Some Social Security basics for the newly working

This was originally published on Monday, June 8, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I am twenty-one years old and I recently completed college and starting my new career. I see on my earning statements that I pay into Social Security but I have been told that once I reach retirement age Social Security will no longer be available for my generation. How true is that?

Answer: Congratulations on graduating! Now that you are in the workforce now is the best time to start thinking of retirement even though you are years away from it. For many people Social Security is the largest source of income when they retire. Many don’t know the amount of control they have over their Social Security benefits. There are a lot of myths that surround Social Security benefits; some of which could be harmful to your retirement planning. Knowing what is myth and what is factual can only help you plan for retirement properly and get the most out of your Social Security benefits. Here are a few myths that I have heard:

• The money I pay into Social Security goes directly to my account. Many people believe that the government puts the money you contribute into a personal account much like a traditional pension plan or 401(k) is handled. The way Social Security works is the money that is deducted from your paycheck goes directly into paying a current beneficiary. When you become of retirement age future taxpayers will be paying for your benefits.

• Social Security will be bankrupt before I can start getting benefits. I cannot guaranty that Social Security will or will not be around when you decide to retire . The Social Security trustees project that by 2033 the fund will be depleted. Many hear this and think that the Social Security program will be bankrupt. Truth is there are still taxpayers who are going to be contributing to the fund. Discussions about a bankrupt social security are because people are living longer; the birth rate is not as high as it was during the baby boom so some feel there will be fewer people contributing to the fund when you become a beneficiary. This is not something new and has caused the Social Security Agency to adjust the retirement age and taxes paid on Social Security. Most likely, Social Security benefits will still be around when you are of retirement age. Plan on only receiving 75 80% of your projected benefits. If you plan accordingly and you get a decrease in your Social Security benefit you will be prepared. If the government makes changes so that you receive full benefits then you have some extra money with which you can really enjoy your retirement.

• I can’t get Social Security if I never worked outside the home. This is partly true and false, all depending on your situation. To start collecting your Social Security benefits you need at least forty quarters, about 10 years, of payments into Social Security. So that aspect that is true. On the other hand, if you are married and you work at home you can still get Social Security benefits. You may be eligible to claim benefits on the earnings of your spouse. Social Security spousal benefits are half of your spouse’s full benefits. If you are divorced you may be able to collect benefits if you were married for ten years or more and never remarried. You may qualify for half of your ex-spouse’s benefit. Collecting your spousal benefits will not interfere with your ex-spouse’s benefits.

• Social Security will be enough to live on for retirement. The truth is that cost of living will continue to rise. As you get older you may spend less for groceries, utilities, or gas especially if you had a family to raise and they will be out of the house. One important factor that will surely rise is health care costs. Social Security was never meant to be the only source of retirement income but a supplement to your retirement income. According to several websites the average Social Security check in 2015 is $1,328. That is an annual income just shy of $16,000. That is only $4,000 higher than what is considered the annual salary for poverty level, $12,000.

• If I work I cannot collect Social Security benefits without being penalized. If you are not at your full retirement age and you start withdrawing you will lose $1 for every $2 you make over a certain limit. Once you reach full retirement age your benefits will not be reduced no matter how much you make. Yes, you can work and receive Social Security benefits, just be aware of what age you start receiving Social Security benefits.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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