Money Matters: What’s Up With Your Social Security

“Coach Pete” D’Arruda writes the Money Matters series on CaryCitizen. Photo by Brian Talbot.

Cary, NC – By 2033 the Social Security Administration (SSA) projects the number of eligible Social Security beneficiaries will double, while the number of contributing workers per recipient declines. Do the math.

What you need to know about Social Security

Despite the uncertainty surrounding Social Security’s future, many pre-retirees plan to rely heavily on these benefits to fund their retirements. Recent data from SSA found 53 percent of married couples and 74 percent of individuals aged 65 and older rely on Social Security for 50 percent of their retirement income.

If you are a near-retiree planning to fund most or all of your retirement expenses with Social Security benefits, there are certain things to keep in mind. Being aware of these considerations and knowing how they apply to you and your family is the key to retiring comfortably if you are relying on Social Security.

1. Eligibility

Retirees, pre-retirees, disabled workers, workers’ dependents and survivors are all eligible for Social Security.

However, in order to qualify, workers need to earn enough Social Security credits over their lifetimes. In 2012, each $1,130 in earnings equaled one credit; workers can earn a maximum of four credits per year.

To qualify for retirement benefits, workers need to earn 40 credits – normally that equates to 10 years of work.

2. Benefits Start Date

The full retirement age is currently 66 for workers born between 1943 and 1954. If you decide to take Social Security at age 62, you would receive 75 percent of your benefits. But if you delay taking Social Security until you are 70, you would receive 132 percent of your benefits. In essence each year you are able to delay drawing on your benefits can make a significant difference in the resulting amount of income you receive.

It is important to weigh all the pros and cons of the timing of  taking your benefits. A trustworthy and knowledgeable financial advisor can help with your analysis and provide a recommendation based on your personal situation.

3. Amount of Benefits

Social Security wages are adjusted for inflation and benefits. Benefits are calculated in respect to lifetime earnings; it is the average of your 35 highest earning years, and the result is average indexed monthly earnings.

In 2012, the maximum earnings taxable for Social Security is $110,000.

4. Supplemental Income in Retirement

A common unknown fact about Social Security is you can still work and receive benefits.

However, there are limitations. If you are under the full retirement age, described above, you can make up to $14,640 per year. If you make anything above that, your benefits will be withheld $1 for every $2 earned.

For those within one-year of the full retirement age, you can earn up to $38,880 per year. If you make more, your benefits will be withheld $1 for every $3 earned.

However, if you’re working within the month you reach full retirement age or later (above full retirement age), there is no limit for how much income you can collect.

It is not normally, if ever, recommended to rely solely on Social Security for your retirement income. You should always be working towards another  sources of income – a 401(k), a pension (if you are lucky), IRA, etc.

Before you get to the ‘financial red zone,’ five years before retiring, make sure you evaluate all of your assets and estimate your expected retirement income. It is critical to know what role Social Security will have in your retirement before it is time to leave the workforce entirely.


Pete D’Arruda hosts the nationally syndicated radio program Financial Safari and is president of Capital Financial Advisory Group, LLC in Cary, North Carolina. In our area, Pete can be heard on WRDU106.1FM Sunday afternoons from 3 to 5 pm.