Claiming Social Security: The Most Popular Questions
Category: Financial and taxes in retirement
August 14, 2019 — Some of the questions about Social Security that come up most frequently concern claiming benefits. People are confused or unsure about when they can claim, how much they will receive, spousal benefits (including those for divorced people), special filing strategies, etc. This article will go over some of those questions and, hopefully, provide helpful answers.
When can I claim Social Security retirement benefits? Most people have a pretty good idea of the answer to this question – the earliest you can claim is age 62. The longer you wait to claim, the higher your benefit, up until age 70.
What is my “Full Retirement Age” (FRA)? This is the age when you fully qualify for your Social Security benefits. For people born between 1943 and 1954 the FRA is age 66. For those born in 1955 or after, it increases two month per year until it reaches age 67 for those born in 1960 or later. Note that “Full” is not a totally logical term, since if you delay collecting your benefits past your FRA you will get higher than “full” benefits anytime up to age 70.
Should I delay claiming my benefit? This is probably the ultimate Social Security question, with a wide range of opposing answers from financial experts. Our opinion at Topretirements is that delaying as long as possible is better, provided you don’t otherwise need the money to live on and you have reason to believe you will live to something close to your “breakeven” point (see below). If you delay you and your surviving spouse will get a much bigger monthly benefit, adjusted for inflation, than if you collect early. It is a modest but guaranteed form of insurance against outliving your money in the event you live to a very old age.
The argument for taking Social Security early is that you will have at least get some money if you die soon after you retire. Those who advocate waiting would counter that if you claim early and you and/or your spouse live into your late 80s or more, you will lose out on tens of thousands of dollars that you might have really needed. Talk to your financial advisor and see what he or she thinks – there are many opinions on the subject.
What is the “breakeven” point for delaying? The breakeven point is the date where the amount you would have collected in benefits is the same, regardless of when you started collecting. Many people are proud to tell you that they have figured out the breakeven point. Not all of them have done it correctly. Social Security is indexed against inflation, for example, but that is often left out in the calculation. How long your spouse will live is another consideration. Implied rates of return are key also. When you take Social Security changes the breakeven point.
Andy Landis, author of Social Security” The Inside Story” gives a few examples. If a woman starts to take her retirement benefit at age 62, for example, her breakeven point might be age 78. Up until that age she would be ahead by starting benefits at 62 vs. waiting until her Full Retirement Age of 66. If she lives longer than 78, however, the better option would have been to wait until Full Retirement Age. If the same person starts collecting benefits at age 66, she is ahead until her breakeven point of 82.5; if she lives longer, waiting until age 70 to file would be a much better option. Different experts have different breakeven points, but give or take a few years, they are in the same ballpark.
Is Social Security going to run out of money? Social Security currently has trust funds that were built up since its inception from the surplus of payments coming in vs. benefits paid out. This year for the first time more retirement benefits are being paid out than come in. In 2034 the real problem begins. That is when the reserves in the retirement portion of Social Security (OASI) are exhausted and the fund must rely exclusively on taxes paid in from working people to cover promised benefits. Starting that year, unless something is done soon, Social Security will be able to only pay about 77% of promised retirement benefits.
Most experts believe that something will be done to avoid what could amount to throwing millions of Americans into poverty. Congressman Larson of CT (D) has proposed a plan that would gradually increase payroll taxes over a period of years and provide a modest increase in benefits. Under Larson’s plan people making over $400,000 would have to pay FICA taxes on all of their income. Currently that plan has many supporters but is not making much progress legislatively.
What kinds of spousal benefits are there? People who have been married at least one year can claim spousal benefits based on the earnings of their spouse. The benefits are only available if the other spouse is currently receiving benefits. The spousal benefit maxes at 50% if both members of the couple are at Full Retirement Age when they start collecting. When one member of the couple dies the other is generally entitled to 100% of the deceased member’s benefit, something that many early claimers fail to appreciate. Divorced spouses can also collect on their former spouse’s earning records, if the marriage lasted at least 10 years and the ex-spouse is at least 62. The ex-spouse does not have to be collecting yet. If a spouse collecting on an ex’s benefit remarries, that benefit goes away.
The File and Suspend strategy for claiming spousal benefits is no longer available. The Restricted Benefit is still available to people born before Jan. 2, 1954. In that case you can receive a spousal benefit if your spouse is already receiving benefits, but can delay collecting on your own earning record until age 70.
Is Social Security income taxed? It depends on your total income. People who rely totally on Social Security will probably not pay any taxes on it. For those with large incomes, as much as 85% of their benefits could be considered taxable.
