Shrewd Social Security planning can ensure your financial security
Whether you were already planning to retire or might need to do so earlier due to COVID-19, understanding Social Security is an important first step.
It is one of the most valuable retirement assets you can have. You have been paying into SS starting with your first job. Both the employer and employee fund this important benefit. Self-employed individuals pay both halves.
Today’s discussion will consider only 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, and uses some calculations that adjust for inflation over your working life.
If you wait until your full retirement age, you will receive 100% of your earned benefit. FRA depends on the year you were born. Everyone born before 1954 has a full retirement age of 66. People born after 1960 have to be 67. FRA goes up two months for every year in between.
You can start receiving SS at age 62, but your check will be smaller for life. At 62, you lose 25 to 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.
Married individuals get a special benefit. If you have been married for at least nine months, you might be eligible. If one spouse never worked outside of the house, he or she could be eligible to receive 50% of their spouse’s primary insurance amount at their full retirement age. PIA is the amount you would receive at full retirement age.
If the spouse has his or her own SS work record, the SSA would consider that person’s 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 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 10 years and divorced, you may be eligible to use your former spouse’s work record. As long as you have not remarried, the ex-spouse’s record can be used to determine spousal benefits. It does not matter whether that spouse remarried. You also may be able to collect survivor’s benefits from an ex-spouse after he or she passed away. If you are married, your spouse must have filed for benefits for you to use that 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 until full retirement age or older to begin benefits. This is because that person’s 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.”
To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.