1) Social Security is a benefit, not an issue. Not paying enough attention to Social Security is really the issue, here. If you’ve worked a good portion of your life, chances are, you’re eligible. You’ve paid into it, and therefore, you should know how to get paid out of it. And if this topic is becoming more common in the circles you run in, then roll up your sleeves. For starters, check out the following and you’ll soon be the hit of every party where folks leave when Matlock is over: Web: Social Security. Books: Social Security for Dummies and Get What’s Yours.
2) Your decision on when and how to file for Social Security should be made in the context of how this benefit factors into your financial plan. Folks ask, “What is the best age for me to file?” Well, it depends. What does your financial plan say you need to have in order to accomplish your goals and dreams? No plan? Then get with a Financial Planner and get your plan together. If you have the retirement assets in place and don’t need to claim your benefit at 62, then maybe you don’t. Maybe you take it at 70 and bring home 76% more than had you filed at 62. Yes. 76% more. You didn’t know that? Not many folks do. And how long did it take to learn how to receive thousands and thousands of dollars more in retirement benefits? Lots of folks have opted for the earliest filing date possible and have lived long, less comfortable lives. It’s less painful learning from other people’s mistakes than it is learning from your own.
3) Waiting may not be for everyone. If you absolutely have to start receiving the benefit at 62 in order to get by, then take it. Or, let’s say your blessed enough to be able to wait until full retirement age to file (66, let’s say), then you’ll receive 32% more per month than if you filed at 62. It pays to be patient. If you can’t afford to be patient, financially speaking, then it still pays, just not as much.
4) This isn’t just about you. Benefits, off of your work record, can exist for spouses (62 or older), ex-spouses (62 or older), survivors, children, grandchildren, and even parents – your parents, that is. Sure, there are stipulations, rules, conditions and exceptions, but the benefits available are numerous. Look into them if you believe they may apply to you and your family.
5) Do over! Believe it or not, there’s a do over. If you’ve filed for retirement benefits, Social Security gives you a year from the filing date to say, “Oops! I’ve changed my mind.” You can pay back everything you’ve received and be treated as if you’ve never filed for the benefit. This includes any Medicare Part B premiums or tax withholdings that were deducted from your Social Security payments. One year – that’s it. After that, what’s done is done.
6) File and Suspend. This a strategy you must be aware of.
Here’s how it works: At your Full Retirement Age (FRA), you can file for your retirement benefit and tell the good folks at the Social Security office to suspend them (put them on hold) until you start them up again. “So why would I do that?” you may ask. Well, now that you’ve formally filed for a retirement benefit, your spouse (at age 62+) and children (with certain stipulations met) can now collect benefits on your work record. Also, suspending allows you to accumulate Delayed Retirement Credits (DRCs) which add up to the tune of 8% per year until you restart your benefits. You can only suspend retirement benefits, by the way, and only until age 70. After 70, you’ll receive your retirement benefit complete with the accumulated credits.
7) The ol’ Restricted Application move. So let’s say your spouse has taken advantage of number 6 and has filed and suspended. “What about me?” you ask. “What can I do?” Assuming you’re at FRA, and haven’t previously filed for any benefits, you can file an application restricting your benefit to your spousal benefit only. This will allow your own retirement benefit to grow by 8% per year until you claim it or until you reach 70.
8) Avoid the “D” word: Deeming. If you file for a spousal benefit before reaching FRA, Social Security will deem you to be filing for both a spousal benefit and your own retirement benefit. That’s just one of the traps, uh, rules. The result? You’ll receive both benefits –at a reduced level – and will be left with, essentially, the larger of the two benefits. You don’t want a reduced anything. You want the max everything. So how do you avoid deeming? Don’t file for your spousal benefit before reaching your full retirement age.
9) Another “D” word: Divorce. There are several if/thens on this one. If your ex-spouse is currently entitled to retirement or disability benefits, then you may be eligible for divorced spousal benefits. If you’re single, over 62, not currently remarried, and were married to said ex-spouse for at least 10 years, then you’ve got a chance. If, let’s say, your ex-spouse is not collecting their own retirement or disability benefit, then you must be divorced for at least 2 years before you can collect.
10) Taxes. Depending on your “combined income” (which is defined as the total of your adjusted gross income plus any non-taxable interest you may receive, plus half of your Social Security benefits) you may owe Federal taxes on your benefits. Currently, you will never be taxed on more than 85% of your benefits. I’ll spare you the formulas and brackets, but I will leave you with this – consult your CPA/Tax Preparer for additional counsel.
I’m stopping at 10, but the list goes on. If you’re approaching 62 and will be eligible to receive Social Security benefits, you’d do well to keep this topic front and center. This is a lifetime, inflation-proof benefit (thanks to cost of living adjustments) and your government has made it available. And one way or another, you’re going to make a decision on how and when to file. I want you to make the best decision. Give it the consideration it’s worth. If you have questions that you’d like to discuss with a Planning Associate, please call us. We can help.
Stay tuned, an election year is coming up!