In 2010, 34% of Americans indicated that they expect Social Security to be a major source of income in retirement.1 Despite the expectation to heavily rely on Social Security as an income source, only 21% of Americans feel they are very well informed about the way Social Security works.2 Here are some basics about how Social Security works and how it will affect your retirement years:

1. Coverage: You qualify for the Social Security retirement benefit by earning credits through employment. You earn 4 credits for each year of employment and you need 40 credits to qualify for the Social Security retirement benefit. Your Social Security Retirement benefit is calculated on your average earnings during a lifetime of work, generally your highest 35 years of earnings. Not working in the years leading up to age 62 can negatively impact your monthly benefit amount in retirement.
2. Filing for Benefits vs. Receiving Benefits: When you reach your FRA, you can file for benefits, but you don’t have to start receiving benefits. Once you file for benefits, you can delay when you want to receive the benefit in order to let your monthly benefit amount increase. However, once you have filed for the benefit, your spouse can begin receiving spousal benefits even though you are not.
3. Spousal Benefits: When a worker files for retirement benefits, the worker’s spouse may be eligible for a benefit based on the worker’s earnings. The spousal benefit can be as much as half of the worker’s benefit amount, depending on the spouse’s age at retirement. The spousal benefit is 50% of your spouse’s benefit if you start at your full FRA, but only 37½% of the monthly benefit if you start at 62. However, if a spouse is caring for a qualifying child (under age 16 or who receives Social Security disability benefits), the spousal benefit is not reduced. If a spouse is eligible for a retirement benefit based on his or her own earnings, and if that benefit is higher than the spousal benefit, then they receive their retirement benefit. Otherwise they receive the spousal benefit.
4. When to Start Receiving Benefits: When you start receiving Social Security retirement benefits impacts how much you will receive each year. The earliest a person can begin receiving Social Security retirement benefits is at age 62, but the monthly benefit amount is reduced by about 30% by starting early. Delay receiving Social Security retirement benefits until 70 and the monthly benefit amount goes up to about 127%!
5. Effect of Earned Income: In the past, if you were receiving Social Security retirement benefits and earned income, your benefit was reduced. This is no longer the case. You can continue to earn income in retirement without negatively impacting your Social Security retirement benefits.

The Social Security Administration website (www.socialsecurity.gov ) needs to become one of your favorite sites. The site contains helpful information, articles, a Retirement Estimator, Retirement Planner, and a Near Retirement section.

Social Security will likely be a part of your retirement income. If you only depend on it for ? of your income, what does that mean in terms of how much you need to be saving today to have the other funds? In our new 2011 economy, ‘saving’ is the new financial ‘black’ as people reflect on the recent recession and seek to avoid a repeat at some time in the future. What steps will you take today to better understand your Social Security Retirement benefit and work toward having a fully-funded retirement?

As always, we’re available to help you with all your financial stewardship needs. For assistance, contact our service team at (888) 879-1376, option 1 or by email .

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Trusted Advice Along The Way

• 1 AP-GfK Poll. May 2010.
• 2 Social Security 75th Anniversary Survey Report: Public Opinion Trends, AARP 2010.