Introduction: Separating fact from fiction.

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Dear Reader

In recent years, there has been a lot of noise around Social Security in the media. Often these headlines can cause confusion and doubt — especially if you are personally approaching retirement. Many people count on Social Security benefits as a key part of their retirement planning. When those benefits are called into question, you may wonder about your financial security in retirement. How can you separate facts from fiction to make the important decisions that lie ahead? That’s where Simply Speaking: Social Security can help.

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With Simply Speaking, you get clear answers to complex questions, including:

  • Will Social Security be there when I need it?
  • How are benefits determined?
  • How can I make the most of the benefits available?

You may be wondering...

These questions and more are addressed in this guide. While the Social Security program provides different types of benefits, this guide focuses on the retirement benefit. With a better understanding of this important component of your retirement, you can have a more informed conversation with your financial advisor about your options for a custom, comprehensive retirement strategy. With the right plans in place, you can enjoy more of your retirement and worry less.

The history of
Social Security

The Social Security Act began in 1935 as a retirement program. Benefits were paid to a primary worker to supplement their retirement income and help cover living expenses such as healthcare, food and other basic expenses for those who didn’t have a pension. In 2013, approximately 37 million American retirees and their families received about $47.4 billion in monthly benefits.1


  • 1935

    Signed into law by President Franklin D. Roosevelt

  • January, 1937

    Social Security taxes were collected for the first time

  • February, 1937

    Lump-sum payments began

  • 1939

    Program expanded to include survivor benefits or benefits for retiree's spouse and children

  • 1940

    Regular, ongoing monthly benefits began

Social Security’s role in retirement today

Social Security is just one of several sources Americans are relying on for retirement income. Personal assets are becoming more important as traditional pensions continue to decline. The proportion of private wage and salary workers participating in traditional pension plans fell almost 50%, from 38% to 20%, between 1980 and 2008.2

2011 Overall Mix of American Retirement Income Sources

Social Security Press Office, Fact Sheet, 2013
The Disappearing Defined Benefits Pension and Its Potential Impact on the Retirement Incomes of Baby Boomers, Social Security Bulletin, Vol. 69 No. 3, 2009
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Will Social Security be there for my retirement?

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While it is true that there are fewer workers funding the benefits and greater numbers of people in line to receive them, adjustments have been made, and will continue to be made, to help preserve the program. Simply speaking, Social Security is not expected to disappear. However, the parameters for benefits have changed and may continue to change as benefits adjust to new demographics and life expectancies. This is why Social Security serves us best as a component of a larger retirement strategy with different income sources, not as the sole source of income in retirement.

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How is Social Security funded?

Social Security benefits are funded by today’s workers and their employers, who jointly pay Social Security taxes on earned income up to a certain amount —$117,000 in 2014. Most years, both employee and employer contribute 6.2% of earnings up to the limit.

How each dollar is used1

What’s the challenge?
How can the system survive?
Social Security, Understanding the Benefits, 2013.
Social Security Trustee Report, 2012.
3, Social Security is here to stay, April 3, 2013.
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What’s the challenge?

In 1945, there were 41.9 workers per beneficiary. Today there are 2.8 workers for each beneficiary, and the ratio continues to drop. By 2033, there are only 2.1 workers expected for each beneficiary.2 With fewer workers paying the taxes to support a greater number of retirees, the system can no longer support current benefits from current income.

How can the system survive?

Social Security assets have been, and will continue to be, managed for the long term. In fact, every year Congress is presented a report on Social Security viability for the following 75 years. Problems can be identified and addressed.

Are my benefits based on how much I earned while working?

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While true to a point, it would be misleading to think that Social Security can replace your annual salary. Simply speaking, the formula used for benefits does take into account lifetime earnings. However, it is more complex than that, and there is a maximum benefit amount, based on your age and lifetime earnings.

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  • 64 Years Old
  • 65 Years Old
  • 66 Years Old

What is my full retirement age? Are benefits reduced if I start sooner?

