Social Security Options and Their Requirements
- Like Social Security benefits, you still need a certain number of credits to qualify for disability
- If you are divorced you can still qualify for spousal benefits
- Medicare is broken into four parts, each of which covers a different level of healthcare related expenses
In addition to offering a monthly paycheck to qualified Americans during their retirement years, the Social Security Act also includes disability, spousal, survivor, and medical (Medicare) benefits. Below, we broke down what makes these benefits different and how you can determine if you qualify.
Social Security defines disability as being unable “to engage in any substantial gainful activity (SGA) because of a medically-determinable physical or mental impairment(s) that is expected to result in death, or that has lasted or is expected to last for a continuous period of at least 12 months.” Like standard Social Security benefits, you still need a certain number of credits to qualify. In this case, that number depends on the age at which your disability started. We’ve outlined a few situations below, though this doesn’t cover all situations.
Your spouse can qualify to receive Social Security benefits based on your work record. For instance, your current spouse – even if he or she has never contributed to Social Security through payroll taxes – may still be eligible to receive spousal benefits.
There are some limitations, of course. The earliest that someone can claim spousal benefits is age 62. However, an individual who takes spousal benefits that early will receive a reduced stream of income. On the other hand, a spouse who waits until Full Retirement Age to claim those benefits is eligible for 50% of the spouse’s income benefit – the maximum spousal benefit amount. It’s important to note that spousal benefits do not earn Delayed Retirement Credits, which provide you a certain percentage increase if you delay your retirement beyond full retirement age.
If you are divorced, you can still qualify for spousal income benefits based on your ex’s work record, even if he or she has remarried. However, you have to meet the following conditions first:
- Your marriage had to have lasted at least 10 years;
- You must also be unmarried;
- At least age 62 or older;
- Your ex-spouse must be entitled to receive Social Security benefits, and
- The benefit you would otherwise receive under your own record must be less than the benefit you would receive based on your record.
If a person works 10 years and pays into Social Security, but passes away, certain family members are able to collect survivor benefits.
Medicare is federal health insurance for people age 65 or older, younger people with certain disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD).
The credits you earn during your working years count towards Medicare once you reach age 65. However, those collecting disability benefits for at least two years may be eligible for Medicare at an earlier age. And for those with permanent kidney failure or Lou Gehrig’s disease, early coverage is available and doesn’t require two years of disability.
Medicare is broken into four parts, each covering a specific service. However, it’s important to check with your doctor to determine which parts of Medicare you need. At its core, here’s what each part covers:
- Part A: Hospital Insurance (inpatient hospital care, care in a skilled nursing facility, hospice care, and certain home health care)
- Part B: Medical Insurance, which covers certain doctors’ services, medical supplies, preventive services, like vaccines, and outpatient care. Note: The costs of Part B (like premiums and deductibles) are automatically taken from your benefits.
- Part C: Medicare Advantage Plans, which are private company Medicare health plans that contract with Medicare to provide your hospital and medical insurance, and prescription drug coverage. Out of pocket costs here vary, and depend on factors, such as the services you need and structure of the plan you choose.
- Part D: Prescription Drug Coverage
The Three-Legged Stool
The old retirement adage says that we should use the three-legged stool approach to prepare for retirement:
- Social Security – This is the government’s retirement plan for us. As long as you’re working (to earn the credits required addressed above) and paying taxes, you’re earning Social Security credits. When you retire, you’ll start receiving monthly Social Security income that will continue for as long as you’re alive.
- Pensions – This is the form employer retirement plans used to take. They provided a steady monthly paycheck no matter what happened in the market and no matter how long you lived. Because Social Security only covers, on average, 40% of one’s retirement expenses, people leaned on pensions for the rest. The problem today is that the second leg of the three-legged stool is wobbly or gone. Instead of offering pensions, employers are providing 401(k)s and matching contributions, which helps with the third stool.
- Personal Savings – So that you have access to money outside of, and beyond, monthly Social Security and pension checks, you need to save on your own. This money is generally invested differently to serve two purposes. First, money invested in liquid money market or savings accounts provides a cushion and access to extra cash in case of emergency. Second, money beyond that can be invested in the market for a high potential return. This is the money you’re comfortable losing.
How to Supplement Your Social Security
According to the Social Security Administration, individuals aged 65 and over in the top quartile for income (an average of $78,180) received only 18% of their income from Social Security. So where does the remaining 82% come from?
1. Enroll in the Personal Pension
Your Personal Pension is backed by insurance companies which guarantee that for every dollar you contribute, you will receive a certain amount of income every month starting when you retire. Unlike an income annuity, the Personal Pension allows you to contribute incrementally, in smaller amounts and at a younger age, similar to the way you’d put aside money in your savings account or 401(k).
2. Purchasing an income annuity
Similar to the Personal Pension, income annuities provide a guaranteed lifetime stream of income during your retirement. However, instead of contributing over time, you pay a lump sum upfront to purchase your annuity from an insurance company. Then, the insurance company sends you a series of payments for the rest of your life.
How Can I Start a Personal Pension?
A Personal Pension is a contract between you and top rated insurance companies. By making contributions to your Personal Pension over time, you develop a portfolio of guaranteed income available in retirement. Blueprint Income offers a Personal Pension account with the lowest minimum, $5,000. After opening an account, you can make subsequent contributions of as little as $100, each of which will increase your pension check.
Here you can see what contributing to a Personal Pension will guarantee you in retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit.
You can continue with the enrollment process on your own or fill out the information to have one of our specialists follow up with you by starting with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.
How Can I Purchase an Income Annuity?
At Blueprint Income, we offer annuities from more than 15 top rated insurance companies. Click below to get real-time personalized quotes.
From there, you’ll get access to our annuity guides and team of specialists to help you analyze your retirement finances and walk you through the application process.