With more than 34 million Americans receiving Social Security benefits, Missouri residents may wonder how the system works for them. Social Security provides ninety percent of income for one-third of retired Americans. One-fifth of retired Americans receive no income other than Social Security. With so many people dependent on Social Security to cover most of their post-retirement expenses, it is important to understand how the system works.
First, a person's retirement benefit is based on earnings during employment. Social Security compiles a list of each citizen's lifetime earnings. Wages from earlier in the career are adjusted for inflation. The higher the average monthly earnings, the more the Social Security benefit will be. Social Security applies a benefit formula to those average monthly earnings. That amount can be adjusted based on a person's age at retirement and other factors. Dependents and surviving family members may also be entitled to benefits based on that amount.
Those with higher earnings may experience more of a pay cut when they start Social Security than those with lower earnings and therefore may need to save more on their own. The benefit is based on the last 35 total years of employment, which means that a person who continues working may be able to replace a lower-earning early year of employment with a higher-earning later year. Also, people who suspend their benefits to collect them later in life may be entitled to receive more in the long run.
The Social Security system can be confusing. An attorney may be able to help individuals determine the best age to retire in order to maximize benefits. It may also be possible to help apply for benefits, dispute a determination or go to court to ensure the right amount is paid.
Source: Marketwatch, "8 Social Security basics you need to know", Kenn Tacchino, June 16, 2014