Starting Benefits Early Or Later
To determine your monthly retirement payment, the Social Security Administration employs a complex model that adjusts your highest 35 years of wages with an indexing factor. The indexing factor will, in turn, influence the monthly benefit amount.
Here is what you should know when you are deciding to elect benefits, assuming an FRA of 67:
- Early election will permanently reduce your monthly benefit by as much as 30%.
- Delaying election past your FRA increases the monthly benefit by 8% per year, up to a maximum increase of 24% at age 70.
- If you expect to have higher earnings after reaching FRA, you will benefit from delaying election, all else being equal.
- The 8%-per-year enhancement for delaying your start date after your FRA, combined with the potential for higher earnings during the delay period, can produce total benefits nearly double that of electing to begin payouts at 62.
Exhibit 1: Social Security Benefits by Age
Key takeaway:The longer you wait before taking benefits, the higher your Social Security checks will be.
The longer you wait before taking benefits, the higher your Social Security checks will be.
In summary, while choosing to elect Social Security benefits early may sometimes appear appealing, waiting until your FRA or later can significantly enhance your monthly, and hence annual, benefit .
So, how do you determine when the best time is for you to start drawing Social Security?
What Happens To Payments Made After The Death Of The Beneficiary
Social Security pays benefits in the month following the month in which the payments are due. For example, January’s benefits are received in February, while February’s benefits are received in March. If Social Security makes a payment after the beneficiary’s death, these payments should be returned to Social Security.
If the deceasedâs surviving family members mistakenly spend the money, the financial institution will automatically withdraw money from the direct deposit account and return it to Social Security. However, if the deceased beneficiary received benefits in form of a check, you should not cash the check. Instead, you should return it to Social Security.
Can I Retire At 55 And Collect Social Security
So can you retire at 55 and collect Social Security? The answer, unfortunately, is no. The earliest age to begin drawing Social Security retirement benefits is 62. … Once you turn 62, you could claim Social Security retirement benefits but your earnings from consulting work could affect how much you collect.
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How To Calculate Your Own Social Security Spousal Benefits
The spousal benefit calculation is straightforward if you dont have a benefit of your own. Remember, in that case, its between 32.5% and 50% of the higher-earning spouses full retirement age benefit, depending on your filing age.
However, it can seem a little more complicated if you have Social Security benefits from your work history.
And to keep things interesting, the Social Security Administration decided that a different calculation method should be used to determine how much each benefit should increase/decrease based on your filing age.
As complicated as Social Security benefits can seem, there is a way to correctly calculate how much your spousal benefit will be if you qualify to receive it.
Check out this section of my video that goes over this calculation step-by-step. VIDEO: How To Calculate Spousal Benefits The RIGHT Way
If you understand how they break down the individual benefits, its not hard to use the table above to quickly figure out what your approximate benefit will be. Heres an example.
Joe and Julie each have a Social Security benefit from work they individually performed. Julies benefit at her full retirement age is $800 per month. Joes benefit at his full retirement age is $2,000.
Assuming they are both full retirement age when they file, Joe will be entitled to a benefit of $2,000 and Julie will be entitled to the greater of her own benefit or half of Joes benefit.
Sounds simple, right?
How Much Is The Social Security Spousal Benefit
If youre eligible and can qualify, the spousal benefit can be as much as 50% of the higher-earning spouses full retirement age benefit.
If your spouses full retirement age benefit amounts to $2,000 per month, your spousal benefit at your full retirement age could amount to $1,000 per month.
Its important to note that this benefit cannot be more than 50% of the higher-earning spouses full retirement benefitbut it can be less!
Thats because the benefit is also based on your filing age. Depending on how old you are when you file, the spousal benefit amount will range between 32.5% and 50% of the higher-earning spouses full retirement benefit.
Check out the chart below to get an idea of how the benefit works and what your payment might be if you can take advantage of spousal benefits. The chart assumes that your full retirement age is 67 and your spouses full retirement age benefit is $2,000 per month.
Did you notice the steep penalty for filing early? You receive significantly less in payments if you choose to file sooner rather than wait until full retirement age.
You may have also noticed that the spousal benefit does not increase beyond your full retirement age. When considering your own Social Security benefit, there can be a lot of advantages to waiting to file and delaying when you start receiving payments well past your retirement age, but thats not the case here.
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Lost Or Stolen Federal Payments
Report your lost, missing, or stolen federal check to the agency that issued the payment. It’s usually one of these paying agencies. If your documentation indicates it’s a different agency, and you need its contact information, look in the A-Z Index of U.S. Government Departments and Agencies.
