You probably know that saving and investing are essential to retirement planning.
But just as important to the equation: Social Security planning.
Its impossible to overstate the importance of Social Security to retirees.
The truth is, Americans arent saving or investing enough for a secure retirement.
That same group relies on Social Security for about one-third of their income on average.
But theres a lot of confusion surrounding Social Security.
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How Does Social Security Work?
12 Questions Answered
Social Security isnt just a retirement program.
1.How Are Social Security Benefits Calculated?
Cost of living adjustments, or COLAs, are another factor, but their impact is relatively minimal.
Once youve earned 40 credits, youll be eligible for benefits once youre retirement age.
That means that after 10 years of working full time, youre considered fully insured for retirement benefits.
(Thats up from $168,600 in 2024.)
If you earn $1 million, even $1 billion in 2025?
For Social Securitys purposes, its the same as earning $176,100.
Its 67 for anyone born in 1960 or later and 66 years and change for most people born earlier.
you’re free to take benefits as early as 62 but youll receive a reduced amount.
Or you could delay until youre 70 in exchange for bigger monthly checks.
COLAs:Social Security recipients receive cost-of-living adjustments based on inflation.
COLAs are announced in October for the following year.
Benefitswill increase 2.5%for 2025.
Can You Take Benefits Based on Your Spouses Record?
However, you cant claim for both yourself and a current or former spouse.
You have to decide whether youll get more based on their work record or your own.
you’ve got the option to all claim based on their record if you choose.
Whats the Average Monthly Social Security Benefit?
The average Social Security benefit was $1,907 per month in January 2024.
Remember, of course, that only the highest-earning workers will qualify for maximum benefits.
Is Social Security Enough to Retire on?
That means its essential tosave for retirementby contributing to a401(k) planor funding aRoth IRAortraditional IRA.
5. Who Pays for Social Security?
You do, taxpayer.
So does your employer.
Social Security is funded via payroll taxes, which are also sometimes referred to as FICA taxes.
Most workers have 7.65% of their paychecks automatically deducted for FICA taxes.
Your earnings are taxed at 6.2% for the first$176,100of earnings as of 2025.
The remaining 1.45% goes toward Medicare, but for that theres no salary cap.
Your employer matches your 7.65% contribution toward Social Security and Medicare.
That meansself-employed peoplepay 15.3% because they have to make both the employee and employer contributions.
Is It True That Social Security Is Going Broke?
Whats really going on is that Social Security is at a tipping point.
But that doesnt mean the program is doomed.
Social Security is funded on a pay-as-you-go basis.
But there are plenty of actions Congress could take to avoid Social Security cuts.
Its pretty unlikely that Congresswonttake action.
APew Research Center pollfound that 74% of Americans oppose cutting benefits.
Lawmakers on both sides of the aisle are keenly aware of the programs popularity among voters.
Can You Work and Claim Social Security Benefits?
If youve already reached full retirement age, feel free to work away if you choose.
Your benefits wont be affected, no matter how much you earn.
Are Social Security Benefits Taxed?
Heres how it breaks down.
Social Security only includes half your benefits when determining your income.
The $10,000 wouldnt count against you, meaning that youd fall below the $25,000 income threshold.
That means 0% of your Social Security benefit would be taxable.
Whats the Best Age to Take Social Security?
Theres no perfect age to take Social Security.
Obviously, if you want bigger monthly checks, youd wait as long as possible.
If you have medical issues or your parents died relatively young, its worth considering starting benefits earlier.
Can You Get Social Security if You Havent Worked?
Otherwise, youll need to pay into the system to collect benefits.
How Do You Apply for Social Security?
you’ve got the option to easilyapply for Social Security onlinein about 15 minutes.
Can You Reverse Your Decision to Start Benefits?
Once you hit 70, your benefits will automatically restart.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
(Can you sense my millennial sarcasm there?)
You know which ones were talking about: rent, utilities, cell phone bill, insurance, groceries…
