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The Social Security Act was signed into law by President Franklin D. Roosevelt in 1935, creating a federal safety net for elderly, unemployed and disadvantaged Americans.
Since its inception, tens of millions of Americans have received financial assistance through the program. In 1960, the program was expanded with the addition of Medicare to allow Social Security benefits for disabled workers and their dependents.
Let’s take a look at the benefits that Social Security provides and tips on maximizing your benefits.
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Most Americans are familiar with the basic tenets of Social Security: You pay into the Social Security program through a payroll tax during working years and collect a monthly stipend between the ages of 62 and 70. Aside from the obvious retirement payments, the Social Security program provides a wide range of other benefits to different groups of people.
Retired workers account for just 82% of benefits. Source: CBPP
Some of the lesser-known benefits include:
While some sustainability concerns have arisen, these reports are largely overblown and misunderstood. The depletion of the Social Security reserve fund could result in a permanent 25% reduction in all benefits beginning in 2035 (not an elimination of all benefits), but a modest increase in payroll taxation can make it sustainable. However, that is a different topic of discussion altogether.
Be sure to check out Retirement Channel to learn more about retirement planning strategies.
More than a third of insured workers claim Social Security benefits as soon as they become eligible at age 62; however, claiming early benefits results in a permanent 0.5% reduction in benefits for each month before full retirement age. On the other hand, delaying benefits until age 70 lets you collect credits that vary from 5.5% to 8% depending on your birth year.
Example of how early retirement can affect benefits. Source: Schwab / SSA
There are a few things to consider when deciding when to take benefits:
If you have already taken early Social Security and changed your mind, the Social Security Administration lets you pay back benefits for up to a year. You can then restart benefits at a later date and benefit from a higher payout. There are no fees or interest charged for the repayment, so there’s little downside to changing your mind.
Social Security provides a foundation of retirement protection for nearly everyone and is responsible for lifting millions of elderly Americans out of poverty. In general, it’s a good idea to delay Social Security benefits for as long as possible in order to maximize your benefits unless your life expectancy is below your breakeven age.
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