To get an update on your claim, contact the Treasury Department Philadelphia Financial Center at 1-855-868-0151, option 1.
Spousal Benefits For Spouses Versus Ex
- To be eligible for a spousal benefit, your spouse must have filed for their own benefits. An ex-spouse is exempt from that rule.
To claim a spousal benefit based on an ex-spouse’s earnings record, your ex-spouse has to be 62 and eligible for benefits, but there is no requirement that they must have already filed for benefits.
To claim a spousal benefit based on your current spouse’s earnings record, your current spouse must have filed for their own benefits already and you must have been married for at least 9 months or the death was accidental or happened in the line of military duty.
There used to be a strategy for married couples called “file and suspend” where one spouse would file but immediately suspend their benefits, which allowed the other spouse to file for spousal benefits. However, this strategy is no longer available. Due to Social Security laws that were passed in November 2015 anyone who suspends benefits after April 30, 2016, will end up suspending all benefits based on their record which means a spouse cannot collect spousal benefits during a time when their spouse has “suspended” benefits.
Bottom line: If you are still married, your spouse must file on their own first to make you eligible for a spousal benefit. If you have an ex-spouse, you were married over 10 years, have been divorced for 2 years, not remarried, and your ex is 62 and eligible for their own benefits, your spouse is not required to file for you to be eligible for a spousal benefit.
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When Should You Claim Spousal Benefits
While this is a personal decision, you cant claim spousal benefits before age 62. If you opt for sometime after reaching age 62 and before your full retirement age, youre likely to see your benefits reduced.
And if you wait until after your full retirement age, benefits wont increase. The wage earner may benefit from delaying benefits until age 70, but the spouse applying for benefits wont.
For those looking to max out their spousal benefit, one course of action is obvious.
The best strategy to claim Social Security retirement benefits as a spouse is to wait until you reach normal retirement age, 65 to 67, depending on birth year, says Lindsay Malzone, a Medicare expert at website MedicareFAQ. Unless you currently care for a qualifying child, you will receive a reduced benefit if you have not yet attained normal retirement age.
But there are exceptions to this general rule, especially if you believe your longevity is an issue.
We usually start by considering health: How long did the same-sex parent live and whats the current health situation for both partners, Ward says. Those with long expected life spans and good health are usually best off waiting until the maximum benefit is available. Those with shorter life expectancies or poor health may be better off starting sooner. Those with a terminal illness can file as of six months ago and start receiving payments immediately and collect a check for those missed payments.
When Can I File For Survivor Benefits
A widow may start receiving a reduced survivor benefit as early as age 60 , or they can wait until their full retirement age for the full maximum survivor benefit. The FRA depends on the surviving spouses year of birth. Suppose a widows retirement benefits are higher than their survivors benefit. In that case, they can receive survivor benefits initially and then switch to their own retirement benefit as early as age 62 or as late as age 70.
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How Do Social Security Spousal Benefits Work
You’re eligible for spousal benefits if you’re married, divorced, or widowed, and your spouse is or was eligible for Social Security. Spouses and ex-spouses generally are eligible for up to half of the spouse’s entitlement. Widows and widowers can receive up to 100%.
You can claim benefits based on your own work history or on that of your spouse. You’ll automatically get the larger amount.
If you are no more than three months away from age 62, you can apply online or by phone. If you plan to put off applying to get the largest payment possible, wait until you’re no more than three months from full retirement age. That’s 66 or 67, depending on your year of birth.
If You’re Not Sure Why You Received A Payment
If you receive a check or direct deposit payment from the Treasury Department and do not know what its for, contact the regional financial center that issued it. Only the agency that authorized the payment can explain why you received it.
If you received a check, look for the RFCs city and state at the top center. Then contact that RFC to find out which federal agency authorized the payment. It will be one of these:
If you received payment byelectronic funds transfer , or direct deposit, follow the directions under Find Information About a Payment.
Use the Treasury Check Verification System to verify that the check is legitimate and issued by the government.
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Please Answer A Few Questions To Help Us Determine Your Eligibility
For a number of years, married couples nearing retirement were able to cleverly strategize the timing of their Social Security retirement benefits to get higher lifetime benefits for one or both spouses. The Social Security Administration has put an end to some of the strategies that married couples had used in the past, but spouses nearing retirement age still have many questions about how to get the highest possible joint Social Security benefits. Here are some answers to your questions and a few tips on how to avoid mistakes that could reduce your benefits.
