SOCIAL SECURITY
As with most things, Social Security (SS) is more complex than it might seem. We will discuss the general concepts to assist in understanding how this national program works, answer common questions which are often misunderstood and finally, send you to either the Social Security web-site or to its local office. Then on to a Medicare outline.
Yes, you may begin drawing your SS benefits when you reach the age of 62, which is assuming you qualify for those benefits. If you don't know, and are not receiving an occasional update from SS, contact the agency to confirm your status. If you do not qualify, find out what you need to do to qualify and then decide if it is worth the effort.
You may elect to postpone your retirement until you reach what is called full retirement age, which is now on a sliding scale determined by the year in which you were born.
Age To Receive Full Social Security Benefits
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Full Retirement Age
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When to start is your decision and is deserving of evaluation and consideration. The first deal breaker can be if you are still working and under the full retirement age. The Social Security Administration allows you to have earned income, but not too much. If your earned income is above a certain level, SS will require you to repay some of those benefits you received. Remember, that earned income is money you receive as a reward for actually working and receiving a W-2 or your self employment income derived from personal efforts. Here are the current limits:
- If you are under full retirement age (FRA), your SS payments will be reduced by $1 for every $2 you earn above $12,000 in the year 2005.
- In the year you reach FRA, you may earn $31,800 (in 2005) before you lose $1 for every $3 you earn above that.
- Starting with the month you reach FRA, you may have unlimited earned income and still receive your full SS benefits. In other words, you can work full time and not be penalized.
What we just said was: If your earned income is much above $31,800 before your retirement date, you may do better to wait until January of the next year to retire. If this is a possible issue for you, go talk to SS and work out the numbers for your best choice. Note that this earned income payback provision has nothing to do with the taxability of your SS benefits. You could have to pay some back and still get taxed on what you can keep. We discuss the taxation under the Taxes Topic.
The amount of your SS benefits are determined by the following factors: The years you worked, the amounts you earned relative to the maximum SS taxed annually, and the age you begin drawing your benefits. Social Security will provide you with your work history and earnings that have been reported to them. Double check those numbers; they may not be right. Your best resource is your retained copies of old tax returns. If those are not available, you could find previous employers who actually reported your earnings.
This brings us back to our original question: when should you begin drawing your benefits? Knowing that the longer you wait, the more you will draw can be quantified by the Social Security Administration because each month that you delay beginning withdrawals, the more you will receive. Here are examples of the tradeoff.
Example #1 |
Year of birth: ................................................................................. 1937 |
FRA: ............................................................................................... 65 |
PIA: .......................................................................................... $1,000 |
Monthly benefit at 65: ................................................................. $1,000 |
Monthly benefit at 62: ........................................... $800 (80% of the PIA) |
(36 months before FRA) |
$800 x 36 months = $28,800 initial advantage at age 65. $28,800 ÷ $200 (permanent reduction) = 144 months or 12 years. The initial advantage continues until age 77 (65 + 12), which is the break-even age for total lifetime benefits. |
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Example #2 |
Year of birth: ......................................................................... 1943-1954 |
FRA: ............................................................................................... 66 |
PIA: .......................................................................................... $1,000 |
Monthly benefit at 66: ................................................................. $1,000 |
Monthly benefit at 62: ........................................... $750 (75% of the PIA) |
(48 months before FRA) |
$750 x 48 months = $36,000 initial advantage at age 66. $36,000 ÷ $250 (permanent reduction) = 144 months or 12 years. The initial advantage continues until age 78 (66 + 12), which is the break-even age for total lifetime benefits. |
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Example #3 |
Year of birth: ...................................................................... 1960 or later |
FRA: ............................................................................................... 67 |
PIA: .......................................................................................... $1,000 |
Monthly benefit at 67: ................................................................. $1,000 |
Monthly benefit at 62: ........................................... $700 (70% of the PIA) |
(60 months before FRA) |
$700 x 60 months = $42,000 initial advantage at age 67. $42,000 ÷ $300 (permanent reduction) = 140 months or 11 years. The initial advantage continues until age 78 and 8 months, (67 + 11 years 8 months), which is the break-even age for total lifetime benefits. |
In our view and assuming you have done your planning as per the section on that topic, and can afford to retire, we have found that people are enjoying retirement from age 62 to age 75 a lot more than retirement after that age.
If you should become disabled, you may apply for SS disability benefits before reaching retirement age. The rules for qualifying for that benefit are harsh. They use the terms 'total and permanent' which may be difficult to achieve. Our suggestion is to reapply should you be turned down the first time as it seems to us that first time applications are often refused.
Benefits for Family Members
If you are receiving retirement benefits, some members of your family can also receive benefits.
- Your spouse age 62 or older.
- Your spouse under 62 if caring for your child who is under 16 or disabled.
- Your former spouse age 62 or older if you were married 10 years or more.
- Children up to age 18.
- Children age 18-19, if they are full-time students through grade 12.(In the old days college counted, but not any more.)
- Children over age 18, if they are disabled.
- Your ex-spouse, if you were married 10 years and the ex-spouse is 62 and not remarried.
- Your widow or widower at age 60.
• Social Security 1-800-772-1213 can clarify.
A non-working spouse receives one-half of the retired worker's full benefit unless the spouse begins collecting benefits before full retirement age. In that case, the amount of the spouse's benefit is permanently reduced by a percentage based on the number of months before she or he reaches FRA. If the spouse is eligible for both earned and spousal benefits, he/she gets the larger benefit.
When he dies (this includes two assumptions; guys, women live longer and we are probably older, so we should die first, and second we guys typically have higher SS benefits.) This all means that she will start receiving the deceased (his) payout amount and not her previously received lesser amount. SS will figure out how to get the maximum pay. Remember you must let SS know of changes ASAP.
Information you need to provide to begin receiving benefits
- Your Social Security number
- Your birth certificate. (This must be a State document, hospitals give out fancy documents but that is not what you need, I found out the hard way.)
- Your W-2 or self-employment tax return for last year. SS needs your latest earnings.
- Your military discharge papers if you had military service. DD 214
- Your spouse’s birth certificate and SS number if he/she is applying for benefits.
- Children's birth certificates and SS numbers, if applying for children's benefits.
- Sometimes a marriage certificate will be needed.
If you are signing up for direct deposit, and they push for you to do it, you will need your bank information.
Social_Security
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