Full retirement age is the age at which you qualify for full benefits without a reduction. It is based on the year you were born. For most people nearing retirement today, it is between ages 66 and 67. Reduced benefits can begin at age 62.

Full retirement age and early benefit reductions

Year born Full Retirement Age Permanent reduction in benefits if started at age 62
1943-1954 66 25.00%
1955 66 and 2 months 25.83%
1956 66 and 4 months 26.67%
1957 66 and 6 months 27.50%
1958 66 and 8 months 28.33%
1959 66 and 10 months 29.17%
1960 and after 67 30.00%

How much
pre-retirement income
does Social Security

The median income replacement rate provided by Social Security is about 40%.1 But the number varies, decreasing as earnings increase. Even though higher earnings typically result in higher benefit payments, those payments comprise a smaller percentage of the earnings on which they are based.

However, even these estimates can be deceptive. Popular estimates commonly cite roughly 70-80% of all current income as adequate replacement in retirement. The Social Security estimate is based on your lifetime earnings. Assuming earnings have increased over your lifetime, this fact diminishes the replacement value of Social Security in relation to recent earnings.2

2013 Replacement Rate Examples at Full Retirement Age

Annual Income

  • LOW
  • LOW
  • LOW
  • HIGH

Benefit Payout

Replacement Rate

  • ($11,832)


  • ($19,499)


  • ($25,873)


  • ($31,224)


Social Security, Understanding the Benefits, 2013
A lternate Measures of Replacement Rates for Social Security Benefits and Retirement Income, Social Security Bulletin, Vol. 68, No. 2, 2008
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When should I file for Social Security benefits?

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Your ideal timing for benefit filing is based on a variety of personal factors. The earliest you can collect benefits is age 62; the latest is age 70. Simply speaking, before deciding to collect, it is important to consult with your financial professional, who will look at your overall financial situation to help determine the best approach.

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Can my marital status affect when I should file?

If you are married, it’s important to look holistically at both spouses to determine the best strategy for you as a couple.

Will I make up any increase in deferring by collecting a reduced benefit for a longer period?

Starting benefits at age 62, as soon as you can, results in a reduction of at least 25% of the benefit. It’s a numbers crunching game to determine the trade-off and at what point deferring replaces the lost income from not starting sooner. Unfortunately, when you will die plays a role, and that obviously will remain an unknown factor. For a realistic assessment, consult a financial professional.

What is the maximum monthly benefit?

The maximum benefit allowed varies based on when you retire. As you defer past your full retirement age, benefits grow 8% annually if you were born after 1943. In 2014, the maximum monthly benefit is:1

The maximum monthly benefit

  • $1,992 at age 62
  • $2,642 at your full retirement age
  • $3,425 at age 70
Annual growth upon full retirement age if you were born after 1943 8%

Can the benefit increase once it begins?

The benefit will generally increase yearly to help you keep up with inflation. The adjustment is a cost of living adjustment (COLA). It is not designed to increase the purchasing power of your benefit, but rather to maintain it in the face of rising costs. The increase is based on changes in the Consumer Price Index. The average COLA increase over the last 10 years is 2.50%. A COLA of 1.50% was announced on October 30, 2013, for the coming year.1
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Are Social Security benefits considered taxable

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This is partially true. Simply speaking, a portion of your Social Security income is likely to be taxable.

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How much of the benefits are taxable?

The extent to which your benefits will be taxable depends on your individual situation, including your income and tax filing status. For high earners, up to 85% of Social Security benefits may be taxable.

How is the taxable income determined?

Based on Internal Revenue Service (IRS) Federal Tax return rules, your amount of taxable benefits can be estimated using the table below. To calculate your Combined Income, take your adjusted gross income plus non-taxable interest, such as municipal and U.S. Bond interest, and then add one-half of your Social Security benefits.

Taxable Benefits
for high earners Up to 85%

% benefits subject
to income tax
Individual $25,000-$34,000 up to 50%
More than $34,000 up to 85%
Joint $32,000-$44,000 up to 50%
More than $44,000 up to 85%
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Can my spouse qualify for benefits based on my employment history?

