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Social Security Basics for Dairy Farmers [Part 2]*  

Warren Schauer
Extension Business Management Educator

What about Retirement?
A national poll found that 75% of U.S. workers worry about not having enough money to live comfortably in retirement. This percentage is probably even higher among farmers.

A financial advisor's rule of thumb to clients is that they will need about 70% of pre-retirement income to live comfortably in retirement. Social Security only replaces about 41% of an average wage earner's salary.

Currently, you can retire at age 62, even if your full-retirement age falls between 65 and 67. But the full-retirement age is increasing for those people born after 1938. If your full retirement age is older than age 65, you can still retire at age 62. But the reduction in your benefit amount will be greater than for people who reached full retirement age at 65. In addition, if you delay retiring until after your full retirement age, “delayed retirement credits” will boost your monthly benefit amount.

Here’s How it Works
If your full retirement age is 67, the reduction for starting your benefits at age 62 is about 30%; it's 25% at age 63; 20% at age 64; 13% at age 65; and, 6% at age 66.

As a general rule, early retirement gives you about the same total Social Security benefits over your lifetime but in smaller monthly payments. You have to take into account the number of monthly payments you will receive during your lifetime. Everyone needs to be aware of his or her retirement figures and check to see what benefits, if any, may be available at age 62.

The only other incomes that may affect your Social Security retirement benefits are wages or self-employment income. Everyone should strive to have other sources of retirement income such as investments, individual retirement accounts (IRAs), personal savings and/or 401(k) accounts, none of which have any impact on your Social Security retirement benefits.

The Importance of Disability
Imagine that tomorrow you're unable — by accident or medical condition — to perform even the simple indoor duties of managing your farm. Few agricultural-related careers offer employees a private long-term disability policy, but nearly all public workers have Social Security disability protection.

Under Social Security, workers are considered disabled if they can't do the work they did before and their medical condition doesn't allow them to adjust to other types of work. Such a disability must be expected to last for at least 12 months or to result in death, as Social Security doesn't pay any short-term disability benefits. Once benefits begin, they continue for as long as the worker is disabled and can't work.

The average monthly payment to a disabled worker is $1,057. For a disabled worker with a spouse and one or more children, the average payment is $1,585. After receiving disability payments for 2 years, the worker becomes eligible for Medicare.

Survivor Benefits
Survivor benefits are monthly benefits paid continuously to a deceased worker's family. The value of such survivor benefits for an average wage earner that dies and leaves a spouse and up to two children is equivalent to a $403,000 life insurance policy. The difference is that the Social Security benefits are paid monthly, not in a lump sum.

The average monthly payment for a family consisting of the surviving spouse with two children is $1,747/month. The payments increase based on the annual cost-of-living index, which is something few private insurance plans offer.

Children age 18 or younger, or 19 but still in high school, are eligible for survivor benefits. Eligibility for survivor benefits also applies to a child who is 18 or older but becomes disabled before age 22.

A surviving spouse who is disabled or caring for children under age 16 (or adult children who were disabled before age 22) may receive benefits depending on their income from wages or self-employment. The surviving spouse (age 60 or older, or 50 or older and disabled) also may receive benefits.

Conclusion
While this isn't an all-inclusive discussion of your Social Security benefits, it should aid you in understanding the benefits your tax money can provide. Depending on your age, past earnings and family composition, Social Security benefits will be a little different for all of us.

For more information, log on to www.socialsecurity.gov or contact your local Social Security office.

* This concludes the two-part series the first of which was published in October 2011.

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Michigan Dairy Review is published and mailed to all Michigan dairy farmers and individuals working in allied industries. With its ever increasing on-line presence, the MDR target audience has spread beyond Michigan and the U.S.; today electronic subscribers are located in places such as Australia, The Scandinavia, Italy, Mexico, Ireland, Peru, and New Zealand.  

The MDR is the primary communications vehicle for research findings, extension programming, and teaching between faculty and staff in MSU dairy programs and the dairy industry. The MDR web site is paid for by the C. E. Meadows Endowment.

January 2012 Topics

Calving Pen Alternatives

Intensified Feeding Programs for Calves

Right to Farm: Site Selection

Treatment of Milk House Wash Water

Diagnostic Tests and Strategies for BVDV

Landowners: Oil and Gas Leases

Livestock Gross Margin [Pt 2]

Social Secuurity Basics [Pt. 2]

What BOTF Participants are Learning

MSU at Nationals Dairy Challenge

2012 Winter Dairy Program