Skip to comments.Social Security Basics -- 5 Things to Think About Before You Apply
Posted on 05/03/2014 9:55:59 AM PDT by Kaslin
Dear Carrie: Several of my friends and I (all in our early 60s) are understandably thinking about Social Security. Everyone seems to have different ideas -- and different information -- about when to apply for benefits, how to apply, and how much we can expect to get. Can you give us a straightforward answer on what we should know? -- A Reader
Dear Reader: Since Social Security plays such a big part in people's lives, you'd think we'd have a better idea about how it all works. But on the contrary, a lot of folks don't fully understand their benefits or, more importantly, how to maximize them.
It's essential to take some time to consider your options before you apply, or you may miss out on thousands of dollars over your lifetime. There's a lot of helpful and detailed information at socialsecurity.gov, but for starters, here are five important things you and your friends should focus on:
1. UNDERSTAND HOW TIMING AFFECTS BENEFITS
With all the talk about the future viability of Social Security, many people think they should apply for benefits as soon as possible. But there's more to it.
In a nutshell, if you file at the earliest possible age, 62, your benefit is permanently reduced. If you wait until your full retirement age (FRA), which would be 66 for you and your friends, you collect 33 percent more. Wait until 70, and your benefit goes up by a total of 76 percent!
There's a point where total benefits balance out (a larger check for a shorter time), but, generally speaking, if you're healthy and longevity runs in your family, you'll increase your total lifetime benefits by postponing your start date.
2. FACTOR IN REDUCTIONS -- AND TAXES -- IF YOU CONTINUE TO WORK
In terms of timing, you also have to consider your work plans. If you take benefits before your FRA, and your income exceeds certain limits, part of your benefit is temporarily withheld. In 2014, $1 dollar in benefits is withheld for every $2 you earn above $15,480. The year you reach your FRA, $1 is deducted for every $3 you earn above $41,400. However, you do get this money back as an increased monthly benefit once you reach your FRA.
Taxes are another thing. Regardless of when you take benefits, 50 to 85 percent of your Social Security income may be taxable if your modified adjusted gross income reaches certain levels. For 2014, that's between $25,000 and $34,000 for individuals, and between $32,000 and $44,000 for married couples filing jointly. Your benefit might also bump you into a higher tax bracket. Best to discuss this with your tax adviser.
3. STRATEGIZE WITH YOUR SPOUSE
Working as a team, married couples have some choices that can significantly boost their combined benefit. That's because of the spousal benefit allowing one spouse to take up to 50 percent of the other's benefit (as long as that spouse has already filed), while letting his or her own continue to grow.
There are a number of ways to do this. For instance, in a strategy sometimes called the "62/70 split," the lower-earning spouse takes Social Security as early as age 62, while the higher earner delays until 70. In the meantime, the higher earner can take the spousal benefit as a bonus.
Another option is for the higher-earning spouse to apply for benefits at FRA, and then suspend them. The lower-earning spouse could then collect a spousal benefit based on the higher earner's record, while the higher earner's benefit continues to grow. This can get complicated, so, again, best to consult with a financial professional. But it's definitely worth exploring!
4. FIND OUT HOW MUCH YOU'LL COLLECT
Everyone age 60 or older who hasn't yet applied for benefits is mailed a yearly Social Security statement. This provides an estimate of retirement and disability benefits, as well as survivor benefits. Or you can create a personal account at socialsecurity.gov to access your statement. The site also has a number of calculators, which you can use to explore how different start dates or continuing to earn would affect your benefit.
For 2014, the maximum monthly benefit for a worker at FRA is $2,642. The estimated average monthly benefit is $1,294. And FYI, you can apply for benefits online when you're ready -- up to four months before your start date.
5. BE AWARE OF SURVIVOR BENEFITS, BENEFITS FOR EX-SPOUSES AND DISABILITY BENEFITS
While exploring timing and benefit amounts, it's also important to be aware that:
--At FRA, a widow or widower can collect up to 100 percent of a spouse's benefit (or reduced benefits at age 60). If you collect early and receive reduced benefits, that reduction also applies to your surviving spouse.
--Under certain circumstances, you can collect benefits based on an ex-spouse's record without affecting what your ex or your ex's current spouse can collect.
--If you're disabled and under full retirement age, you and your family members may qualify for disability benefits.
These basics are the same for everyone, but the individual decisions you and your friends make may well be very different. You'll each have to thoughtfully consider your choices based on your circumstances. In the meantime, this information should give you a lot more to talk about!
