Social Security is a vitally important tool for a retiree’s income planning strategy, yet many pre-retirees don’t give it the attention that it deserves.
Understanding how Social Security works and the best ways to optimize it for you and your family can make a huge difference in the size of your benefit, tax implications, and spousal/survivor benefits overtime. In fact, creating the right Social Security strategy can increase your lifetime retirement income and longevity of your portfolio.
Today, our team wanted to bring you an article that explores some of the important questions and answers you should examine when creating a plan for your Social Security benefits. Some of these questions you may already know the answers to whereas others you may not have thought about before.
Our team is here to help ensure you don’t make unnecessary mistakes in your Social Security benefits. Let’s dive in!
1. When is the earliest time I can collect benefits?
As with most of our answers today, the earliest time you can collect benefits depends on your unique situation. For retired workers, spouses, and parents the earliest age is 62. If you are a widow or surviving spouse, you are able to begin claiming benefits at 60. A surviving spouse who also has a disability can claim as early as 50.
The Social Security Administration (SSA) allows all workers who have a disability to claim benefits at any time. This age restriction is also lifted for dependent children who qualify. To qualify as a dependent, you need to be under 18 and unmarried. The dependent child benefit is 50% of the unreduced benefit their parent would receive at their full retirement age.
Remember, the early collection isn’t always the answer. For retired workers who claim benefits at 62, they can expect to receive a permanent reduction of benefits by about 30%. Contrary to popular belief, the reduction continues even when you reach your full retirement age. Collecting early has lifetime consequences.
2. Can I revoke my application if I decide filing early was a mistake?
Yes, you are able to withdraw your application for Social Security benefits as long as it is done within 12 months from the date you applied. You will be responsible for paying the SSA back for any benefits you received within that time. This may be worth it in the long run as you will be able to re-file when you reach your full retirement age or later to receive delayed retirement credits (DRC) and increase your benefit further.
3. What is my full retirement age (FRA)?
Your FRA is the age in which you are able to collect 100% of the benefits you have accrued from Social Security. It often makes sense to wait to collect benefits at least until your FRA in order to take full advantage of the benefits you have worked so hard for.
Full retirement age is calculated based on the year you were born and has continued to rise with time. Take a look at the chart below for more information to find your FRA.
|Year of birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
4. How can I receive spousal benefits?
You are allowed to claim Social Security benefits based on your spouse’s work record if you have been married for at least a year and are 62 years old, though waiting to collect until your full retirement age will ensure you don’t see a reduction in benefits. For current spouses, your spouse must already be collecting benefits for you to file for a spousal benefit.
Both current and divorced spouses are eligible for up to 50% of the benefit based on their partner’s (or ex-partner) work record. Remember, the only way to receive the full 50% is by waiting until you reach your full retirement age.
Married couples have a unique opportunity to maximize their social security benefits. Be sure that you work with your advisor to come up with a strategy that takes into account your retirement income, maximum benefit, survivor benefit, and more.
5. Can I receive benefits from both my own work record and that of my spouse?
This system for applying for a spousal benefit and switching over to your own benefit was done through a restricted application. Restricted applications allowed people to claim benefits based on their spouse’s work record while accruing retirement benefits off of their own work record to maximize their benefits. For those born any later than January 1, 1954, this is no longer a possibility.
If you qualify for a retirement benefit and a spousal benefit, you can only receive one. The SSA will provide you with the higher of the two amounts.
The only time you can take advantage of a restricted application is if you are a widow/widower. Former spouses are able to claim a survivor benefit and then switch to their own retirement benefit should that make the most financial sense for them.
6. I’m divorced, how do benefits work for me?
People who are divorced can still claim a spousal benefit if they have been divorced for 2 years, the marriage lasted for 10 years, they are unmarried, and they are at least 62. Unlike current spouses, divorced spouses do not have to wait until their former spouse has begun taking benefits in order to file for their own. Keep in mind that only the person claiming spousal benefits has to remain unmarried and their former spouse’s marital status does not impact their benefit.
It is also important to note that ex-spouses do not have to inform their former partner when they claim benefits nor does claiming benefits reduce their former spouse’s benefit in any way. Ex-spouses can still receive up to 50% of the benefit based on their former spouse’s work record.
7. I want to work in retirement. How will this impact my Social Security benefits?
With so many retirees pursuing new careers in their golden years, it can lead to many changes and challenges to claiming Social Security benefits. If you claim Social Security benefits early (anytime between 62 and your full retirement age) you will be subject to what the SSA calls an earnings test. This test limits the amount of money you are able to make in a year before you can receive a reduction in Social Security benefits.
For 2020, if you make over $18,240 you will start to see a reduction in benefits which is a loss of $1 for every $2 you make over that threshold. Let’s say you are making $20,000 per year through part-time work, which is $1,760 over the limit. That would reduce your benefit by $880.
This earnings test is applied for every year you collect benefits before your FRA. If you reach FRA in 2020, your earnings limit is $48,000 and the reduction in benefits is $1 for every $3 above the limit for that year. Beginning the month you actually reach your FRA, the earnings test disappears.
8. Where can I get more information?
Our team at Goepper Burkhardt is passionate about the role Social Security plays in your retirement income strategy. Devising the right benefits plan for you can lead to increased after-tax income and a healthier retirement investment portfolio.
We want to see all of our clients succeed and not make mistakes where Social Security is concerned. Do you have more questions about how to maximize your Social Security benefits? Give us a call.