Things to Consider Before Filing for Social Security

Jane Young, CFP, EA

Jane Young, CFP, EA

Social Security seems straight forward but it can be quite complex, there are many opportunities and pitfalls to watch out for.  Before filing for Social Security, research your options to maximize your benefit, minimize taxes and avoid errors in your benefit calculation.  It’s important to meet with a Social Security Representative prior to filing but don’t solely rely on this information.   Due to the complexity of various options, they may overlook something that could impact your situation

You can file for Social Security benefits as early as 62 but you will receive a reduced benefit.  Most healthy individuals should hold off on taking Social Security as long as possible.  If possible, delay taking Social Security until age 70.  Your benefit will increase 8% a year from your full retirement age to age 70.  The full retirement age for individuals born before 1954 is 66 gradually increasing to age 67 for anyone born in 1960 or later.

Upon reaching full retirement you may be eligible to take 50% of your spouse’s benefit or 100% of your own benefit if you are currently married, were born before 1954 and your spouse has started taking benefits.  While taking spousal benefits, your benefit can continue growing until you reach age 70 at which time you can switch to 100% of your own benefit if it’s higher.  There is no advantage to delaying benefits beyond age 70.

If you have been divorced for two years or more, were married for at least 10 years and are currently unmarried, you are eligible to receive 50% of your ex-spouses benefit or 100% of your own benefit.  If you were born before 1954, at full retirement you have the option to start taking 50% of your ex-spouses benefit and switch to your own retirement benefit at a later date. If you are a widow and you were married for at least 10 years you are eligible to take the highest of 100% of your deceased spouses benefit or your own.

If you take benefits before your full retirement age you are limited on how much you can earn before your benefit is reduced. In 2016, your benefits would be reduced by $1 for every $2 earned over $15,720.  Benefits lost due to work will result in a higher benefit later.  There is no income limit if you wait to take benefits at full retirement. If you take Social Security while working a larger portion of your benefit will be taxable, so you may want to consider delaying Social Security until you stop working or reach age 70.

If you held jobs where you paid into Social Security and you receive a pension from working in a job where you did not pay Social Security, your Social Security benefit may be reduced.  Be sure to notify the Social Security Administration of your pension.

More information on your Social Security benefits is available at www.ssa.gov.

Taking Social Security Early Not the Best Option

Jane Young, CFP, EA

Jane Young, CFP, EA

The best time to take Social Security is a personal decision based on your financial situation, health, lifestyle, family longevity and when you stop working.  Social Security will provide you with the same total amount, if you live to the average life expectancy, regardless of when you take it.   The full retirement age for most people is between 66 and 67.  You can begin taking reduced benefits as early as 62 or you can wait and take an increased benefit as late as age 70.  If you begin at 62 your benefit is reduced by about 30%, if you take Social Security after your full retirement date your benefit will increase 8% per year until age 70.

You will probably benefit from taking Social Security at full retirement or later.  Unless you have a serious medical condition, there is a good chance you will live longer than the Social Security average life expectancy.  Social Security life expectancy tables are based on 2010 data and lag what can be reasonably expected.  They indicate a 65 year old male will live to around 84.3 and a 65 year old female will live to around 86.6.  Taking Social Security later is like buying longevity insurance.  It can provide you with more money later in life which can help put your mind at ease, if you are worried about out living your money.

If you are still working it can be especially detrimental to take Social Security before your full retirement age.  In 2015 you will lose $1 for every $2 earned over $15,720.   Once you reach full retirement age there is no limit to how much you can earn.   However, taxation of your Social Security benefit is based on your overall earnings.  If you take Social Security after you stop working a smaller portion of your benefit is likely to be taxable.  Additionally, if you continue to work and delay Social Security you may be able to increase your total Social Security benefit. The Social Security Administration annually recalculates benefits for recipients who are still working.

The decision on when to take Social Security is significantly impacted by your marital status and your spouses expected benefit.  If you have been married for at least ten years you have the option to take the greater of 50% of your spouse’s benefit or your full benefit. If you wait until your full retirement age you can start taking 50% of your spouse’s benefit, let your benefit grow, and switch back to your full benefit at age 70.   If you take the spousal benefit prior to your full retirement age you cannot switch back to your own benefit at a later date.  If you have been married for at least 10 years, and your spouse dies, you are eligible for the greater of your benefit or 100% of your spouse’s benefit.

More information about your Social Security benefit is available at www.ssa.gov.

Understanding Social Security Survivors Benefits is Worth the Effort

Jane Young, CFP, EA

Jane Young, CFP, EA

There are a myriad of different Social Security options available to widows and widowers.  If you have lost a spouse, it is worthwhile to take the time required to fully understand your Social Security benefits. As a widow or widower, you have the choice of taking Social Security based on your own work record, or Social Security based on the work record of your spouse (survivor benefits).  You are eligible for 100% of your deceased spouse’s basic benefit, at full retirement age.  Reduced benefits are available as early as age 60, and if you are disabled, benefits can begin at 50.  The full retirement age is 66 if you were born between 1945 and 1956, and gradually increases up to 67 if you were born between 1957 and 1960.  The normal retirement age for everyone born after 1960 is 67.

If you started taking Social Security on your own record, before the loss of your spouse, call Social Security to see if you can receive more in the form of survivor benefits.  One nice feature of Social Security survivor’s benefits is the option to begin taking benefits based on your own earnings record, and later switch to survivors benefits.  Conversely, you can begin taking survivor’s benefits and later switch to benefits based on your own work record.   Unlike standard spousal benefits, you can switch even if you started taking benefits prior to reaching full retirement age.

Generally, you cannot get survivor’s benefits if you remarry before age 60.  After age 60, remarriage does not impact your benefits.  Additionally, at age 62 you are eligible to get benefits based on your new spouses benefits.  You may have the choice between benefits based on your own work record, benefits based on the work record of your deceased spouse, or benefits based on the work record of your current spouse.  Unfortunately, you have to choose from one of these options.  If other family members are entitled to survivor’s benefits, there is a limit to the total amount that can be paid to a family.

 If you receive a pension from a federal, state, or local government job where you did not pay Social Security, your survivor’s benefits may be reduced.    Your Social Security benefits will be reduced by two thirds of your government pension.  Additionally, if you collect Social Security based on your own work record, and you receive a pension from a job where you did not pay Social Security, your benefit may be reduced due to the Windfall Elimination Provision. Be sure to discuss this with your Social Security representative before you file for benefits.

Social Security survivor’s benefit can be very complex; please take the time to fully understand your options.  Before filing for Social Security, research the options available to you at www.socialsecurity.gov and meet with a Social Security representative to fully understand your choices.

The Widow’s Guide to Social Security Benefits

The Widow’s Guide to Social Security Benefits (via Credit.com)

As a Certified Financial Planner™, I work with a lot of widows trying to navigate the tricky world of Social Security benefits after their spouse passes away. Social Security provides you, as a widow, with a choice between your own Social Security benefit based on your work history, and a survivor…

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