When you retire, you will no longer have an income from employment. Your retirement benefits will be your only source of income.
It is crucial to understand how your benefits are calculated and what factors affect them. Your retirement benefits depend on your earnings history.
The higher your earnings, the higher your benefits will be. In addition, the longer you work, the higher the amount.
However, you can choose to receive your benefits either in a lump sum or in monthly payments. If you choose monthly payments, the calculations depend on your life expectancy.
The longer you live, the higher your monthly benefits will be. You can also choose to have your benefits paid to a survivor after you die, reducing the amount. The beauty is that the government offers various benefits to retirees to supplement their incomes.
1. Social Security
The Social Security program is the largest source of retirement income for Americans. You must have worked and paid Social Security taxes for a certain period to receive benefits.
However, even if you have not worked for many years, you may still be eligible to receive some benefits.
Considerations before Starting to Receive the Social Security Benefits
Some people choose to start receiving their social security benefits upon eligibility, but you can wait until you're 70 years old to receive the full benefits.
The longer you wait, the higher the monthly payments. It's advisable to consider your income before starting to receive the benefits. If you're still working and receiving a paycheck, you may wait unless you need the money to supplement your income.
Remember that you cannot change your mind once you start receiving social security benefits.
Retirement Benefits for Children and Spouses
When workers retire, their retirement benefits may continue to be paid to their eligible children and spouses. If the retiree dies, their surviving spouse and children may then be eligible for survivor benefits.
To qualify for retirement benefits, here’s a quick overview:
For Children:
- Age Limit:
- Under 18: Yes, unmarried children under 18 are generally eligible.
- 18-19: Unmarried children aged 18-19 may be eligible if they are full-time students in an elementary or secondary school.
- Disability: Unmarried children of any age may be eligible if they have a disability that began before they turned 22.
For Spouses:
- Age and Marital Status:
- Unmarried: Yes, the spouse must be unmarried.
- Age 62 or Older: Yes, eligible if unmarried and at least 62 years old.
- Caring for a Child: Eligible if unmarried and caring for a child of the worker who is:
- Younger than 16
- Disabled
Social Security Benefits Application Procedure
The earliest you can apply for social security benefits is at age 62. However, if you want to get the most out of your social security benefits, you should wait until you reach your full retirement age.
You can apply for social security benefits online, by phone, or directly at your local social security office. The process takes about 10 minutes. You will need to provide some basic information, including your social security number, date of birth, and address.
Spouses should also apply for social security benefits, even if they are not currently working, by submitting a form SS-5. Children use form SS-5-C to sign up for benefits.
After application, the social security administration will process your application and send you a letter with your social security number and the amount of your benefits. If you succeed, you will start receiving them the following month.
2. Pension Benefits
There are two types of pension benefits: defined benefit; and defined contribution.
With a defined benefit plan, your employer agrees to pay you a certain amount of money each month when you retire, depending on salary, years of service, and age.
With a defined contribution plan, you and your employer contribute a certain amount of money monthly to your retirement account.
The two represent many other retirement benefit plans in how each plan is structured, funded, and administered. Your financial situation and investment objectives determine which type you choose.
Read more about the difference between defined benefit plan vs defined contribution plan here.
Speak with a financial professional to help you make the best decision for your retirement planning, and leverage the government's resources to supplement your retirement income planning.
