Social Security Strategies

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What is the best age to start receiving retirement benefits – i.e. Social Security? This often asked question requires thought and analytical assistance.  We are here to assist you.

Social security is thought of as supplemental retirement benefits. But for many dual working spouses this supplemental retirement benefit is a strong primary retirement benefit. The strength is dependent on our assistance to you and your ultimate decision on how best to choose among the options available. Also, as we pointed out in our web site page Nest Egg_Tax Wise Spend Down the strength of this benefit is dependent upon your understanding how taxes apply to social security. Go ahead and reread that page and return here when appropriate. Do not hesitate to call us with your questions.

Critical to understanding the choices available under social security are the following terms:

Full retirement age For those born between 1943 and 1954 theAge is 66. Those born between 1955 and 1959 reach full retirement age between age 66 and 67. Full retirement age is 67 for those born in1960 and later.
Primary Insurance amount The Social Security benefit an individual receives at Full retirement age. This amount is based on the AIME discussed below with the further modification known as bend points.
Delayed Retirement Credit The annual amount by which the initial benefit is increased year if claiming is delayed past Full retirement age.
Cost of Living Adjustment “COLA” The amount social security increases annually based on increases in the cost of living.
Avg Indexed Monthly Earnings The AIME is calculated by taking the highest-earning (by index) 35 years of your working life while covered by Social Security, and then computing an average monthly amount based upon those indexed amounts.
Web sites– “Bud” Hebeler’s site [Fee applies] [Fee applies] [Fee applies]

Phone number Social Security toll free phone number = 800-772-1213

Ok, so let’s delve into the social security benefit system. 

First, let’s understand the worker benefit.  Your taxable (aka FICA or self employment taxes) earnings for the highest 35 years are averaged using a defined indexing system with a bend point weighting.  There is no need to understand all the computational nuances, it boils down to maximizing the earnings over 35 years, and as you reach age 62 and thereafter dropping low earning years in favor of higher earning years.  If you claim benefits before full retirement age (age 62 is the earliest year you become eligible) reductions apply to your PIA and you receive less. If you delay benefits until age 70 you receive a mandatory (in the law) delayed retirement credit equaling 8% plus a COLA increase for each yearly delay from full retirement age. Current short term interest rates and inflation are nowhere near 8%. It is important to consider delaying social security to earn a compounded 8% benefit increase to age 70.

Spousal benefit

Most people think of the social security spousal benefit as one-half of the worker benefit. There is an important but often misunderstood nuance to the spousal benefit.  If the spouse has an earnings record (earnings subject to FICA or self-employment taxes), the spousal benefit is the difference between one-half of the higher earning spouse benefit and the lesser earning spouse worker benefit. This nuance is important because a lesser earning spouse could file a restricted application requesting spousal benefits and letting their worker benefit continue to grow (and receive the delayed retirement credit until age 70). Critical to this restricted application is the higher earning spouse must have reached full retirement age.

Survivor benefit

Upon the death of one of spouses, the surviving spouse receives the greater of:

a)  His/her own then current benefit, including any COLAs, or

b)  The deceased spouse’s then current benefit, including any COLAs (item a drops off whether it was a worker benefit, a spousal benefit, or some combination of the two)

Survivor benefits become stronger when combined with a delay in claiming benefits for a higher earning spouse. The survivor benefits continue for the remaining life of the survivor including the end of life years when cognitive abilities decline. Lessening the financial burden on other family members and available public benefits is important in our culture.

Strategies for Married Couples

File and suspend – eliminated in May 2016. No longer available.

File a restricted application – Available only to those age 62 and older in year 2015. Assuming one spouse has reached full retirement age, a spouse can apply for spousal benefits based on the higher earning workers work record.  The spouse could request their own earnings record continue to build until age 70 thereby earning an 8% delayed retirement credit.

Watchful impermissible combination – It is not permissible for each spouse to file and suspend his or her own worker benefits and then file a restricted application for a spousal benefit based on the other’s work record.