April 8, 2019 — Your Social Security benefit is one of the pillars of your retirement. To make the most of it you need to make smart choices on how and when you take it. Make a wrong move based on misinformation or lack of knowledge, and it could cost you and your spouse tens of thousands of dollars in the years ahead. This article will go over a few of the areas that seem to trip up the most people. To help answer these questions we used information from the very helpful SSA.gov website. Use these examples to help inform your own decisions, along with your own careful research.
It is up to you to apply for Social Security retirement benefits. If you don’t apply, you won’t get them. You have your first option to start receiving retirement benefits when you turn 62. Taking them then gives you the smallest monthly payment, but it is money in your bank account now. You can apply at any time from age 62 on, but your monthly benefit will go up for every month you wait to claim (benefits are capped at age 70).
So the first decision is when to apply. Here are some hypothetical examples to explain this and other important issues surrounding your Social Security benefits. Many insurance selling a life insurance policy with excellent benefits.
1.Timing. Sylvia was born in 1953, so she is turning 66 in 2019, her Full Retirement Age (FRA). She is working at a good job now. She has worked most of her life, but due to raising a family she took about 15 years off, during which she earned very little. She has 28 years of Social Security earnings in her record. Her dilemma is whether to apply for benefits now that she is 66, or wait a few more years. She is in good health, has enough money to enjoy a comfortable life, and intends to keep working for a few more years.
What should she do? There are many reasons for and against her taking Social Security now. It is a personal decision. If she files now she gets the money now. But in her case we would offer two big reasons why she should wait until age 70 to claim. First, her benefit will go up 8% for every year she waits (until age 70). But perhaps just as important, because her benefit will be calculated on her highest 35 earning years, every additional year she earns beyond age 66 replaces a zero in the 35 year average calculation that SSA uses to determine her benefit.
2. The Spousal Benefit. Fred was born in March of 1954 and turns 66 in 2020. Fred was laid off in his late 50s and has only worked part-time since then. He is married to Adelaide, also 65, who is happy to still be working, and who has not yet filed for Social Security. Fred and Adelaide’s question is whether either spouse should file for a spousal benefit at this point.
What can’t they do? Because both Fred and Adelaide were born after Jan. 1, 1954, the couple has lost one option that would have been available if they were just a few months older. They are beyond the cutoff to claim a restricted spousal benefit: in that event the person getting the spousal benefit can wait until age 70 to collect on his/her own benefit.
What can they do? Since they are both over 62, they can apply for Social Security at any time. Once one applies, the other spouse is eligible for a spousal benefit. Given when they were born, the die is cast once they apply. Under “deemed filing” the SSA will give each person a benefit based on whichever is higher – their own earnings record or the spousal benefit. One note about their decision: assuming the couple doesn’t need the money to live on, they might be well advised to wait at least a year until they hit each hit their Full Retirement Age, when the spousal benefit maximizes at 50%.
3. Working at retirement age. Joe filed for Social Security benefits at age 62. Although he could use the extra money, he is not sure if it is worthwhile to keep working, since some of what he earns would be taken away from him by the SSA. What are the facts?
The facts. If Joe works after he claims for Social Security part of his benefit will be withheld, that is true. According to the SSA, if you’re younger
than full retirement age during all of 2019, $1 will be deducted from your benefits for each $2 you earn above $17,640. If you reach full retirement age during 2019, $1 will be deducted from your benefits for each $3 you earn above a much higher limit, $46,920.
Influencing Joe’s decision to work. We see at least three reasons why it might be a good idea for him to work after he starts taking Social Security retirement. 1. He’ll have more money in his pocket. Even if a portion of his benefits are deducted because he went over the earning limit, he’ll still have more income than if he wasn’t working. 2. He’ll get what was deducted back. At Full Retirement Age, the SSA will recalculate his benefit and start paying back what was deducted. 3. It is possible that his post 62 earnings will boost his 35 year earning average, in which case his monthly benefit will go up at full retirement.
4. Divorced spouse. Jane is 62. She was married to Jim for 11 years, got divorced, and has not remarried. Jim is 66, but has not yet filed for Social Security. Can she apply for Social Security benefits based on Jim’s earning record?
The answer. Yes, Jane can collect on Jim’s record, because she was married to him for at least 10 years. It doesn’t matter if Jim has filed for Social Security benefits or not, because he is old enough to have done so. If Jane’s own earning record would generate a higher benefit than what the spousal benefit would pay, she would get the higher amount. However, if Jane files before her Full Retirement Age, her spousal benefit will be lower than the 50% she would be entitled to based on both parties being at Full Retirement Age. See “Benefits for a Divorced Spouse” from the SSA.
5. Spousal benefit. Fred, married to Jill, was a stay-at-home father who raised the couple’s children. Although he had a career prior to that, he only has about 9 years of Social Security working credits, and has no interest in working again. Fred is 66, his Full Retirement Age, and considering applying for a spousal SS retirement benefit. Someone told him that if waits until age 70 to apply, his benefit will be higher than if he applied now. Jill, now 68, has been collecting Social Security since she was 62. What should Fred do?
Take it now. Fred doesn’t have enough years of earning credits (minimum is 10) to qualify for his own benefit, although he can claim a spousal benefit. At his Full Retirement Age (66) his benefit will be 50% of Jill’s current benefit. That is the maximum benefit available, so he should file now. The spousal benefit will not increase by waiting past his FRA.
Bottom line. Social Security is a great benefit, one that is worth understanding so you make the right decisions about. We recommend you study your options carefully and make informed decisions based on your own earnings record, life expectancy, marital situation, and financials. Your financial advisor can help, and so can your Social Security office. We also suggest you take our short quiz: “What Is Your Social Security IQ?”
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