(LifeWire) - Social Security income is -- or should be -- a crucial component of any investor's retirement planning.
According to the Social Security Administration, about 40% of the average retiree's income in the United States comes from Social Security payments.
That, by anyone's measure, is worthy of attention. But it's also worth noting that Social Security never was intended to be the sole source of retirement income for anyone. To reach any sort of a comfortable retirement income -- which most financial planners estimate to be at least 70 to 80% of your pre-retirement income -- you will probably have to include employer-sponsored pensions and retirement savings of your own, while depending on Social Security to provide a solid base.
Who's Eligible for Social Security
About 96% of American workers are covered by Social Security, according to the Social Security Administration, and many more, including non-working spouses, are eligible for payments.
"Covered," however, is not the same as being eligible to collect benefits. For that, you or your spouse must amass about 40 credits, which takes about 10 years of work.
Benefits
Your benefits will depend on how much make during your lifetime. The Social Security Administration bases your monthly benefit amount on the average pay you made in your top 35 working years. Every year, about three months before your birthday, you should receive a statement from the agency that estimates your potential benefit under different scenarios.
You can also request a statement online, or use a Social Security Administration calculator to get an estimate of future benefits based on your current income. Married people qualify for 50% of their spouse's benefit if their own incomes were much lower, or for a benefit based on their own income. The same holds true for divorced spouses, as long as the marriage lasted 10 years or more. Widows and widowers can also qualify.
Anyone who is eligible can start taking benefits at age 62, but the benefit amount is reduced until you reach full retirement age, which depends on your birth year. You can also get the highest benefit possible if you wait until age 70. Another Social Security Administration online calculator can help you find your own full retirement age.
When To Take Benefits
You can apply for benefits online or visit a Social Security office in person.
You should consider a couple of points before you decide whether to start your benefits early at age 62 or wait for full retirement:
- Your income needs: If you were born between 1943 and 1954, for example, and start taking benefits at 62, your monthly payment will be permanently reduced to 75% of what it would be at your full retirement age of 66. Qualifying spouses would get only 35% at age 62 instead of 50%.
- Work: If you start benefits at 62, $1 will be deducted from your benefit for every $2 you make over the annual working income limit, which stands at $13,560 for 2008 and $14,160 for 2009. After you reach full retirement age, that penalty goes away entirely.
