By Tony Kendzior, CLU, ChFC
These facts about Social Security are intended as general information for those planning to file for Social Security benefits. The idea is to help you get what you are entitled to and not leave dollars behind that can’t be recovered.
You should seek guidance from the Social Security Administration (SSA) regarding your particular circumstances. We encourage you to visit a local SSA office or visit http://www.ssa.gov and set up an online account.
It may be to your advantage to delay filing for Social Security benefits and rely on personal assets for several months before you file. Our hope is that you better understand and optimize your options before you retire.
A key takeaway from this is to understand that, given a fixed PIA, you can choose to take a smaller benefit for a longer period of time or a larger benefit for a shorter period of time. It all depends on when you die. These following facts are but a glimpse into the vast complexities of the Social Security system.
How do I determine what my estimated Social Security benefits will be at retirement?
It’s no longer the case that everyone gets a paper statement every year. Some do, most do not. Your best option is to go online at www.ssa.gov/myaccount/ and create an online account. Once you have your online account established, you’ll be able to access helpful information such as:
- Estimates of the retirement and disability benefits you may receive
- Estimates of benefits your family may receive when you retire or die
- Your lifetime earnings record according to Social Security
- The estimated Social Security and Medicare taxes you have paid
- The opportunity to apply online for retirement or disability benefits
- A printable version of your Social Security statement
How does life expectancy factor into what my benefits will be and how do I estimate my life expectancy?
A critical element when thinking about when to start Social Security benefits is how long you might live. According to the data collected by the SSA:
- A man reaching age 65 this year can expect to live, on average, until age 84.2
- A woman reaching age 65 this year can expect to live, on average, until age 86.7
- To get a more specific estimate of your projected life expectancy based on your current age, visit the life expectancy calculator on the SSA website at http://www.socialsecurity.gov/OACT/population/longevity.html
If , for example, you are in poor health and anticipate a shorter than average life expectancy, applying for Social Security benefits at age 62, even though they will be reduced for taking them prior to your Full Retirement Age (FRA), may make sense. Conversely, If you expect to live to average or beyond average life expectancy, applying for benefits at FRA or waiting until you are 70 to take advantage of potentially higher monthly benefits, may be to your advantage.
Will my retirement benefits be adjusted for inflation?
Automatic benefit increases , also known as costs-of-living-adjustment (COLAs), have been in effect since 1975. The purpose of these COLAs has been to help insure that an erosion of the purchasing power of Social Security and Supplemental Security Income (SSI) benefits will be minimized. The COLA for 2019 was 2.8%.
What is considered Full Retirement Age (FRA)?
FRA is the age at which a person first becomes entitled to full or unreduced Social Security retirement benefits. Age 65 was the full retirement age for many years. But now it has increased for those born after 1959 to age 67.
What is the Primary Insurance Amount (PIA)?
Your PIA is the dollar amount or number given to you by the Social Security Administration that you are entitled to receive at your FRA. The date associated with your PIA is your FRA. The amount of your PIA is a function of your earnings history from day one, and represents the average of the 35 highest earnings years in your earnings history. If you have less than 35 years recorded, then missing years are assigned a zero value, which effectively lowers your average. In like manner, later years in your earnings history are likely to be higher than those in the early years which in turn will raise the average which in turn makes your PIA higher.
When may I start collecting Social Security benefits for retirement?
- You may apply to receive Social Security retirement benefits as early as age 62. Your monthly benefit will vary depending on just when you make your election.
- If you file before your FRA, your monthly benefit will be permanently reduced by a fraction of a percent for each month you receive benefits before your FRA.
- If you file after your FRA, your benefit will be increased based on the number of months you delay beyond your FRA. This is called a Delayed Retirement Credit (DRC) and may increase your benefits up to 8% annually. DRCs only increase your benefits up to age 70.
You have a total of 97 months from which to choose, so it is to your advantage to know in advance which one will likely be in your best interest, always assuming you live to your predicted life expectancy. But it makes NO sense to wait beyond reaching age 70.
May I elect to receive my retirement benefits before I actually retire?
Yes, you may, as early as age 62. However, if you have not reached your FRA, and earn more than certain amounts, your benefits will be reduced. Any withheld amounts, due to excess earnings, are not lost. They are thrown back into the mix, causing your benefits to be recalculated and increased at your FRA to account for those withheld benefits. Once you reach your FRA, your earnings while working no longer reduce your Social Security benefit amount. Go here for more information: http://www.socialsecurity.gov/retire2/whileworking.htm
Are my Social Security benefits taxable?
