Jan 27, 2022 3 min read

This week we are going to discuss Social Security.

It is one of the most important retirement assets for many people. You started paying into the system when you got your first job. Your employer made a matching contribution. If you are self-employed, you must pay both shares.

Many people underestimate how important Social Security is to their financial well-being. It is one of a few retirement income sources that comes with a cost-of-living adjustment (COLA). If your monthly benefit is $2,000 per month and if there is a 2% COLA, you will receive $276,032 over ten years. If you are fortunate enough to live 30 years you will receive over $1 million.

This total is for just one person. For a couple, it could be much more.

There are several different ways to collect retirement benefits. The SS Administration will always look at a worker’s own earnings record first. Your benefit is calculated based on your earning for the highest 35 years of your working time.

If you do not have enough years, they use zero earning for the shortfall. Social Security will calculate what your benefit would be at your full retirement date. This varies based on the year you were born. Everyone born after 1960 must be 67. If you were born in 1955 to 1959 it is 66 and 2 months than goes up two months for each year.

If you begin taking your benefits before reaching full retirement age, you will be assessed a penalty. It is about 6.5% per year. You will receive this lower amount for the rest of your life. You will receive COLAs but will receive less additional money than if you would have waited.

People who do not have a paid worker record on their own may be able to collect benefits based on their spouse’s work record.

If the second person has reached their full retirement age, they may be eligible to receive half of their spouse’s benefit. If they later divorce, they can still receive spousal benefits as long as the marriage was at least 10 years and they have not remarried. You cannot collect spousal benefits from other worker’s record if they have not started to receive benefits. The only exception is if you have been divorced for more than two years.

Normally, to maximize a couple’s SS benefit the one with the higher benefit would try to wait longer to begin Social Security because their benefit is what the survivor would receive after the first death. We will explain some of the other twist and turns with SS in a future column.

This October it was announced benefits would go up 5.9% for this year.

This adjustment is to help keep up with inflation and higher Medicare premiums. Remember, most retirement assets do not have a COLA. This is just one more reason it is important to maximize your family’s Social Security benefit.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.