Financial Advisors and clients should discuss Social Security filing strategies as part of a coordinated approach to maximizing retirement income. Social Security is not as easy as you think, and a single mis-step can cost you!
There are two thousand, seven hundred and twenty-eight rules in the Social Security Handbook covering provisions of the Social Security Act, regulations issued, and case rulings. Attempting to sift through the complexity and understand the specific rules that apply to your circumstances is a challenge, so how are soon–to-be-retirees supposed to make a decision about when to claim Social Security?
When to start collecting benefits is the most important retirement financial decision folks will make.
Not everyone who retires from work takes their benefits immediately. Some folks hold off on collecting Social Security, yet for some it makes financial sense to take those benefits while still working. Whether you are approaching retirement or a few years away, do you feel comfortable which claiming decision is best for you and your family?
Here are some tips to tuck away for when you are ready to have the conversation about Social Security and retirement benefits:
- Once you begin collecting, your monthly benefit remains permanent. If you begin collecting at age 62, your benefit will not increase over time (except as adjusted for COLA!). Social Security retirement benefit amounts increase every month you delay collecting them. This adds up to about 8% per year and is 76% higher at age 70 than age 62.
- The full retirement age is 66 for those born in 1943 through 1954 and increases by 2 months for each year born from 1955 to 1959, with a full retirement age of 67 for those born in 1960 or after.
- Divorced individuals are eligible to collect ex-spousal benefits based on the earnings of their former spouse if they were married for 10 years or more, are at least 62, are single, and if the amount is greater than what they would receive based on their own earnings.
- Social Security beneficiaries are not guaranteed an annual cost-of-living-adjustment because COLA is based on inflation and it can be 0% as it was in 2009, 2010 and 2015.
- When one partner of a couple dies, the survivor does not receive both benefit amounts. The surviving spouse receives the higher amount of the two benefits.
- A spouse who has never worked or earned income may still collect Social Security spousal benefits based on their spouse’s earnings record. There are rules that determine how much this amount is, but it is never greater than 50% of what the other spouse’s retirement benefit is at that spouse’s full retirement age.
- Some children may be eligible to receive Social Security benefits. The minor and/or adult disabled children of a retired worker are eligible to collect “child” dependent benefits when a parent begins collecting retirement benefits.
- Many teachers and other government workers who receive pensions may not be eligible to collect spousal or survivor benefits. BUT, if they are entitled to retirement benefits, the Windfall Elimination Provision (WEP) rule can only reduce the amount, not eliminate it entirely.
- Workers do not need to be U.S. citizens to qualify for Social Security. Immigrants who are granted the status of Lawful Permanent Resident are also eligible for benefits assuming they’ve earned enough credits and meet the other specific criteria.
- You can change your mind if you regret collecting Social Security. Once you start claiming benefits, you may change your mind, but only within the first 12 months. You may withdraw your application and pay back the funds you have collected and then refile later.
Couples should be coordinating their benefits to maximize the future survivor benefit. Divorced individuals should have an understanding of ex-spousal benefits. Surviving spouses must make the most advantageous claiming decision available. Review whether you should wait to claim spousal benefits or if you should delay collecting until your full retirement age. Depending on your situation, you may be able to take advantage of claiming an ex-spousal benefit now, and then later switch to your own higher retirement benefit.
The decision of when to claim benefits is much more complicated than simply choosing a date to start. No one likes to “leave money on the table.” The maximum monthly benefit for those retiring in 2021 at their full retirement age of 66 and 2 months is $3,134. If each spouse has these high earnings, their lifetime amount over 20 years would be $1,504,251. For those waiting to collect until age 70 this year, the amount is $1,869,600. That is a big chunk of change.
And there is good news ahead, millions of Americans collecting Social Security and Supplemental Security Income (SSI) will get a 5.9% bump in 2022, the highest inflation adjustment in 40 years. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000, a release from the Social Security Administration said. That is up from $142,800.
For workers younger than the full retirement age of 66 or 67 (depending on their birth year), the release noted that their earnings limit will increase to $19,560. And people reaching their full retirement age in 2022 will see their earnings limit increase to $51,960. Currently there is no limit on earnings for workers who are at full retirement age or older for the entire year.
Reach Out To Us: As someone who specializes in Social Security planning, I can say with authority that a lack of Social Security knowledge can have a negative impact on the security of one’s financial future. You have worked hard and contributed into Social Security for many years and you should plan ahead to maximize your benefits. Unfortunately, there isn’t a lot of practical education about how someone’s life circumstances affect Social Security benefit filing plans. Work with a professional and discuss your options before making a decision. As a Registered Social Security Analyst, I have the knowledge and skills to help you. Contact me, Paul Wieseneck, CPA, RSSA, directly at 561-209-1102 or PWieseneck@tfgfa.com.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
