May 15, 2008
The benefits of Social Security can be surprising
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Most of us know the basics of Social Security.
The government takes money out of each paycheck and then we receive a monthly retirement check for life, starting as early as 62.
But Social Security is much more than that.
The program will provide financial support to your spouse and young children if you die early. It is disability insurance if you are seriously injured. And Social Security provides a substantial amount of retirement income for the poor and prosperous, and is likely the only retirement benefit you will get that is annually adjusted for inflation.
"Social Security is so much more valuable than we ever give it credit for," says Mary Jane Yarrington, who answers questions on Social Security in a column for the National Committee to Preserve Social Security and Medicare.
It is also far more complicated than you might imagine. The oldest baby boomers who are turning 62 this year are finding that out now. Here are a few things you might not know:
• Kids can get it, too. Many people start families late in life, and young children of a retired parent collecting Social Security are eligible for benefits, too. Kids can receive benefits up to age 18, or 19 if still in high school.
The size of kids' benefits depends on the number of children in the family. For a family with one child, though, the benefit is generally half of what the parent receives.
Also, if you adopt a grandchild, the youngster could be eligible for benefits based on your record, Yarrington says.
"There are very strict rules," she warns. "The parent has to be out of the picture."
• Benefits for parents. Parents receiving half their financial support from an adult child can be eligible for survivor benefits if that child dies, says Lita Epstein, author of The Complete Idiot's Guide to Social Security and Medicare.
This is rare, she adds.
To qualify, the parent must be at least 62, she says. Also, if a parent already receives Social Security, she won't get two checks. She will receive the larger benefit.
• Earliest benefits. Sixty-two isn't the earliest age for benefits. Widows and widowers can receive reduced benefits starting at 60, or 50 in the case of disability.
• Benefits calculation You need 40 quarters - or 10 years - of paying into the system to receive retirement benefits. But benefits are calculated using your highest 35 years of earnings.
That means if you only have 10 years of earnings, the calculation will factor in 25 years of zero income, says Bruce Schobel, a New York actuary.
• Eight-percent solution Many workers underestimate the value of waiting to take benefits. For every year you postpone your benefits beyond your full retirement age, your monthly benefits rise 8 percent until 70. (It's 7.5 percent for those born before 1943, Schobel says).
If you're short on savings and long on life expectancy, postponing benefits could be the answer.
• Spousal benefits Married couples can maximize lifetime benefits by timing when they take them.
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