Today we are going to discuss Social Security, one of the most valuable retirement assets you can have.
You have been paying into SS starting with your first job. The employer and employee fund this important benefit; self–employed individuals pay both halves.
Today’s discussion will only consider SS retirement benefits. Many people have three different ways to collect benefits. First is from their own work record. The Social Security Administration considers your 35 highest earning years. They use some calculations that adjust for inflation over your working life. If you wait until your full retirement age (FRA), you will receive 100% of your earned benefit. FRA depends on the year you were born in. Everyone born before 1954 have a full retirement age of 66. People born after 1960, have to be 67. Each year in between goes up two months.
You can start receiving SS at age 62, but your check will be smaller for life. At 62 you lose 25-30% of your benefit for life. You get more checks, but they are always smaller. Smaller checks receive smaller cost of living increases. If you delay starting your benefit at FRA, it increases 8% a year up to age 70.
People, who are married, get a special benefit. If you have been married for at least 9 months, you might be eligible. If one spouse never worked outside of the house, they could be eligible to receive 50% of their spouse’s primary insurance amount (PIA) at their full retirement age. PIA is the amount you would receive at full retirement age.
If the spouse has their own SS work record, the SSA would consider their own record first. If you would receive $800 per month on your record and half of your spouses would be $750, you will receive your amount of $800. If half of your spouse’s is more than your own earned amount, you will receive the higher number.
If your spouse has passed away, you can receive a survivor’s benefit. Upon death, one SS check will stop. The good news is it will be the smaller one. However, if your spouse started receiving checks before their full retirement age, your check will be smaller. Upon one death, income goes down, many expenses remain the same and taxes go up because you lose a personal exemption and hit higher tax rates sooner. This is why SS planning is important.
If you were married for at least ten years and divorced, you may be eligible to use the ex’s work record. As long as you have not re-married, their record can be used to determine spousal benefits. It does not matter whether the spouse re-married or not. You may also be able to collect survivor’s benefits from an ex-spouse after they have passed away. If you are married, your spouse must have filed for benefits for you to use their work record.
Having a plan to increase lifetime SS benefits can be very valuable. Normally the spouse with the highest benefit should try to wait to full retirement age or older to begin their benefits. This is because their account affects both spouses. Many couples receive hundreds of thousands of dollars or much more in lifetime SS benefits. These extra dollars can have a huge impact on your retirement.
Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
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