Social Security Secrets
Social Security Secrets can be enormously complex. It’s easy to make the wrong decision when considering benefit strategies. But if you do, you potentially could leave tens of thousands of dollars on the table and never get to use them in your retirement. Over half of Americans begin to take their Social Security benefits as soon as they can, according to the U.S. Census Bureau, leaving significant lifetime guaranteed income benefits on the table. Social Security benefits typically make up 25%-50% of a middle class person’s income in retirement.
Over a lifetime, they can add up to more than $500,000 for many people, even over $1 million for some. So, make sure that you get everything you have coming to you. After all, you’ve been putting money into the Social Security system for more than two-thirds of your life. Social Security also offers many tax advantages, and benefits can grow based on cost-of-living adjustments. Coordinate your Social Security benefits with your overall retirement plan for best results. To help you make an informed decision, here are 25 tips on how to get the most from Social Security.
1. You may be rewarded for waiting to take your Social Security benefits
Understand how waiting each year before you begin to collect Social Security benefits will add to your monthly benefit. After your full retirement age, for every year you delay your benefits, your benefit will increase by 8% each year. Before your full retirement age, your benefit will be reduced by 6.7% for every year you take benefits early.
2. Don’t wait beyond age 70
Social Security benefits no longer grow past age 70, so don’t continue to delay the benefit, you’ll be leaving money on the table.
3. Suspend your benefits for a deferred credit
Afraid you started your benefits too early and want the benefits to grow? You can suspend your benefits once you reach your full retirement age and then get the delayed credit. For example, if you took your benefits at age 62, you could suspend them at age 66 and receive the 8% annual deferred credit for the next four years until you reach 70. At that point, you’d receive 32% more in monthly benefits. This strategy is known as “start, stop, and restart.” Sometimes this strategy makes sense. You do have to give up benefits for a few years, but in some cases, it can be well worth it.
4. By deferring benefits you may be able to receive up to 76% more
If you defer your Social Security benefits from age 62 to 70, you could potentially receive as much as 76% more in monthly benefits. If your monthly benefit were $1,333 at age 66, then it would be reduced to $1,000 at 62 (25% less). And if you wait until 70, your monthly benefit in this case would be $1,760 (32% more with deferral credits of 8% per year). That’s a 76% increase over the monthly $1,000 you’d get at age 62.
5. Consider your spousal benefits
If you are married and earn less than your spouse, it may make more sense for you to collect your spousal benefit. Keep in mind, you can only do this once your spouse spouse has filed for benefits or suspended benefits. If you begin to take benefits before age 66, you could limit other options down the road.
You may not know whether you have a spousal benefit available to you. Only one person in the couple may take the spousal benefit, not both. To be able to elect spousal benefits, one must file for benefits or suspend. The spousal benefit is half of what the other spouse’s benefit is or was at full retirement as long as the spouse is collecting the benefit at full retirement age. If you take a spousal benefit prior to your full retirement age, benefits will be reduced.
6. Divorced? Spousal benefits still possible
If you are divorced and were married for at least 10 years, both you and your ex-spouse can collect on each other’s work history Social Security benefit. This won’t affect your own benefits, and your ex-spouse doesn’t need to know if you collect off of his/her benefit. You are able to collect a spousal benefit as long as your ex-spouse has reached age 62. Note that your ex-spouse also does NOT have to start collecting a benefit for you to start collecting a spousal benefit.
The same rules apply if you take Social Security before your full retirement age, where you could be filing a deemed application, even though your ex-spouse hasn’t filed. Once you reach full retirement age, you can collect half of your ex-spouse’s full-retirement-age benefit. Meanwhile, you can maximize your benefit by continuing to defer it and allow it to grow until you are 70. You must be divorced for two years before you are allowed to take advantage of the ex-spousal benefit.
7. Don’t wait beyond full retirement age
Whether you take a spousal benefit, or an ex-spousal benefit, there is no advantage to waiting beyond your full retirement age to take the benefit. At your full retirement age you may receive 100% of these benefits.
