Employee Benefit Pros Should Add Medicare and Social Security To Their Knowledge Arsenal - Part 2 (Social Security)
In Part I of this two-part series I discussed the importance of understanding Medicare program basics. In Part II, I will discuss how equally important it is for benefit pros to have a good understanding of the Social Security (SS) benefits program.
Unlike with Medicare employees generally don't think they need assistance understanding how Social Security works and when to apply for benefits. The reality is many workers know very little about the SS program. For example, a significant number think that the SS taxes they pay fund their specific benefits. And many do not know their SS full retirement age and that they receive a smaller benefit amount when they elect to receive benefits before normal retirement.
Employers play a large role in financing SS benefits. It is in their best interest to help workers get the maximum SS benefit so they retire when they want, not when they can.
Social Security 101 For Benefit Pros
The federal Social Security program is complicated. There are SS experts with decades of experience that don’t know everything there is to know about SS. No one expects employee benefit pros to know as much as a SS expert dedicated to the field, but the top benefit pros will have a complete understanding of these five basic SS features.
1) Who is eligible to receive SS benefits and when. SS provides cash benefits to retirees, widows/widowers, and disabled individuals who are unable to work. In general, eligibility requires paying SS (OASDI) taxes for 40 quarters (ten years). Not all jobs require workers to pay SS taxes.
2) How and when to apply for SS. Individuals can apply for SS benefits online or in-person at their local SS office. When to start receiving benefits is the most important SS decision an individual will make. Workers can start receiving SS retirement benefits as early as age 62. They will receive a reduced benefit forever due to the early election of benefits. Workers receive full benefits if they wait until full retirement age. Full retirement age depends on the year born and for most current workers is between and including age 66 to age 67. Individuals can delay receipt of SS benefits up to age 70 and receive an additional benefit of 8% per year for each year after full retirement age up to age 70.
3) How to estimate Social Security benefit amounts. The Social Security Administration (SSA) mails annual benefit estimates to workers age 60 and over. Younger workers can use the SSA online benefit estimator tool to project their future benefits.
4) How Social Security works when still receiving a paycheck. Employees can collect SS benefits while still working. However, there is a reduction in benefits if the employee is not at least full-retirement age AND earning income above a certain level.
5) What things should employees consider in order to receive the maximum SS benefits. Workers should maintain consistent yet increasing earnings. Also, they should coordinate their decision to collect SS benefits with spouses. Lastly, workers should try to delay receiving benefits until age 70, if possible.
Despite what workers think they may know about SS, most of them need help estimating benefits and deciding when to receive them. Fortunately employers are beginning to acknowledge the need to provide some basic education about SS retirement benefits. They are providing online tools that allow employees to estimate their SS benefits at different ages. In addition, they are providing access to outside professional SS advisory services to help employees determine the optimal time to start receiving benefits.