit). Delaying Social Security is a tried-and-true method of generating more income in retirement, yet a huge amount of people say they can’t wait.
The main reasons?
- 32% are afraid Social Security may run out of money
- 31% say they will need the money sooner
If you’d like to hold off on taking Social Security, the best thing you can do is make sure you’re prepared.
What do we recommend?
- Start saving for retirement early, if you can
- Automate your retirement savings
- Do not react to volatile markets
- Be involved in your plan, and if you have questions, ask an advisor
Here are some other great steps you can take to help you best prepare for your retirement years.
Are Social Security benefits taxable?
The short answer is yes, they can be.
Whether or not you pay taxes will be dependent on your income and the state you live in. If Social Security is your only form of income, then you likely won’t have to pay taxes. However, if you have other forms of income (such as retirement benefits or part-time work), you’ll likely have to pay taxes on some of your Social Security benefits.
Here’s how it currently works:
- Combined income for under $25,000 (filing single) or $32,000 (filing jointly), Social Security benefits will not be taxed.
- Combined income for $25,000 to $34,000 (filing single) or $32,000 to $44,000 (filing jointly), up to 50% of your Social Security benefits can be taxed.
- Combined income over $34,000 (filing single) or $44,000 (filing jointly), up to 85% of your Social Security benefits can be taxed.
Should pastors opt out of Social Security?
Yes, you read that right. Pastors have the option to opt out of paying Social Security. This exemption is for members of religious organizations who are opposed to receiving benefits based on their religious beliefs. And no, you can’t opt out just because you don’t want to pay taxes.
There’s a very brief window at the beginning of a pastor’s ministry when they have the chance to opt out of Social Security. However, once they opt out, there is no going back. The decision is irrevocable.
The obvious benefit to opting out is that pastors will not have to pay taxes, which leaves them with a substantial amount of money in their bank accounts. And because of this, many pastors are advised to opt out. However, most pastors grow to regret this decision.
Here’s what pastors miss out on when they opt out of Social Security:
- Regular retirement benefits that continue until their death.
- Spouses will not have access to 50% of the monthly benefit.
- In the unfortunate event of a death, widows and minor children would not be able to collect a monthly benefit.
- If the pastor becomes disabled, they can’t collect the monthly disability payment.
- They won’t have access to Medicare Part A, which is covered.
If you’re a pastor and have opted out of Social Security, is there a way to still receive your benefits? No. However, there is a workaround.
If you work in a job outside of ministerial work, you can receive benefits. But remember, you’ll need 40 credits (about 10 years) to receive your benefits.
Here’s our advice: think twice before opting out. This is a decision more and more pastors grow to regret.
Beyond Social Security benefits
While Social Security boosts retirement funds, it’s important be prepared for retirement beyond Social Security benefits. This means regularly contributing to a retirement account.
According to a survey by Allianz Life Insurance, 74% of people say they can’t fully rely on Social Security in retirement. This means they need other sources of income, like a 403(b) or IRA.
That’s where we can help. At TruthPoint, we’re passionate about helping those in ministry prepare for their later years in life. If you want to know how we can help your ministry, schedule a call today.