Social Security Questions Boomers Should Ask Before They Retire

For years the media has been telling us that Social Security will be gone when we need it. Millions of Americans rely on Social Security to fund all or part of their retirement, so this is a huge concern in our nation. So, just how reliable are the warnings that Social Security is going broke?

The 2009 Social Security Trustees Report anticipates that Social Security benefits paid to retirees will surpass Social Security taxes paid in by workers (and earnings on the funds in the trust) beginning in 2016. In addition, the trust fund could be depleted by 2037. When the money in the trust fund is gone, benefits will still be paid to workers who are already collecting retirement benefits, but there will only be enough revenue (from taxes collected from people still working) to pay 76% of the benefits promised.

While these numbers are definitely grim, the probability that Social Security is allowed to fail is minimal. Most likely we will see reforms such as raising the minimum or full retirement age, raising the income limit that Social Security taxes are paid on, and lower benefits for future retirees (it's less likely that people already collecting benefits will see their benefits reduced.

It's essential to know how much income you will have from different sources, including Social Security, after you retire. For some people Social Security is their only retirement income; for others it's a small part of their retirement, as they will have pensions and investment income in addition to their Social Security retirement benefit.

Regardless, you need to know how much income you can expect to receive so that you can create a realistic budget for your retirement years.

How much Social Security you receive will depend on several things, such as when you retire, how many years you worked and how much you earned, among other things.

In general, your benefits are calculated by applying a formula to your top 35 years of earnings, indexed for inflation. If you take your retirement benefits early, they will be reduced by up to 25%; on the flip side, if you wait until after your full retirement age to start collecting benefits, your benefits will increase by 8% for each year you wait. The Social Security website has several calculators to help you estimate your retirement benefits.

When to sign up for your Social Security benefits is probably the most frequently asked question. You've already learned that collecting your retirement benefits early will mean reduced benefits for life.

So, based on your situation, would you be better off collecting early retirement benefits or waiting until full retirement (or later) to maximize the amount you will receive? The answer varies for each person and is based on many factors, such as how long you plan on working, how healthy you are, if you have other sources of income, etc.

Your parents and grandparents probably never wondered how they could maximize their Social Security income, but you should.

Because it's a lifetime income, and because it is adjusted each year for inflation, Social Security is much more valuable than most people understand. There is nothing wrong with using the Social Security rules to your greatest benefit.

Here are some tips to help you get the maximum Social Security benefit you are entitled to:

Maximize Your Social Security Earnings

Your retirement benefit is based on your top 35 years of earnings so it's important to get as many "high earning" years in as possible. If you're at the top of your career as far as income goes, working just one year longer in a high paying job could make a big difference in your retirement benefit.

Delay Taking Your Social Security Benefits

Under the current Social Security Act, you are penalized for every month you take your Social Security before you reach your full retirement age, with the maximum penalty being 25%.

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Social Security was never meant to fund 100% of your retirement. It was intended to supplement other income streams (pensions and annuities) as well as your retirement portfolio.

So you should not expect Social Security to fund your entire retirement. For the average American, Social Security represents about 40% of a retirees income.