For further reading
Turning 66 in 2019: Time Running out for Restricted Benefit
Take the Quiz: What Is Your Social Security Quiz
What You Think You Know About Social Security Could Hurt You
Comments? Please share your questions about Social Security in the Comments section below.
Comments on "Claiming Social Security: The Most Popular Questions"
Ralph says:
Just ab FYI. The spousal benefit option is still available if born before 1954. My spouse collects 1/2 of my SS payment monthly under this provision and can until she is70. Until then her SS benefit grows at 8% annually. Not much is said about this because most believe it was done away with under the last Administration but it was grandfathered in for those born before 1954.
Editor's note: Thanks Ralph. This is the "File and Suspend" strategy, and people born before 1954 are grandfathered in for it. But, if you haven't already taken it, it is too late.
Jini says:
Also be aware that if you have above a certain income 2 years before you retire - for example, high salary, big bonus, inheritance, lottery winnings - your SS earnings may be docked for high Medicare “premiums”. So if you’re lucky enough to have a high income, save some of that $ for when you start SD and Medicare! Apparently sometimes people spend, for example, an inheritance then are shocked when 2 years later they need that for Medicare premiums - and SS will be docked if not paid. No one at SSA could explain why I got no SS for months until finally one smart employee figured it out. Lucky we had savings!
Carl J says:
So it sounds like one more reason to start collecting early; spousal survival benefits. If both spouses wait until full retirement age and one spouse drops dead before that date, the surviving spouse would lose out on the deceased survival benefits.
Editor's note: The surviving would get either their own benefit of that of the deceased spouse, whichever is higher. Even the spouse dies before their FRA, the survivor would be getting a benefit higher than if they had filed earlier.
Kate says:
Jini and others -- A possible way to avoid the higher Medicare premiums based on prior 2 years earnings after your retirement is to file a one-time form SSA-44. This form will advise Medicare of your "life-changing event" (retirement), so that your prior 2 years of earnings will NOT be used to calculate your Medicare payment. Instead, your Medicare payment will be based on your anticipated retirement income.
Not all Social Security representatives seem to be aware of this form. I retired last year, and had taken this form into my local office and filed it in person with a statement from my employer confirming I retired. My Medicare payment was adjusted downward. I've gotten letters twice since then, trying to adjust my payment back up. Each time, I've taken a copy of my original SSA-44 into my local office and the payment was adjusted back down. It's been worth the minor aggravation.
Carl J says:
Confused by the editors reply to my previous comment. The article states that spousal benefits based on the earnings of the other spouse but the other spouse must currently be collecting the benefit. If both spouses are waiting until FRA to collect and one spouse dies prior to FRA, how can the surviving spouse collect a spousal benefit? What am I misunderstanding?
Editor's note: I see the confusion. Here is what we think happens. Even though the deceased spouse hasn't filed, the survivor would still be entitled to benefits based on the deceased spouse's earning record (or the survivor's record if higher). We can't find a specific example of how this works, but it seems logical that the benefit would be based on the deceased spouse's record at the time of death or when the survivor files for benefits.
Dave M. says:
My wife died a few years ago at the age of 56. I am now 63. I filed for survivors benefits (last year) based on her work record and now receive $775 a month. In a few years, I will cancel that and file for my own benefits based on my work record. I will then get $2,100 a month at age 66 (FRA) or $2,700 a month if I wait until I'm 70.
Pam Thomas says:
Can't overestimate the importance of being aware of spousal benefits if you were born before 1954. Few couples seem to realize they have this option. The key for us is that our maximum monthly SS benefits are reasonably close in dollars. So our strategy is to have the spouse with the lower payment (in our case, wife) begin taking the full benefit, while the spouse takes the spousal benefit (50 percent). The higher monthly benefit continues to grow. Within 2.5 years, that higher monthly benefit's survivor benefit will exceed the maximum benefit that the lower monthly payment could possibly grow to. It's like getting a few free years of half a benefit. In my husband's 69th year he will take his own full benefit, which is the amount I will get if he dies. Waiting has allowed that survivor benefit to grow. It's confusing, but it can be worth puzzling out. And no one tells you about this unless they're doing it themselves!
JCarol says:
Exactly, Pam. My husband and I are using the same strategy for the same reasons. I learned about it from Laurence Kotlikoff's book, "Get What's Yours: The Secrets to Maxing Out Your Social Security".
Like many of life's decisions, the more research we do on the front end the fewer regrets we are likely to have on the back end.
Louise says:
Spousal benefit is going away..
ttps://www.msn.com/en-us/money/retirement/this-social-security-spousal-rule-is-officially-finished-in-2024-but-these-3-strategies-remain/ar-AA1mRJBF?ocid=hpmsn&cvid=c6b33dec453342bd87fb642c2c473fe6&ei=59