8. Social Security allows for a Redo
Think you made a mistake and elected for benefits too early? No problem, you have up to 12 months from the date you filed to file Form 521 for a redo. You will be required to repay ALL social security benefits you have receieved, it is somewhat misleading unless you follow it with one year from the date you filed (ss checks are delayed 30 days + after filing so it is important audience understands it is not 12 months from date of receiving first benefit.)
9. Replace zero years with earnings
Your Primary Insurance Amount is calculated based on your top 35 years of earnings. This is the amount you will receive at your full retirement age. Pull out your Social Security statement and review your work history. If you have years with no income, replace them with years in which you earn income. If you were a stay-at-home parent while your children were in school, you might only have 25 years of work history. Every additional year you work would replace a zero-income year with an income year and your benefit will grow. Increased earnings could substantially increase your eventual benefit.
10. Take advantage of survivors benefits
If you are a widow or widower, you could receive a benefit as early as age 60. While receiving a survivor benefit, your own benefit could keep growing until age 70. For example, Sue, a widow, could collect $2,000 at her full retirement age at 66. Her survivor benefit is $1,800 at age 60. She can take the survivor benefit for 10 years, and then turn her benefit on at age 70. With the annual deferral credit of 8%, her benefit would grow to $2,640 plus cost-of-living adjustments. Don’t forget this social security secret.
11. With early benefits you may be taxed on earned income
If you do take benefits before your full retirement age, you may be restricted on how much you are able to receive if you are working. For 2015, you may earn $15,720 before it affects your benefit. For every $2 above $15,720, Social Security will withhold $1 of your benefit. Revisiting Sue, let’s say she decides to take the survivor benefit of $1,800 a month while still working, and she earns $30,720. That means Sue will earn $15,000 more than the $15,720 maximum before it affects her benefits. The $15,000 excess earnings would be reduced by $7,500. Her total annual survivors benefit of $21,600 would be reduced by$7,500, leaving her with $14,100.
12. Understand the rule
What if you don’t have a survivors benefit available to you and you plan to take your benefit prior to your full retirement age while still working? The same thing applies: the amount of income you can make before it affects your benefit is $15,720. Now just because you didn’t receive the benefit, or they withheld some of the benefit, doesn’t mean you’ll never see that benefit again. It will be recalculated when you reach your full retirement age to adjust for the benefits you didn’t receive. And after your full retirement age, there are no restrictions.
• The $15,720 is based on wages/earned income, but not investment income
(IRAs, 401(k)s, dividends or interest).
• The income is based on the individual, not a couple. What your spouse earns has
no bearing on the taxation of your benefits, even if you file taxes jointly
13. Know what counts as taxable income for Social Security and strategize
To determine whether you owe federal taxes on your Social Security benefit depends on how much income you earn, including income from 401(k), IRA, 403(b) accounts and pensions. Even municipal bond income, which is considered tax-free, is counted as income when calculating how much of your Social Security benefit is taxable. Roth IRA’s aren’t counted as income. It might make more sense to draw from your taxable accounts earlier so you can keep more of your Social Security benefit.
14. You may be affected by the Windfall Elimination Provision
You may be subject to the Windfall Elimination Provision if you receive a pension from work where you did not pay in to Social Security. Sometimes we see this with a government agency or someone who worked for a railroad. There is a modified formula to calculate how much benefit you will receive. Ultimately, this will reduce your Social Security benefit.
15. Be aware of the Government Pension Offset
There is also something called a Government Pension Offset provision: If you receive a pension from a federal, state, or local government where you did not pay Social Security taxes, your Social Security spouse’s or survivors benefit may be reduced. This doesn’t take effect until you start collecting your non-covered pension. So, it may make sense for you to wait to collect on your
16. Your children could receive a benefit
Did you know there is a children’s benefit? Dependent children can collect child benefits until age 17 (19 if they are still in high school) if you or your spouse, or even your ex-spouse, are collecting benefits. Once you reach age 62, your children may receive a benefit as long as you are collecting benefits.
Let’s say your children can collect on benefits because your spouse or ex-spouse is receiving benefits. That would then allow you to collect parental benefits until your child reaches age 16. Your children can collect survivor benefits if your spouse or ex-spouse died and if they are under age 18 (19 if they are still in high school), or independent of age if they were disabled before
17. Be careful with spousal benefits
Be careful when collecting a spousal benefit and delaying your own benefit and not paying Medicare out of your own pocket. If you don’t pay it directly, Social Security will pay it for you and you won’t receive your delayed credit for deferring your benefit and your benefit would remain the same.