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This is quite literally half true. Simply speaking, your spouse is entitled to the greater of their own benefit or an amount equal to half of your Social Security benefit, provided the spouse is at least age 62.

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When can spousal benefits begin?

Spousal benefits can’t begin until you have filed for your own benefits. If a spouse needs to collect, but you still want to defer, you can file and immediately suspend your claim to continue accruing additional benefits for yourself. You must be at least your full retirement age in order to suspend benefits, though. In addition, a spouse may claim spousal benefits even if you have died.

How is this affected by when I file for benefits?

Spousal benefits are driven solely by the spouse’s age. The benefits are not affected by when you choose to collect benefits relative to your own full retirement age. The spousal benefit amount is calculated using the value of your benefits at your full retirement age, regardless of when you actually file. With spousal benefits, no additional benefit is provided for a spouse waiting beyond full retirement age.

Full retirement age (FRA) effect on spousal benefits

If spouse is filing
for benefits
Prior to FRA At FRA / After FRA
1943–1954 Reduced payout Full spousal benefit

If my spouse files early, are my benefits reduced too?

Spousal benefits do not affect the value of your benefits. For instance, your spouse collecting early will not affect the amount of your benefit.

What if I am divorced?

Divorced spouses may be eligible for spousal benefits if you are entitled to retirement or disability benefits and:

  • Your ex-spouse is at least 62 years old
  • You were married for 10+ years
  • Your ex-spouse has not remarried
Even if you have not applied for benefits, if you can qualify to collect, your ex-spouse can receive benefits based on your record if you’ve been divorced for at least two years. Benefits collected by an ex-spouse have no effect on your, or a current spouse’s, benefits.
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How can I maximize my benefits?

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It is true that there are ways you can increase your benefit payments. Simply speaking, several factors within your control can affect your benefits payout, but you need to consider your personal situation, as it directly affects how effective a maximization strategy may be. In light of your overall financial picture, your financial professional can help determine if a strategy is right for you.

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What are some strategies for married couples?

There are a couple of popular strategies for married couples to consider when determining how to make the most benefits.

File and Suspend

Using this strategy, the higher-earning spouse files for benefits at full retirement age and immediately suspends those benefits, allowing the lower- earning spouse to begin collecting spousal benefits while the higher earner continues to build additional benefits. Benefits may not be suspended earlier than full retirement age. Remember, the spouse must be at least age 62 to collect spousal benefits.

This strategy only works if you can afford to put off receiving your benefits in favor of them increasing. Assume you are a high earner and have the maximum $2,642 monthly benefit at 66, your full retirement age. The monthly spousal benefit will be $1,321, half of your benefit at full retirement age.

Social Security File & Suspend Estimator

Primary Monthly Benefit Without Suspending


Spousal Benefit $1,321 Combined as Couple Without Suspending $3,963
Years to Suspend
Primary Benefit
  • 1
  • 2
  • 3
  • 4
  • Results of File & Suspend


    New Monthly Benefit $3,488 Percentage Increase 31.95%

    As a Couple

    Combined Monthly Benefits $4,809 Percentage Increase 21.33%

    This example is meant to simulate the estimated effect of benefit suspension and should not be relied upon for actual benefit calculation. Numbers may differ slightly from textual example due to rounding.

    Assumptions: Annual benefit growth of 8% during suspension, based on Social Security calculations for those born after 1943; age 66, full retirement age, for primary earner and a spouse of at least 62 years old upon initial filing. Benefits may not be suspended beyond age 70.

    • At age 66, you file and suspend your benefits.
    • Your spouse, who is at full retirement age, files for spousal benefits of $1,321— half of your amount.
    • Your spouse begins collecting.
    • At age 70, you begin to receive your benefits, which have grown to about $3,425.
    • You are now earning nearly 20% more as a couple — $4,746 combined compared to $3,963 had you not suspended.

    Double dip

    This strategy may help two spouses who have both qualified for benefits based on their own merits, though one has significantly higher lifetime earnings. In this instance both spouses waiting for full retirement age may not make the most sense.

