Social Security benefits should be one part of a broader retirement plan. As such, you will want to consider how these benefits supplement other sources of retirement income that you may receive from 401 K’s, individual retirement accounts or other retirement saving plans. Getting a complete Financial picture can help you determine when it’s appropriate and or necessary for you to start to claim your Social Security benefits.
Social Security Benefits When should I claim my Social Security?
The optimal time to collect varies by individual and is dependent on the Social Security benefits to which you (and your spouse) are entitled, life expectancy, when you plan to stop working, and what other assets or retirement income streams you have. That said, understanding how the system works can help you make an informed decision.
With Social Security, the basic thing to keep in mind is: Waiting to start claiming benefits can lead to increased monthly income. That’s because the amount you collect in the form of your monthly benefit, called your “primary insurance amount” (PIA), is related to how old you are when you begin to claim benefits.
When is the earliest that I can claim my benefits?
The earliest you can start collecting Social Security is age 62 – but there’s a catch. Collecting before you reach your full retirement age (FRA) means that you will receive a lower monthly payment – permanently. For example, if your FRA is 67, but you begin to claim benefits at 62, you’re signing up to get 30% less. But, this reduction will decrease for each month you wait after age 62, up until your FRA. Think of your FRA as your breakeven point.
How can I increase my monthly benefits?
If you can wait until after your full retirement age to collect, your benefit amount will increase each month until you turn 70. Those monthly raises are called “delayed retirement credits,” and they could boost your benefits by as much as 124% of PIA if you have an FRA of 67 and you wait until age 70 to collect. And maximizing your Social Security benefit could help you close any gap between what you’ve saved and what you want in retirement.
How do spousal benefits work?
You are entitled to a spousal benefit if you have been married to your spouse for at least one year, your spouse is collecting his or her individual benefit, and you are at least 62 years old. Or, if you currently qualify for a spousal benefit from a former spouse or meet certain other special exceptions, the one-year requirement is waived.
The amount you receive is equal to 50% of your spouse’s full Social Security benefit once you reach your FRA. As with individual benefits, if you opt to collect your spousal benefit prior to reaching your FRA, your benefits are permanently reduced. But unlike individual benefits, spousal benefits do not increase after you reach your FRA, so there is no added benefit to waiting.
There’s no double-dipping when it comes to Social Security benefits. In other words, you cannot add full spousal benefits on top of your individual benefits. Instead, you will receive the larger of the two amounts. However, if you were born before 1954 and are eligible for both individual and spousal benefits, you can file a restricted application to receive only spousal benefits (allowing your individual benefits to growing).
Unlike spousal benefits, the size of the survivor benefits you leave behind changes depending on when you opt to collect your individual benefits. So, if you take your individual benefits early, you are locking in lower lifetime income not only for yourself but also for your spouse should you die before him/her. If you delay receiving benefits to earn a higher PIA, that amount is eligible to pass on to your surviving spouse.
As a spouse, you may be entitled to survivor benefits if you have been married at least nine months at the time of your spouse’s death. You can collect survivor benefits as young as age 62, but if you do, those benefits will be reduced. Children and parents also may be eligible for survivor benefits, but only under specific circumstances.
The survivor benefits, if higher than other benefits you are already receiving (individual or spousal), would replace those benefits. Also, if you receive a pension based on work for which you did not pay into Social Security, your survivor benefit may be reduced accordingly.
Benefits after divorce
If you were married for at least 10 years but have been divorced for at least two years, and both you and your ex-spouse have reached age 62, then you may be eligible for spousal benefits based on your ex-spouse’s earnings history.
These benefits include the same 50% that applies to married couples. But, as with survivor benefits, if you earned a government pension while not paying into Social Security, your benefit could be reduced as a result.
Should your ex-spouse pass away, you may also be eligible for survivor benefits. You could receive the same benefits as a widow/widower, without affecting the benefits of other survivors. Similarly, if your ex-spouse remarries, you can still receive benefits without impacting the benefits of his/her current spouse.
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Michael Tannery CPA, CDFA® AIF®
Tannery & Company
Tax – Accounting – Wealth Management
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