Some people have to pay federal income taxes on their Social Security benefits. Typically, this only happens if you have substantial income from other sources such as earnings, interest, dividends and other taxable income over and above your Social Security benefit. Some of your Social Security benefit will be taxable if your “combined income” is greater than $25K as a single taxpayer or over $32K if you file a joint return. For more info on this, visit http://www.socialsecurity.gov/planners/taxes.htm
What benefits are available to my spouse?
Even if your spouse has never paid taxes into the Social Security system, your spouse may be able to receive benefits if he or she is at least 62 years old and you are receiving or are eligible to receive retirement benefits (or has suspended benefits, explained later). The spousal benefit is equal to 50% of your FRA benefit if the benefit starts at the spouses FRA or later. However, if the collected benefit is prior to his/her FRA, the amount will be permanently reduced by a percentage based on the number of months collected before his/her FRA. Also, if the spouse is eligible to receive a worker benefit in addition to the spousal benefit, and is less than FRA, the spouses worker benefit will pay first. If the spousal benefit is higher, the recipient will receive a combination of the two benefits to equal the higher amount.
What is a restricted application?
Restricted applications are almost a thing of the past. Today, they are only available to those reaching their FRA in 2019. It allows someone to restrict an application to spousal benefits only, giving the claimant some income now while allowing his/her benefit to grow monthly until age 70. You must have been born before January 2, 1954 to use this claiming strategy.
What does it mean to “file and suspend” Social Security benefits?
If you hear someone telling you to use this strategy, they are wrong. The Bipartisan Budget Act of 2015 eliminated this loophole that made it possible. It was a way to effectively get extra benefits that were not supportable. It allowed someone to file, then suspend, which allowed a younger spouse to claim spousal benefits based on the older spouses earnings history. Meanwhile the older spouse’s benefits were growing in the background.
Once I begin receiving benefits, can I later change my mind?
Under certain circumstances, you may be able to ‘reset’ your Social Security benefits. This involves withdrawing your earlier Social Security claim for benefits by completing Social Security form SSA-521 and re-applying at a later date. If you are already receiving benefits, you cannot file a SSA-521 form if it has been 12 months or more since you started receiving your benefits.
If you are within the acceptable time frame, you will also have to pay back the benefits previously paid to you, your spouse or children. If your withdrawal is approved and you later re-file, your monthly benefit will be higher because you are now older. You can withdraw, return your benefits, and start over only once in your lifetime. You should also note there are other considerations, such as Medicare coverage, that should be thought about.
If you are unable to re-pay benefits received, or if more that 12 months have elapsed since you began to receive benefits, you may voluntarily elect to suspend future payments to increase the amount you will receive when you begin them again at a later date. All of this is always clouded by the question ‘will you be alive at that later date?’.
What factors should I consider when deciding to file for Social Security benefits?
There are a variety of factors that need to be thought about. Among them are your state of health and possibly that of a spouse, your current age and that of your spouse, if you have one. Another is whether you plan to continue to work and generate earned income, as this also has tax implications. Another consideration is whether your current earnings history will cause your PIA to increase, leading to higher benefits later. What other financial resources do you have that you can use now to sustain your lifestyle?
Can my former spouse receive Social Security benefits based on my earnings record?
Yes, your former spouse may qualify for benefits under your record if certain conditions apply. They are:
- You are entitled to benefits or, if you are entitled to benefits and have not yet applied;
- You were married for at least 10 years, and you have been divorced for at least 2 years;
- Your former spouse is at least 62 years old;
- Your former spouse in unmarried;
- Your former spouse is not eligible for an equal or higher benefit based on his/her own Social Security record, or on someone else’s Social Security record.
Also note that the amount of benefits payable to a former spouse has no effect on the amount of benefits for you and your current spouse, if applicable.
If I am eligible for a worker benefit and also receive a pension from earnings not covered by Social Security, will this affect the amount I receive from Social Security?
If you have worked for a federal, state or local government agency that provides you with a pension based on earnings not covered by Social Security, your benefits may be affected. If you think this may be the case and want to know how much your Social Security benefit may be reduced, go here: http://www.socialsecurity.gov/retire2/wep-chart.htm
Your benefits as a spouse or widower may also be affected under the Government Pension Offset provision. For more information, visit http://www.socialsecurity.gov/retire2/gpo-calc.htm
Disclaimer: All of the above information is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Tony Kendzior, any affiliated company or persons, do not give legal or tax advice. You are encouraged to seek competent legal and tax advice from a tax advisor or attorney.