    Using this strategy, the lower earning spouse activates benefits as soon as possible, accepting a reduced amount. The couple continues to collect this individual’s benefit until the higher earning spouse reaches full retirement age.

    At this point, if the spousal benefit is greater than the existing individual benefit for the lower earner, the higher earner may “file and suspend.” The lower earner then discontinues individual benefits in favor of the spousal benefit. The fact that the original individual benefit was started early has no effect on the amount of the spousal benefit.

    The amount of current income is increased, and by suspending, the higher earner’s benefits continue to grow as they are deferred.

    What are some strategies if I am single?

    There are more flexible strategies available to married couples, thanks to the spousal benefit option, but individuals can still do things to help maximize the benefit.

    Delay benefits

    Even though you can apply for benefits at age 62, wait until your full retirement age to avoid a benefit reduction. Wait even longer to increase your payouts.

    Limit additional earnings

    If you plan to continue working after claiming benefits, wait for your full retirement age to file. This way, you avoid having reduced benefits possibly reduced even further by the earnings test. After your full retirement age, you can collect benefits without a reduction due to your earnings.

    Additional questions you may have

    Can I work and receive Social Security benefits, too?

    Simply speaking, yes, you can. At no point do you forfeit all benefits for continued employment. Prior to your full retirement age, benefits can be reduced if you receive them while working. After your full retirement age (FRA), there is no reduction for additional income earned. The earnings limit is only applicable prior to your full retirement age.

    Current Age Benefit Reduction Earnings Limit
    Under FRA Nothing up to the earnings limit; $1 for every $2 earned above earnings limit $15,120
    At FRA, if starting benefits upon FRA Nothing Unlimited
    FRA birthday month (if already receiving benefits) and beyond Nothing up to the earnings limit; Lose $1 for every $3 you earn above the earnings limit $40,080

    Will Social Security continue to provide for my spouse when I die?

    Simply speaking, survivor benefits can vary widely and may not provide the level of financial resources you think. If your spouse passes away, the amount of the survivor benefits you can receive depends on a number of factors, such as whether you have reached your full retirement age and whether your spouse was collecting a full or reduced benefit.

    Here is a quick snapshot of survival benefits for spouses:

    • A one-time payment death benefit of $255 can be paid to you if you were living with the deceased
    • You may be eligible to collect 100% of your spouse’s monthly benefit at your full retirement age, or a reduced benefit as early as age 60; or, you will continue to receive your benefit, if higher, provided you are of age to collect benefits
    • No survivor benefits are paid if you remarry before age 60 and are still married. If you remarried before age 60 but that marriage has now ended, you may collect survivor benefits from a deceased ex-spouse
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    A financial advisor may help you plan for Social Security.

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    You are not required to have a financial advisor to collect Social Security. Simply speaking, though, a financial advisor can help you assess your overall situation and determine the most meaningful time for you to begin your Social Security benefits.

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    A financial advisor may help you plan for Social Security.

    A financial advisor will also help you look at your retirement as a big picture and identify ways in which to help sustain your standard of living with lifetime income for retirement. Your advisor can be an important resource in helping you understand:

    • The ins and outs of Social Security
    • The role it can play in your retirement strategy
    • Other sources of income you may need to rely on

    That’s Forethought

    Forethought Life Insurance Company provides a full suite of annuities and a leading preneed life insurance platform to help solve the pre-retirement, retirement and end-of-life challenges facing Americans today. A targeted strategy delivers multifaceted product lines to customers through key distribution relationships across the country.

    Experienced leadership and financial discipline underlie strong growth and success in the marketplace. Forethought is a subsidiary of Global Atlantic Financial Group Limited, a multiline insurance and reinsurance company with over $30 billion in assets and 10 offices. Global Atlantic was founded at Goldman Sachs in 2004 and separated as an independent company in April of 2013.

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    To learn more

    See how big a role Social Security will play in your retirement by completing this retirement income workbook. Then print it and bring it to your financial advisor to help make sure that you have a well-rounded strategy in place to meet all of your retirement needs.

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    To learn more about Social Security, visit