2 Jan 2017
You’ve been paying in to Social Security for decades and now you’re ready to start collecting benefits. Before you make the very important decision of when to start collecting your Social Security benefits, you need to consider your own personal situation. It’s a complicated question which depends on a number of factors such as savings, other income and health. Should you claim benefits at age 62, at your full retirement age (FRA) which is between 65 and 67 depending on the year you were born, or at age 70? We’ve laid out a few scenarios to illustrate why you may or may not want to wait.
Joanne is 62 and employed part-time at a minimum wage job. She is in need of additional income to help make ends meet. Joanne elects to file for benefits at her first opportunity at age 62. By electing to take benefits before her FRA of 66, she will be getting a reduced benefit (about 25% lower than her FRA benefit), and if her salary is more than the current $15,720 Social Security earnings limit, Social Security will take back $1 for every $2 over the earnings limit until she reaches FRA.
Martin has reached his FRA at age 66. Recently diagnosed medical issues make it likely that Martin has a limited life expectancy. He sees no reason to wait to claim his benefits and chooses to use them in the time he has left.
Danielle, age 61, is currently employed full time, as is her spouse. Both Danielle and her husband are happily employed and make a comfortable living. Danielle decides that because there is no immediate need for extra income and she would like to continue to work, she will wait until age 70 to collect her benefits. By waiting past age 62 when she was eligible for benefits and past age 66, her FRA, Danielle’s benefit will increase by 8% per year from age 66 to 70, giving her the maximum benefit and potentially providing substantially more total benefits than she would have otherwise received.
The above scenarios are only meant to illustrate why claiming benefits at 62, your FRA, or at 70 are very personal choices. And you may need to consult a financial advisor to help guide you through the decision-making process, taking into account many other variables about your life.
(The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not be suitable for all investors. Each customer’s specific situation, goals, and results, may differ.)
While we cannot tackle all there is to know about Social Security on one page, the following questions and answers should be considered if applicable to your situation:
Q: How long do I pay into Social Security? If I’m in my 70s and working part-time, do I keep paying in? And do I pay tax on the Social Security benefits that I’m receiving at that point?
A: As long as you have “earned income,” you continue to pay into Social Security. It does not matter how old you are or if you are collecting benefits. And yes, you will pay tax on the benefits you receive.
Q: My husband and I receive Social Security benefits entirely from his work years since I always remained at home caring for our family. If he passes away before I do, will I continue to receive the same benefit we are currently receiving?
A: Your benefit would depend on your specific situation based on your age, if you are disabled, are caring for a child or a dependent parent of your deceased spouse. Generally, if you are of Full Retirement Age as was your husband, you will receive 100% of his benefit as a survivor benefit.
Q: My husband and I are each in our 70s and we each receive Social Security benefits from our years of work. He earned a lot more than I did so his monthly check is about 30% higher than mine. If he passes away before I do, will I be able to receive his higher monthly benefit?
A: Yes, if your spouse passes away, you will be eligible to collect benefits based on your spouse’s earnings history. Unlike spousal benefits, which max out at 50% of the spouse’s primary insurance amount, survivor benefits are usually equal to the benefits the deceased spouse had been receiving. Survivor benefits are impacted by when the deceased spouse began collecting benefits. This is why married couples’ strategies should account for the life expectancies of both spouses.
Q: I am 64 and getting remarried [my first husband passed away 8 years ago]. I was planning on taking spousal benefits at my full retirement age based on my first husband’s work record. Will I still be able to do that after I remarry?
A: Yes. If you remarry after age 60, you may collect survivor benefits based on your deceased spouse’s earnings history. If you wait until your FRA of 66, you could generally collect 100% of your deceased spouses benefit. If you are under FRA, you receive a reduced benefit.
[Source for all information cited: www.ssa.gov]
Amy Weiser is a Financial Advisor with Morgan Stanley Global Wealth Management in Stamford, CT. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice.Morgan Stanley Smith Barney, LLC, member SIPC.