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Guidelines for Making Well-Informed Decisions
When it comes to thinking about the part Social Security plays in your retirement plan, most of your concerns probably relate to two main questions:
1. How much can I expect to receive? (Determining amount of benefit)
2. What is the best age for me to begin? (Determining timing of benefit)
Unfortunately, the only simple answer to most Social Security questions is, “It depends.” The benefit each person receives is relative to both his or her earnings history and the choice he or she makes about the age at which benefits begin. Throw in the fact each person approaches Social Security with a different set of financial circumstances, tax issues and other onsiderations, and you really have a lot to think about.
This “relative” nature of Social Security makes your decision about Social Security a complex one.
However, this complexity can be seen as a positive instead of a negative. The good news is, if you understand some basic concepts, you can make well-informed decisions to help you optimize both the amount and the timing of your benefit.
A good source of information about the Social Security benefit you personally may receive is the Social Security Statement mailed to you by the Social Security Administration each year for workers age 60 and older. The Social Security Administration has suspended paper mailing of Social Security Statements for
U.S. workers between the ages of 25 and 60. If you are between these ages you can access your statement online at www.ssa.gov by creating your own Social Security account. We also recommend verifying your Earnings History annually, as your retirement benefit will be based on this record.
The rest of this brochure provides an overview of the basic concepts you need to understand in order to make well-informed decisions about Social Security. If you have any questions about this material or want help making decisions about Social Security, your financial advisor can talk to you about the role Social Security plays in your retirement plan.
What You Need to Know About Determining the Amount of Your Benefit
Funding Your Benefits
Reduced to its basics, Social Security is a trust administered by the Federal government through which current workers and their employers fund benefits paid to current retirees. The money you and your employer pay into Social Security is used now to provide benefits. It is not set aside in an account waiting for you. As a corollary, the benefits you may receive upon retirement are funded by workers and employers paying into the trust after you stop working.
Key take away — Social Security is a “pay as you go” system.