Six Things Your Parents Should Know About Social Security

Today's 75.4 million Millennials will near retirement age in 30-40 years, and today's GenXer in about 15-25 years. If you're like many of my clients, you're starting to seriously think about your own financial planning. And with so many Boomers ill-prepared for retirement, you're not just having to think about your own financial well-being, but almost half of you will find yourself needing to help support your parents and other family members financially.

It pays to know what resources are available. Social Security pays for retirement, disability, and survivorship benefits through payroll taxes.  Many people only start thinking about it as they near retirement age, but early planning can help you maximize the amount of social security you receive. The Social Security system can be confusing, so be certain to discuss your personal situation with a financial advisor for individualized advice.

To help you with the basics, let’s take a look at some of the important things that can impact your (and your parents') Social Security today.

Your Social Security retirement eligibility is determined by your work history. To be eligible for retirement benefits, you must have earned a minimum number of credits over the course of your working life.  Your total yearly earnings are used to calculate the number of credits you have.  Everyone can earn up to four credits per year, and it takes a maximum of 40 credits to receive retirement benefits through Social Security.  For 2017, the amount needed for a single credit is $1,300.  You will receive one social security credit for each $1,300 of your net earnings this year, up to the maximum of four credits.  The amount needed for a credit increases slightly each year based on the overall increase in the average wage.
Your retirement benefit amount can change based on work experience, earnings, and age.

The amount of retirement benefit you receive from social security is determined by your work experience, your average earnings over a span of 35 years, and the age at which you choose to begin receiving retirement benefits.  Your highest earning 35 years are averaged and divided by the number of months in the 35 years to arrive at Average Indexed Monthly Earnings (AIME).  If you do not work that long, zeros will be used for any years less than 35.  For example, if you work 30 years, five zeros will be used when calculating your benefits. Thus, if you have almost made it to 35 years of work experience, it may be beneficial to continue working.

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