Understanding Social Security

How does Social Security work?

Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most – at retirement or when you become disabled. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth and the type of benefit that you’re applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

Social Security eligibility

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to four credits per year, depending on the amount of income that you have.

Your retirement benefits

Your Social Security retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving Social Security retirement benefits also affects your benefit amount. No matter what your full retirement age is, you can begin receiving early retirement benefits at age 62.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive can grow by as much as 8 percent annually. That’s because you’ll receive a delayed retirement credit for each month that you delay receiving retirement benefits up to age 70. The amount of this credit varries, depending on your year of birth. The typical break-even age for delaying Social Security benefits is age 81. If you live past 81, you will receive more from Social Security over your lifetime by drawing at age 70 than drawing at any other age.

Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The Social Security Administration defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year.

Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Each family member may receive a benefit that is a much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive, based on your earnings record, is about 150 to 180 percent of your full retirement benefit amount.

Survivor benefits

If you are divorced or have survived your spouse, there are certain circumstances that allow you to draw your former spouse's Social Security benefit. This can be done if their benefit is greater than yours or to allow you to delay taking your personal benefit to allow it to grow.

Applying for benefits

If you have more questions regarding Social Security and your Social Security benefits please contact a CFS Financial Advisors at Denali today. Your advisor can help you determine if you can afford to wait to draw Social Security. In more complicated cases, they can provide you with questions to ask Social Security that will help you maximize your benefits.

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*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/ SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members.

For specific tax advice, please consult a tax professional.

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