Social Security is complicated – shocker! It’s a government program. While you should meet with a Certified Financial Planner™ professional to discuss your options, below are some basic tips for planning a benefits strategy.
1) Monthly benefits rise with claiming age
The longer you wait to file for Social Security, the higher your benefit will be. To understand why, you must know two key terms: PIA and FRA.
The Primary Insurance Amount (PIA) is your base monthly benefit. Maximum earners will qualify for the maximum PIA, which is $2,927 for those turning 62 in 2018.
Full Retirement Age (FRA) is the age the U.S. government decides you can claim full, unreduced Social Security benefits. This used to be 65 for everyone, but now varies depending on your birth year.
Claiming Social Security before FRA reduces your benefit by a percentage, depending on when you apply. Claiming after FRA increases your benefit by a percentage (until age 70).
PLEASE NOTE: your benefit stays at this percentage for life. If you are in good health and you can afford it – file later. It literally pays to wait… about 8 percent per year, to be exact. Not bad!
2) Your spouse may claim benefits based on your earnings record
Back in 1939, spousal benefits were created to give nonworking wives a small benefit based on their husband’s work record. The program is now gender neutral, which means husbands can claim spousal benefits too.
After the primary worker files for his/her Social Security benefit, the spouse can receive 50 percent of the worker’s PIA, assuming the primary worker applied at FRA. To qualify, the spouse must be at least 62 years of age, and have a lower PIA than the spousal benefit.
3) A divorced person may get spousal benefits based on an ex-spouse’s work record
A person can collect benefits on an ex-spouse’s work record if he/she is at least age 62, currently unmarried, and the marriage lasted at least 10 years.
Multiple ex-spouses can receive benefits on the same worker’s record. The benefits paid to one ex-spouse do not affect those paid to the worker, the current spouse, or any other ex-spouses.
Had multiple marriages? If each marriage lasted 10 years or more, you can choose which spouse’s record to claim benefits on. The order of the marriages and divorces doesn’t matter.
Planning to remarry? Your divorced-spouse benefits will end when you tie the knot. In that case, you may be eligible for spousal benefits based on your new spouse’s work record. Or you can switch to your own benefit, if you also qualify for Social Security.
4) Widows and widowers may receive survivor benefits
To receive survivor benefits, the marriage must have lasted at least nine months, except in cases of accident. The survivor must be at least 60 years of age, 50 if disabled.
Survivor benefits are worth twice as much as spousal benefits: 100 percent of the worker’s monthly benefit instead of 50 percent. If both spouses are receiving benefits and one spouse dies, the other spouse may switch to the higher benefit.
The amount of the survivor benefit will depend on two things:
- The age at which the deceased spouse originally claimed his benefit – this determines the “original benefit”
- The age at which the widow claims the survivor benefit to determine the “actual benefit.”
The widow will receive the highest possible income if the deceased spouse originally claimed his/her benefit at 70, and the widow claims the survivor benefit at full retirement age or later.
If the widow or widower applies before FRA, the benefit will reduce. As with regular benefits, it pays to wait.
Higher earning spouses who feel young and healthy often don’t think about the survivor benefit when they are deciding whether to collect Social Security. But they should. It really makes a difference for the surviving spouse’s standard of living.
5) If you claim benefits before FRA and continue to work, your benefits could be withheld
This is called the earnings test, and it’s a huge bummer. If you claim before FRA, the government will withhold $1 in benefits for every $2 you earn over $17,040 in 2018. (This number is indexed for inflation each year.) This applies to every kind of benefit: retirement, spousal, and survivor.
This money doesn’t totally disappear. Your benefit will adjust upward when you turn FRA, leaving you with a higher benefit for life. So, you’d have that going for you, which is nice.
6) Your benefits may be subject to income tax
You didn’t think you could escape taxes, did you? Up to 85 percent of your Social Security benefits may be subject to tax, depending on how much other income you have.
If provisional income is under $32,000 for a married couple, no benefits are subject to tax. If provisional income is between $32,000 and $44,000, up to 50 percent of a married couple’s benefits are subject to tax. If provisional income is over $44,000, up to 85 percent of benefits are subject to tax.
The thresholds for a single individual are $25,000 and $34,000. In the case of married filing separately and living with spouse, 85 percent of Social Security is taxable regardless of income level.
Talk to a Certified Financial Planner™ professional to learn more about your options. You paid into this program your entire professional life. Be strategic about Social Security and get as much of that money back as possible. You’ve earned it!