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Your Financial Future: Social Security can pay off at — or after — full retirement age

4 min read

This column will focus on an important Social Security issue for anyone born before Jan. 1, 1954, who is not already receiving SS benefits. This date is key because of changes to the law in The Bipartisan Budget Act of 2015. This law eliminated the ability of anyone born after this date to file a restricted application for benefits.

There are several ways to collect SS benefits, and disability and young child benefits are not part of this discussion.

An individual can collect based on his or her work record. The Social Security Administration will look at your 35 highest earning years and calculate a benefit amount, which is what you would receive at full retirement age. Full retirement age for anyone born before 1954 is 66, and it’s 67 for anyone born after 1960. In between, the age goes up two months each year.

At full retirement age, you get 100 percent of your earned SS. You can elect to begin benefits at age 62, but if you do, you will receive reduced benefits for the rest of your life. For someone who needs to be 66, you would receive only 75 percent of your full benefit. So if you would have gotten $1,000, your reduced check would be $750.

It takes living to around age 72 to break even. At that time, you would receive more total income by waiting until full retirement age.

People who need to be 67 would lose even more by starting Social Security early. SS is one of a few retirement assets that include a cost-of-living benefit. This helps you keep up with inflation.

You also can collect SS from a spouse’s work record, as long as you have been married for at least nine months. If you have reached full retirement age, you are entitled to half of your spouse’s benefit at full retirement age.

If you have your own work record and are married, SS will look at your own record first and give you some spousal add-on under certain circumstances. This would be if half of your spouse’s benefit would be worth more than your own. If you would get $300 per month on your record because you did not work much outside of the home and your spouse would receive $1,000 per month, there could be an additional $200 per month benefit added onto your check. This assumes you have reached full retirement age.

You also can earn delayed credits for not starting to receive benefits until after full retirement age. Benefits grow 8 percent a year until age 70. This means someone born before 1954 could receive 132 percent of their SS benefit for the rest of their lives. We will review other SS rules in a future column.

Now that we have covered the foundation, look at the important opportunity for anyone born before Jan. 1, 1954, and not yet taking SS. You may have a right to file a restrictive application. This means you could receive a benefit of half of your spouse’s SS and let your own grow 8 percent per year until age 70, then switch to your own.

Younger people and people who have already started their own benefit for more than 12 months do not have this right. Exercising this option could be worth tens of thousands of additional dollars of income.

I recently had one client ask about receiving spousal benefits in this type of case and the SS office said her husband did not earn enough money for her to receive a spousal option. They did not understand she was really asking about doing a restricted application, which can be done online.

Fortunately, she can withdraw her first application and get this corrected because it happened within the past 12 months. If you qualify for this special option, it may be beneficial to utilize it.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.

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