“We can never insure one-hundred percent of the hazards and vicissitudes of life. But we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”
—Franklin D. Roosevelt
In 1935 when Roosevelt signed the bill creating the Social Security system, originally known as the Economic Security Act, more than 50% of seniors were living below the poverty level. Today that percentage is less than 9.5%. Social Security is doing the job for which it was intended: to provide a safety net against poverty in our later years. It was never meant to become our complete retirement income package, only a piece. But it is a piece we need to pay attention to as we plan out our income needs in retirement.
There are a few important things you need to know about Social Security. Alright, there are several things you need to know and I will be covering the more important concepts for you today and in the weeks ahead. Also, I’ll only be reviewing Social Security retirement benefits. Social Security is a comprehensive system that provides disability, survivor and family benefits as well. Let me point out, as I have in the past, a qualified financial advisor will be able to assist you with your questions and as you navigate the decision-making process. I will never be able to answer all your inquiries or cover every situation in this blog alone.
Let’s start by reviewing how an individual qualifies to receive Social Security retirement benefits. To understand that question you need to recognize the concept of Retirement Credits. You qualify by acquiring 40 credits of work. You can earn a maximum of 4 credits per year so you’ll need at least 10 years of work history to qualify. In 2017, it takes $1,300 of covered compensation (compensation on which you paid Social Security taxes) to earn one credit.
Your credits are then earned on a quarterly basis during the calendar year. For example, you could earn $5,200 ($1,300 times four quarters) in the first month of the year and then nothing for the balance of the year. You have enough earnings to get your credits for the year, but you wouldn’t actually get “credit for the credit” until the end of March, June, September and December. Do that for 10 years and you’ve earned yourself a Social Security benefit at retirement.
But that’s not the only way to qualify for a Social Security benefit. Another way is through marriage. and it doesn’t make any difference if the marriage is traditional or same-sex as long as the couple was married in a state that recognized same-sex marriages. In the eyes of the Federal Government spouses who are married at least one year prior to filing an application to receive benefits will qualify for Social Security retirement benefits as long as the “worker” spouse earned his or her 40 credits. Please note that there are some age limitations.
Additionally, divorced spouses may be able to use his or her former spouse’s earnings record if higher than his or her own as long as they were married for a minimum of 10 years, divorced at least two years and not currently married to someone else. If a divorced spouse does draw on his or her former spouse’s record, it will not affect any of the former spouse’s benefits. If fact, the former spouse won’t even know.
Children can also qualify for a retirement benefit, and it does happen. For example, if you are supporting or have adopted a grandchild and he or she is under the age of 19 and in school, that child could qualify for a benefit when you retire and begin your retirement benefits.
Social Security retirement benefits are an important part of any retiree’s income, though only a portion. According to the Social Security Administration, Social Security replaces about 40 percent of an average wage earner’s income after retirement. However, in 2016, 21% of married Social Security beneficiaries received 90% or more of their income from Social Security. Among unmarried beneficiaries, 43% received 90% or more of their income from Social Security. But, as stated in the beginning, Social Security is designed to only be a slice of an individual’s retirement income for most retirees and a safety net against poverty when elderly. So do not look at it as a main source of income when you plan your retirement.
Gary A. Weuve, CFP®
Founder and CEO
2NDACTLIVES, LLC
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