18. Be careful with disability benefits
Another gotcha is if you collect disability benefits and your spouse is trying to collect his/her own benefit, they are actually filing a deemed application. That means they have to collect whichever benefit is higher, and you can no longer use a spousal strategy.
19. Know the threshold for taxing Social Security
Be aware that Social Security benefits are taxed above these thresholds: Up to 50% of your Social Security benefit could be taxed if your provisional income is more than $25,000 if you file single, or $32,000 if you are married and file jointly. Below that, none of your Social Security benefit is taxable. And if your provisional income is greater than $34,000 (if single) and $44,000 (if married), up to 85% of your benefit could be taxable.
20. Consider Social Security benefits when you remarry
If you get divorced and remarry, you will not be able to receive a spousal benefit on your ex-spouse’s work history. When considering whether it makes financial sense to get married when you are older, take into account your Social Security benefit. Ideally, you should be increasing it rather than decreasing it when you are getting married.
21. You can collect survivor benefits on an ex-spouse
If your ex-spouse passed away, you could collect survivor benefits and remarry after age 60.
22. You could make a choice if you have more than one ex-spouse
If you were married for 10 years or longer, got divorced, then married someone else for 10+ years and then divorced, you could collect a spousal benefit from your choice of ex-spouse. It wouldn’t have to be your latest husband/wife; you could select the higher benefit.
23. Consider your spouse as well as your situations
Think about you and your spouse together when strategizing on Social Security benefit strategies. As a married couple, when one of you passes away, the larger of your Social Security benefits will remain. By maximizing the largest benefit, you will also leave a larger survivor benefit.
24. You have an opportunity to receive COLA benefits
Just because you aren’t collecting your benefit if you delay taking benefits, that doesn’t mean you are missing out on the cost-of-living adjustments (COLA). A common mistake is to take your benefit earlier for fear of missing out on these inflation-related adjustments. Even during deferral, your benefit will increase by the COLA regardless of when you take the benefit.
25. Consider all your options
When strategizing your Social Security benefit, determine whether you’ll be ahead by working longer or taking from other assets to help you defer your Social Security benefits. Look at all your options.
There you have it, what I consider to be the top 25 tips to help you get the most from your social security benefits. The information presented above will get you started, however, if you really want to help ensure you leave ‘no stone unturned’ and that you are making the best possible decisions about your social security benefits, I invite you to get your complimentary Social Security Report & Analysis. You will learn exactly when you should start claiming your social security benefits, and how to structure your retirement plan to help make sure you get all that you are entitled to and that your retirement income is maximized.
Want to know more social security secrets?
If you have any questions about retirement in Minneapolis feel free to come pay us a visit!
Let's be honest- saving money is certainly not easy. Most of us save a small increment of our checks, and the rest goes to bills and life. In addition, we don't always know the in's and out's and trick to retirement savings accounts. Or what kind of benefits we could...read more
Grandma's house is such a simple place where so many of us have created so many memories. Baking cookies with grandma playing airplane with grandpa, running around in the backyard with our cousins. Making all of these precious memories all because our grandparents...read more
According to the Merriam-Webster dictionary, the definition of retirement is the "withdrawal from one's position or occupation. Or "or from active working life." The other definition is "an act of retiring: the state of being retired." I understand you probably know...read more
How many of us want to retire early? Basically everyone right! Who wouldn't want to retire early, is the real question. But what's an even more vital of a question than that? HOW can you retire early, especially in this economy. Retirement is often viewed as a happy,...read more
If you have not downloaded our FREE Retirement Guide yet, you most certainly should! Get your now by clicking HERE! If you are getting ready for your next phase in life- Retirement- you've come to the right place. It means you have decided to take a more active role...read more
While there are an overabundance of beautiful places in the US to retire, we like to think Minnesota is the best choice! If you already live in Minnesota, and are ever-so-slightly nearing your retirement years, you are leaning towards permanence here right? You likely...read more