social security basics

Let’s start with how Social Security works and look at some practical situations. Social Security benefits can be taken as early as age 62 or delayed up to age 70, with a significant difference in monthly monetary benefits between those eight years.

The baseline starting point is full retirement age (FRA), defined as follows:
– Born 1943-1954: age 66
– Born 1955-1959: age 66 plus two months or more in increasing increments
– Born 1960 and later: age 67

If you start taking Social Security between age 62 and your FRA, your benefit amount will be permanently reduced by up to 30 percent. There is no reduction or increase to your benefit amount if you take them at your FRA.

If you start benefits between your FRA and age 70, your dollar amount will be permanently increased by up to 32 percent; eight percent for each year you delay after your FRA.

Reasons to Start Early (before your FRA)
– You are no longer working or you earn a low income and need social security to supplement cash flow needs.
– You may be in poor health and have a shorter life expectancy.

Reasons to Delay
– You are still working and don’t need the social security income to make ends meet.
– You are retired and have other sources of income from a pension or other investments.
– You are younger than your full retirement age and plan to earn more than the annual earnings limit ($17,640 in 2019).

As a general rule, the lower-earning spouse should start benefits early. The Society of Actuaries suggests the strategy of the lower-earning spouse starting his or her benefits early (age 62 or when earned income would no longer reduce benefits), while the higher earner delays as long as possible. If both live to age 70, then the higher earner starts his or her benefit at a greatly increased amount. If the higher earner dies first, the surviving spouse switches to the higher amount.

How Are Spousal Benefits Determined?
Current spouses and ex-spouses (if you were married over 10 years and did not remarry prior to age 60) both have eligibility for the spousal benefit. You must be age 62 to file for or receive a spousal benefit, although you are not eligible to receive a spousal benefit until your spouse files for their own benefit first.

An ex-spouse must be at least age 62, but there is no requirement that the former spouse (off which the ex-spouse is filing) must have already filed for benefits.

A spouse can claim 50% of the primary worker’s full retirement benefits, provided the spouse is at full retirement age. A surviving spouse can elect to receive his/her deceased spouse’s benefits instead of their own.

You can only collect under one benefits program.

Cost of Living Adjustments
Legislation enacted in 1972 provides for cost-of-living adjustments (COLA) to keep pace with inflation. The adjustment for 2019 resulted in a 2.8% increase, the largest in seven years. This equates to an average annual benefit increase of $468 per year for each person receiving social security nationally.

What If I’m Still Working?
If you have reached your full retirement age, you can earn as much as you like and receive your full Social Security benefits. If you’re below your FRA, but eligible for some amount of benefits, Social Security will reduce your payments based on the following calculation:
– For every $2 in earned income above $17,640, $1 is withheld from benefits.
– In the year you reach full retirement age but are not yet there, $1 is deducted for every $3 in earnings above $46,920.

Note that if benefits are withheld, at least some will be returned to you in the form of higher monthly benefits once you reach your FRA. At that point, Social Security will recalculate your benefits to take into account the months in which your benefits were withheld. In addition, if your latest year of earnings turns out to be one of your highest years, Social Security will refigure your benefit based on the higher earnings and pay you any increase due.

How Do I Claim my Benefits?
Start the process three months before you want to begin receiving benefit payments. While it doesn’t take that long to enroll, starting early will allow time to iron out any wrinkles that may come up.

Filing does not need to be done in person – just go to www.ssa.gov and click on the “Retirement” box An application can be completed in 20 minutes.

If you prefer to work with a real live person, you can call Social Security at 800-772-1213 to set up an appointment at a nearby office. Note that the Social Security Administration generally doesn’t publish the phone numbers of their local offices. You can find your local office and its business hours at http://secure.ssa.gov/ICON/main.jsp.

Adam Kalender

Adam Kalender, CFP® is a Financial Planner with Madison Planning Group in W.hite Plains. He has taught a retirement planning course at WCC and facilitates educational workshops on specific topics, such as Social Security.Adam can be reached at 914-328-8558 or akalender@madisonplanning.com.Securities and advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC.Financial Planning and Advisory Services offered through Madison Advisory Services, Inc., a registered investment Advisor.

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