Beware The Social Security Earnings Test
Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2022 is $19,560. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.
Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed and increased as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.
How Do You Become Eligible For Social Security Benefits
To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn up to four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2022, you must earn $1,510 to get one Social Security work credit and $6,040 to get the maximum four credits for the year. And yes, that means that it is possible to have money withheld for Social Security and never get it back. The minimum is the minimum.
When You Were Born Affects Benefit Eligibility
Another consideration when claiming an ex-spouse’s Social Security benefits is your date of birth:
- If you were born before January 2, 1954, and have already reached full retirement age, you can decide to claim only the divorced spouse’s benefit and put off claiming your own retirement benefits.
- If you were born on or after January 2, 1954, the option to take only one benefit at full retirement age is gone. Therefore, when your ex-spouse files for one benefit, they’re really filing for all of their own benefits and spousal benefits.
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What If Youre Receiving Other Benefits
Suppose that youre also a member of another government pension plan, but no organization ever withheld any payroll taxes to pay for that coverage. In this case, Social Security would impose a reduction in your spousal benefit equivalent to a 66% decrease in the pension amount.
To simplify, for example lets assume that youre collecting $600 each month from another federal or state government pension plan that never withheld any Social Security taxes. Your Social Security payment would in this case be lowered by $400.
Social Security: How To Maximize Your Benefits
- A break-even analysis can identify when a stream of higher Social Security payments over a shorter period is likely to overtake lower payments that began earlier.
- If youre at or near retirement age, working with an expert can help you determine the best time for you to file for Social Security benefits.
While Social Security isnt often an important component of retirement income for high-net-worth Americans, we have found that, after a lifetime of paying into the program, our clients justifiably want to maximize their benefits. But determining the optimal solution for your particular circumstances can be challenging. In this A Closer Look, we review some of the main considerations and trade-offs involved when determining when to begin receiving your Social Security benefits.
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Can I Collect Survivors Benefits After Claiming Early Retirement Or Dependents Benefits
Some spouses claim early retirement or early spousal retirement benefits but can then switch to higher survivors benefits when their spouse dies.
Claiming your early retirement or spousal retirement benefits doesn’t affect the amount of your survivors benefits . If you have a considerably older spouse who has a higher earnings record, or your higher-earning spouse is in poor health, you could claim your early retirement or spousal retirement benefit, relying on the fact that you will be able to switch to full survivors benefits in the not-too-distant future.
Note that if your spouse claims early retirement benefits, however, your eventual survivors benefit will be reduced. The amount of the reduction depends on how early your spouse claims their retirement benefits.
This article was excerpted from Social Security, Medicare & Government Pensions, by Joseph Matthews .
If I Claim Early Retirement Benefits Do My Spouse’s Benefits Get Penalized
No, your claiming early retirement benefits does not reduce the amount of your spouse’s spousal benefits or your child’s dependents benefit amount that they can collect on your work record. Your claiming early retirement benefits will reduce your retirement benefits or your spousal retirement benefits based on your spouse’s work record.
But, your collecting early retirement benefits does reduce the eventual survivors benefit that your spouse could collect based on your work record, if you die before your spouse.
Note well, though: your claiming early retirement benefits doesn’t affect the amount of the survivors benefits you can collect based on your spouse’s work record, if your spouse dies before you.
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Social Security: How To Work And Still Collect Benefits
Many of us won’t have the luxury of not working while receiving Social Security benefits.
But what many pre-retirees don’t realize is that their benefits will be taxed if they work before they reach normal retirement age , which is 66 for most people today.
The government doesn’t want you to double dip. If you’re retired by the definition of your age, you’ll get the whole benefit, which varies by age and your lifetime earnings.
According the the Social Security Administration, for people attaining NRA after 2022, the annual exempt amount in 2022 is $19,560. For people attaining NRA in 2022, the annual exempt amount is $51,960. Social Security will withhold $1 in benefits for every $2 of earnings in excess of the lower exempt amount. They will withhold $1 in benefits for every $3 of earnings in excess of the higher exempt amount.
You need to pay attention to how much income is reported to the IRS. That’s how the tax is figured.
The easiest strategy to avoid taxes is to simply take a job that pays under the threshold for your filing status.
As you’ve probably deduced, if you have a source of income during the time you could claim benefits from 62 to 66 it will lower your benefits, so you have to plan carefully.