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Delayed Retirement Credit

3 Do Over Options For Social Security Benefits

You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow? At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can! Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were […]

How to Compute Your Monthly Social Security Benefit

So you’ve seen your statement from Social Security, showing what your benefit might be at various stages in your life.  But not everyone files for benefits at exactly age 62 or 66 – quite often there are months or years that pass before you actually file.  This article will show you how to compute your monthly Social Security benefit, no matter when you file. Computing your monthly Social Security benefit First of all, in order to compute your monthly Social Security benefit, you need to know two things: your Primary Insurance Amount (PIA) and your Full Retirement Age (FRA).  The PIA is rather complicated to define, but for a shorthand version of this figure, you might use the figure that is on your statement from Social Security as payable to you on your Full Retirement Age (or “normal” retirement age).  

File Now. Suspend Later.

Suspending benefits is a facet of Social Security filing that usually only gets written about in connection with filing – File and Suspend is often referred to as a single act, but it’s actually two things.  First you file for your benefits, which is a definite action with the Social Security Administration, establishing a filed application on your record.  Then, you voluntarily suspend receiving benefits.  If this happens all at once, the end result is that you have an application filed with SSA, but you’re not receiving benefits.  Since you have an application filed (in SSA parlance, you’re entitled to benefits), your spouse and/or dependents may be eligible for a benefit based on your record. Since you are not receiving benefits, your record earns delayed retirement credits (DRCs) of 2/3% per month that you delay receipt of benefits past your Full Retirement Age (FRA).  (Note: you can only suspend receipt […]

The Real Breakeven Point for Delaying Your Own Social Security Benefit and Taking the Spousal Benefit

Recently there was an article that I was involved with where we were reviewing the strategies of taking a restricted spousal benefit and therefore delaying your own benefit versus taking your own benefit.  An astute reader (Thanks BL!) pointed out that there was a bit of a flaw in the logic on the costs of delaying, and therefore a significant difference in the breakeven period. Briefly, the example went as follows: Say the wife, Michelle, has a PIA of $1,300 and Mike has a PIA of $2,500.  They’re both age 66, and Michelle files the restricted app and is eligible to receive $1,250 (half of Mike’s), which is only $50 less than she would receive if she filed for her own benefit. After four years of delay, she has given up $2,400 ($50 times 48 months) but now her benefit is $1,716 – $416 more than she would have received […]

Know Your Options When Talking to Social Security

When you get ready to file for your retirement benefits, it’s important to understand what options are available to you before you talk to the Social Security Administration.  There are many ways to get a good understanding of your options, including working with your financial advisor, reading up on the subject (this blog is a good place to start!), and talking to friends and relatives who have already gone through the process. The reason it’s important to know your options is because the Social Security Administration staff that you may encounter are not trained to help you maximize your lifetime benefits – they are trained to help you maximize the benefit that you have available to you today.  Often the options that the SSA staff present to you are not the best options for you in the long run.  In addition, SSA staff are absolutely overwhelmed by the volume of […]

A Quick and Dirty Way to Determine Your PIA

We’ve gone over the long, painful, detailed way to calculate the Primary Insurance Amount (PIA) in many different articles and my book.  The PIA is central to most of the calculations we do, such as your own benefit (reduced or increased if you file early or late), survivor benefits, and the like. Sometimes it is difficult to actually know find out what your PIA actually is.  Here’s a quick and dirty way to figure it out: Go to the Social Security website and get your statement (www.socialsecurity.gov/mystatement).  On page 2 at the top you’ll see either your Full Retirement Age (FRA) benefit amount, or the amount at your current age if you’re over FRA.  Oftentimes we refer to this FRA amount as your PIA, but nearly always with a qualification.  This is because the benefit amount illustrated on this statement is assuming that you continue earning at your current level […]

Another Good Reason to Delay Social Security Benefits

As you likely know from reading many of my articles on the subject, I have long advocated the concept of delaying your Social Security benefit as long as possible.  This shouldn’t be a surprise – many financial advisors have espoused this concept for maximizing retirement income. Lately there has been a white paper making the rounds, from a Prudential veep, Mr. James Mahaney, entitled Innovative Strategies to Help Maximize Social Security Benefits.  The white paper supports the very theme that I wrote about a couple of years ago in the post Should I Use IRA Funds or Social Security at Age 62?.  This paper seems to have struck a chord with a lot of folks, as I’ve received it no less than a dozen times from various folks wondering if the strategies Mr. Mahaney writes about would be useful to them. The point is very clear: It makes a great […]

Are You Leaving Social Security Money on the Table? You Might Be, If You Don’t Understand and Use This One Rule

Many couples that have done some planning with regard to filing for Social Security retirement benefits have figured out how to coordinate between the higher wage earner’s benefit and the lower wage earner’s benefit.  Often it makes the most sense to file for the lower wage earner’s benefit early, at or sometime near age 62, while delaying the higher wage earner’s benefit out to as late as age 70. This method allows for a maximization of those two benefits.  If you’re really astute, you probably picked up on the concept of file and suspend, as well.  File and Suspend allows for the lower wage earner to increase his or her benefits by adding the Spousal Benefit, while the higher wage earner continues to delay his or her benefit, adding the delay credits. Another little-known method that can be employed in specific circumstances is called the Restricted Application for Spousal Benefits.  […]

Can I Switch to My Spouse’s Benefit At FRA?

This is a question that comes up pretty frequently, in several different flavors.  Basically, here’s the full question: I started benefits at age 62, and now I’m 66 (Full Retirement Age) – can I switch over to my spouse’s benefit now that I’m age 66?  And will it be based on his benefit when he was 66, or his benefit now.  (He’s 70 now, and has been collecting benefits since he turned 66.) There are a couple of questions being asked here, and I’ll cover them one-by-one. Can I switch to my spouse’s benefit? The wording here is troubling, because the asker specifically wishes to “switch” to another benefit.  If an individual is already receiving retirement benefits, the spousal benefit is not a “switch”, but rather an “addition” to the retirement benefit. The second issue is implied, and maybe not troublesome to the question at hand.  The Spousal Benefit at […]

The Value of Your Social Security Benefits

As you consider your Social Security benefits and when you might begin to draw them, keep in mind that the benefits you’re receiving are actually akin to an annuity – a stream of income that you will receive from the time you start the benefits throughout your life.  As with an annuity, if you live longer than average, you will receive much more than the original value (premium) of the annuity.  If you have a way to increase the amount of the stream of income, by delaying start of the benefits, the overall amount that you eventually receive will increase as well (assuming you live longer than average). Let’s say that your Social Security benefit would be $1,500 at Full Retirement Age.  If you started your benefit early at age 62, your benefit would be reduced to 75% of that amount, or $1,125; if you delayed your benefit to age […]

Wealth Defense: When Should You Start Social Security Benefits?

The foregoing is a re-post of an article that I wrote which was included in The Motley Fool’s Rule Your Retirement newsletter.  Enjoy! Want to double a chunk of your retirement income? It’s easy — just delay taking Social Security by about six years! OK, so it’s not really that simple. The time to apply for Social Security benefits is different for each individual; there is no magical “best age” for everyone. Thus, to maximize your benefit, it’s important to understand the consequences of choosing to apply at different ages. It all starts with the most important age: your full retirement age, or FRA (see table below). If you receive your Social Security retirement benefit before your FRA, the benefit will be reduced. The biggest reduction is at age 62, the earliest you can begin receiving benefits (except for widows and widowers, who can begin survivors’ benefits at 60). Year […]

Increase Your Social Security Benefit After You’ve Filed: File and Suspend Doesn’t Have to Be All at Once

We’ve discussed the File and Suspend activity many times on this blog, but most of the time we refer to the activity as happening all at the same time.  This is because very often we’re talking about one spouse setting the table for the other spouse to begin receiving Spousal Benefits. There is another situation where File and Suspend could be used – you could earn delayed retirement credits after you had already started receiving your retirement benefits by suspending your benefit.  You must be at least Full Retirement Age (FRA) when you do this, but it could work in your situation. Say for example, you started receiving your benefit at age 62.  At that point you were retired, and you intended to just play golf for the rest of your life.  After about 180 holes a week for the first two years, you decide that you’d rather poke yourself […]

Why It Can Be So Important to Delay Social Security Benefits

It seems like every time I write an article about Social Security benefits that includes a recommendation to delay benefits, I get a lot of responses from well-meaning folks who disagree, sometimes vehemently, with the conclusions. There are several points of view that I see in the responses, all believing that you should start taking benefits as soon as you’re eligible: you never know how long you’re going to live; Social Security is going broke, we all know it; IT’S MINE, DADGUMMIT, THEY OWE IT TO ME; and it’s all part of a huge conspiracy; among other reasons too numerous to mention. Believe me, I have no reason to recommend that people do something that isn’t in their best interests.  As a financial planner, my job is to help folks do things that are in their best financial interests all the time.  Sometimes those things that I recommend run counter […]

The Spousal Benefit

Image via Wikipedia One of the most confusing concepts in the Social Security retirement system is the Spousal Benefit.  This option allows one spouse to file for benefits and the other spouse to receive a benefit based upon the first spouse’s retirement benefit.  The greatest amount that the Spousal Benefit could be is 50% of the PIA (Primary Insurance Amount, generally equal to the retirement benefit at Full Retirement Age, or FRA) of the spouse who has filed. Let’s work through a few examples to explain this. Let’s say we have a couple named Dick and Jane. Dick is 66 years old, and Jane is 62. Dick is eligible for a benefit at his current age of $2,400 per month, and Jane would be eligible for a benefit of $1,000 when she reaches FRA. Example 1 If Jane files for her own benefit today, it will be reduced by 25% […]