#5 is interesting. A widow or widower can collect benefits from the deceased spouse’s benefits?
I was widowed at age 52, but have continued working all these years. I will qualify for social security based on my own earnings. Do they really mean to say that I can also collect benefits based on my deceased wife’s earnings record?
Sign up as soon as you can. If you don’t........it may not even be there later or they will change the rules again on you where you receive less anyway after waiting to receive more. Or you get sick and die and see very little or not a dime.
A bird in the hand is worth 2 in the bush should be the mantra with the politicians we have on both sides.
Just my humble opinion.
I agree with you. And I agree based on likely changes in the law yet to come. My bet is that they will grandfather in anybody who is already collecting Social Security, at the time that changes in benefits are made. But those who have not yet entered the system to collect benefits will see those benefits reduced.
I did a simple calculation, and found that, if you start collecting at age 62, that it would take you up to age 77 before you would have collected more by waiting until age 70 to collect that higher benefit.
Of course, that was a simple calculation ,not taking into account reduced benefits if you were still working at age 62 .
me too.if ya don’t need it take it and DCA into something like VWINX
me too.if ya don’t need it take it and DCA into something like VWINX
When you consider the huge unfunded liabilities in Social Security, we know that changes have to be made.
Politicos of both parties have kicked the can down the road, and continue to do so. But something has to give, likely in the next 10 to 20 years.
Benefits will be reduced.
Social Security taxes on workers will be increased.
The retirement age will be increased.
Social Security will become a means tested program, so that those of us with IRAs and 401Ks and other savings will see our benefits reduced.
Some combination of the above actions will happen.
You cannot take your Social Security and your spouse’s at the same time. If your spouse made the same amount of money as you, you could take 100 of your spouse’s social security at 66 and start taking your own later.
But as I understand it from a luncheon I attended some years ago with Social Security experts, when you started taking your own it would be at the same percentage that you were taking your spouse’s.
It is amazing to me that SS is always short of money, since so many parents and spouses die young and there is no way to
actually reclaim their benefits. Also, it would seem that as the Baby Boomers die off, unused benefits would be in the fund for the smaller generations of the future to use.
Where do all these lost benefits go? True, the thing is a Ponzi scheme, but one would thing as the larger generations die off with unused benefits, there would be more for the ounger ones
Surviving spouse is entitled to draw Social Security benefits based upon the higher of the two. If your deceased spouse received or would have received larger payments, then you can claim that. If not, then you stick with your own.
That yearly mailed report is now past history.
I look for the crooks in DC to remove the earnings cap on “contributions” They will tell the public that ‘everyone understands” SocSec was intended to be redistribution scheme form the beginning — and say it with a straight face
Do that, maybe raise the retirement age by a year or two, and it will be solvent for a long time. Heck, they might even raid it again for general fund expenses.
Since all the money goes to the general account it gets dissapeared.
So I guess basically the administration takes the money withheld from workers and hands it out to welfare recipients, illegal immigrants, and others of the taking class.
Another form of death tax.
If you have children (own or adopted) under 18, they will get additional benefits when you sign up for SS.
Money that is not actively being drawn on is pinched for whatever they like.
The Political crisis du jour.
But if you are drawing it, they aren’t likely to cut you off.
I say get it while you can.
After all, it is YOUR money.
What many do not know, if you prefer to not accept Medicare, they will deny your SS.
When I went FRA and decided to start taking back 45 years of “retirement savings”, the SS REp brought up Medicare, I told them I had personal medical insurance I was happy with and did not want Medicare, the SS Rep said “no Medicare, no SS”. I could have paid the Part A and kept my person insurance, but found out that as soon as I signed up for Medicare, even the minimum, my personal insurance was cancelled.
The biggest scare to me in this area is the “Income Adjustment” for wealthier individuals that is a constant discussion in the political circles. The obvious problem is who defines wealth and on what basis. With some of the more extreme theorists, the chance that the government would look at total family assets is scary! I have to pay for my cousin’s retirement because we share grandparents?
Even so, to think that Social Security could be eliminated is a total lie, told by the Democrats to scare their base into staying on the liberal plantation. The reason it is a lie is that the senior citizen demographic is that they VOTE and that is fatal to anyone who messes with this ‘third rail’!
Still, for me with parents and grandparents who lived far past the Biblical (Psalm 90:10) “Three Score and Ten”, it is logical to wait for the age 70 start. What makes Social Security unique is its “Inflation Adjustment” that is almost unique amongst retirement income streams. So it makes sense, unless other factors change, to wait for that draw until it maximizes.