Should You Delay Withdrawing SS Income?
You must work with your financial advisor before making any decisions concerning Social Security. One major issue with Social Security is that you typically can’t control how and when it is distributed. Since Social Security income is higher than other types of income, any decision to tap into it early will have a huge impact on your financial picture.
Before you decide to take your Social Security income before age 65, you should make sure you have a financial plan in place to reduce the risk of running out of other sources of income or losing your assets. The following Social Security basics may show you a way to delay the onset of these risks through an income source that is guaranteed, inflation-adjusted and has no maximum limits.
As your financial advisor, I’ll work with you to see how you can retire securely. The following Social Security basics question is one I often get from the people who come to me.
Should I wait for death to claim my Social Security income?
Social Security is treated as income by the Internal Revenue Service for tax purposes. When it is applied as an income, it is more beneficial to wait to claim Social Security payments as long as possible. The longer you wait, the higher the money will be.
Many people will want to claim their Social Security income as early as possible. In fact, if retirement is near, the last thing on their minds is waiting for their Social Security income.
What About Your Spouse?
Your spouse can collect his or her own benefits based on your work record, even if you are still alive, if you are receiving Social Security retirement benefits. If you and your spouse had more than one career with Social Security earnings, your spouse’s benefit could be higher if his or her other work record has more than 40 quarters of earnings.
Your spouse, if he or she is with you, or your former spouse, if the marriage ended in death or divorce, could collect benefits based on your work record if he or she is age 62. More here .
Are Social Security Benefits Taxable?
Yes, benefits received under the Old Age, Survivors and Disability Insurance programs are subject to federal income tax. This means that if you choose to withdraw your benefits in one lump sum, 20% of the lump sum payment is withheld. The withheld sum is sent directly to the IRS and the IRS sends you a 1099-R form in January with the withheld amount listed.
Social Security is Not Guaranteed
Probably one of the biggest myths is that Social Security is guaranteed.
It is not hard to understand why so many people mistake Social Security for a guarantee. Everyone that works pays into the system, and the agreement is that everyone will be taken care of. The reality is that, unless you qualify for a survivor benefit, Social Security is not guaranteed in the way that many people think it is.
While there is a part of the system that is backed by a trust fund, the trust fund is not designed to completely support the people that qualify. The information below from the Social Security website clearly shows that the money you make will not be guaranteed for your retirement:
"The vast majority of folks who get Social Security today ARE getting the benefits they have been promised. Under a law that was passed by Congress in 1983 and has been kept in place despite periodic calls for its repeal, Social Security is forbidden from putting more money into the trust funds than are taken out each year. At worst – at some point in the future – the trust funds will be exhausted and benefits will need to be cut. But even then, benefits will not change because of that specific restriction."
Those who choose to work on a job that isn’t covered by Social Security will only be eligible for a reduced benefit compared to what someone who worked for the government or other covered jobs would get. The Social Security website explains this quite clearly: