My Dad always said, “Son, never leave money on the table.” That’s good advice to consider when it comes to your Social Security benefit.
On average, a married couple will collect about $1,500,000 in Social Security benefits during their lifetime if they live to life expectancy. But there are lots of strategies for collecting Social Security. Picking the wrong ones could cost a married couple as much as $250,000.
Maximizing your benefit won’t just happen. It will require thought, research and planning on your part. And for married couples, plan together. Looking at both benefits in an overall Social Security strategy is essential to making the right choices.
There are three goals to this planning:
- Maximize the high earner’s benefit
- Coordinate benefits between spouses
- Maximize the survivor benefit
Here’s a list of questions that will help you explore Social Security options available to you.
What is your Social Security Full Retirement Age (FRA)?
You can begin receiving Social Security as early as age 62, but you’ll be penalized if you start taking it before your full retirement age (FRA). The penalty may be as much as a 30% reduction of what you would receive at your FRA.
On the other hand, if you postpone Social Security past your full retirement age you get a bonus. Your benefit will increase by 8% for ever year you wait up to age 70.
How many years have you worked?
Social Security benefits are based on your 35 highest earning years. If you haven’t worked a total of 35 years, Social Security will include years when you had zero earnings, which will lower your payout from what it would have been if you had worked for 35 years.
Are you currently working? If so, when do you plan to retire?
If you retire before your full retirement age (FRA) and start Social Security you’ll receive a permanently reduced benefit. If you wait past FRA you will receive delayed credits which increase your benefit by 8% for ever year you wait past FRA up to age 70.
How much money will you make per year until you retire?
Every year you work and make more money than in the lowest year of the 35 earning years Social Security considers, the lowest amount is replaced by a higher amount and your Social Security benefit goes up.
Are you a non-working spouse?
A non-working spouse or one with very little work history is eligible for a Social Security spousal benefit which can be as much as 50% of what the working spouse is eligible for at the working spouse’s full retirement age. Your age and when you choose to begin a spousal benefit determine how much you will receive.
Are you a spouse with some work history who is eligible for a spousal benefit?
Even if you are eligible for a spousal benefit, you cannot file for it until your spouse files for their own benefit. If you have some work history, you can file for a retirement benefit based on your own work record and then switch to the spousal benefit, if it is more than your own retirement benefit, once your spouse files.
Do you currently receive Social Security retirement benefits? If so, when did benefits begin and how much?
If you decide you made a mistake beginning your Social Security, you can stop receiving a Social Security check now and turn it back on later when your benefit will be higher. There are two options.
You can withdraw your original application for benefits once in the first 12 months since you claimed your benefits. You have to pay back all the money you’ve received since getting your first check plus any benefits paid to your spouse or kids and any money Social Security withheld, such as Medicare premiums.
If you’ve been getting retirement benefits for more than a year, withdrawal is not an option. But once you reach full retirement age you can request a suspension of benefits. Unlike a withdrawal, you don’t have to pay anything back, even if you’ve been retired for several years.
Does Social Security consider you disabled?
You cannot receive Social Security disability and Social Security retirement benefits at the same time. If you are on disability, Social Security automatically converts you to a retirement benefit when you reach full retirement age, but the benefit amount remains the same.
Are you single, married or divorced?
Your status will determine what benefits you are eligible for.
If you are married, how long have you been married?
You have to be married at least one year to claim a spousal benefit, as well as meeting all the other eligibility requirements.
If you are divorced, what was the date of the marriage and what is the date of the divorce?
It is possible to claim Social Security benefits based on your ex’s work history if:
- Your marriage lasted 10 years or longer
- You’ve been divorced at least two years
- You have not remarried
- You are age 62 or older
- The Spousal benefit is more than you would receive based on your work history
- Your ex is entitled to Social Security retirement benefits
The same spousal rules apply:
- The maximum benefit is 50%
- Your benefit will be less than 50% if you claim before your Full Retirement Age (FRA)
- Your Spousal benefit will not include any delayed credits earned by your ex
- You have to be at least 62 to claim the ex-spouse benefit
Do you plan to remarry?
If you remarry, you’re no longer eligible to claim a Spousal benefit based on your ex’s work history. But when you’ve been married to your new spouse at least one year, you become eligible for the Spousal benefit on your current spouse’s earnings record.
Have you been divorced more than once?
If you’ve been married more than once, both marriages lasted at least 10 years and both ended in divorce, then Social Security will look at your earnings history as well as that of each ex-spouse and your spousal benefit will be the largest one possible.
Are you a surviving spouse?
If your spouse dies before you, you’re eligible for the survivor benefit. If you’re receiving the spousal benefit (50% of what your spouse was entitled to at their Full Retirement Age) you can switch to the survivor benefit (100% of what your spouse was receiving at the time of their death), but you will lose the spousal benefit. You can’t double dip. And, you have to be at YOUR full retirement age (FRA) to receive the 100%. Claim the survivor benefit before your FRA and you will receive a permanently reduce amount.
How do we maximize the survivor benefit?
If you claim a spousal benefit, you are only entitled to a maximum of 50% of what your spouse was eligible for at their full retirement age (FRA). You never get the benefit of any delayed credits your spouse earns by waiting past FRA to claim.
The survivor benefit is another matter. The survivor is entitled to 100% of what the higher earning spouse was receiving at the time of their death.
To maximize the survivor benefit, the higher earning spouse can continue working up to age 70 when delayed credits stop. Delayed credits add 8% to the value of the higher earning spouse’s benefit amount for every year that claiming the benefit is postponed between full retirement age (FRA) and age 70.
For example, if a higher earning spouse dies at age 75, the survivor gets 100% of what the deceased spouse was receiving at the time of death which includes all the increased benefit amount from working until 70 plus the delayed credits plus all of the annual cost-of-living adjustments (COLA) the deceased spouse had received.
Do you have another Government Pension which would be considered a “non-covered” pension? If so, when did benefits begin and how much?
A non-covered pension is a pension paid by an employer that does not withhold Social Security taxes from your salary. The Government Pension Offset (GPO) adjusts Social Security spousal or survivor benefits for people who receive non-covered pensions.
What is your physical health?
Physical health can be the determining factor in when you begin Social Security. If you have health issues that will be long term, receiving your benefit now may be beneficial.
But if your health is good and you plan to continue working, postponing Social Security may make sense. You will contribute to the Social Security system longer, improving your chances for a larger check later.
Do you expect to live to 80?
Answering that question is tough. Looking at your family history may provide some clues. For Social Security purposes it comes down to your break-even age—how many years have to pass before waiting to take Social Security makes more sense than taking it early.
As an example, let’s say your benefit now would be $12,000/year. If you wait one year your benefit would be $12,960. To determine your break-even age, divide the $12,000 you won’t receive this year by the extra $960 you get by waiting one year ($12,000 / $960 = 12 ½) You would have to live another 12 ½ years to break even on your decision to postpone receiving Social Security for one year.
The formula works for any time frame—what your current annual benefit would be divided by the additional monthly amount you’re considering in the future.
What is your financial health?
How much money have you saved? How much retirement income will it provide? How much income will you need? Is the result positive or negative? If your need is greater, then the decision to take Social Security early may make sense.
If the income is more than you need for your retirement budget, then you may choose to postpone beginning Social Security, especially if you continue to work, and let the additional Social Security taxes you pay go into your account along with the delayed credits you’ll receive for waiting.
Yep, it’s a lot of questions, but the work to answer them will pay off when you receive the maximum Social Security benefit available to you. Just like my dad said, “Don’t leave any money on the table.
Disclaimer
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].
