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social security retirement

The Inequity of Spousal Social Security Benefits

We’ve covered a lot of ground talking about Spousal Benefits and strategies for filing, and other facts to know about Spousal Benefits.  But did you realize that there is a flaw in the process that shortchanges some couples when it comes to Spousal Benefits? Here’s a pair of example couples to illustrate the inequity: The first couple: Jane has worked her entire life and has earned a Social Security benefit of $2,600 per month when she retires.  Her husband Sam has been a struggling artist his whole life, as well as a stay-at-home Dad to their three kids when they were young.  As a result, Sam has never generated enough income on his own to receive the requisite 40 quarter-credits to have a Social Security benefit of his own. The second couple: Sid and Nancy have both worked and had earnings within the Social Security system over their lifetimes.  Sid […]

Survivor Benefits Do Not Affect Your Own Benefits (and vice versa)

I’ve had a few questions about this topic over the past several weeks, so I thought I’d run through a few examples and explain it. When you have access to a Social Security Survivor Benefit and a Social Security retirement benefit, you can maximize your lifetime benefits by coordinating the two and planning out your strategy for taking each benefit. As we’ve covered in other articles, it often is best to delay receiving your own benefit as long as possible.  This is because you will receive Delayed Retirement Credits (DRCs) for every month after you’ve reached your Full Retirement Age (FRA, which is age 66 if you were born between 1943 and 1954, and increasing gradually up to age 67 if you were born in 1955 or later).  This DRC amounts to 8% per year, or 2/3% per month. In addition, it can be beneficial to delay receiving a Survivor […]

Illinois Pension Reform

In recent news the state of Illinois introduced their Pension Reform Bill and as of this writing Illinois Governor Pat Quinn has yet to sign the bill which he said he would. After reading through the bill as well as some other readers’ interpretations of the bill it’s my opinion that it could be much, much worse. Let me put it this way; if I’m a current or retired state worker, I’m not upset. I may be a little inconvenienced, but certainly not angry. Dave Grant, CFP® and founder of Finance for Teachers wrote a very succinct and informational summary of the bill some of which I’ll highlight in this post. Some of the more notable changes include the removal of the 3% compound COLA increase and is now being replaced and calculated by years of service and current inflation rates. Other changes include any new employees hired after the […]

How Adding to Your Earnings Can Increase Your Social Security Benefits

Given the way that Social Security benefits are calculated, it should come as no surprise that increasing your income over time will make a difference in your eventual Social Security retirement benefits.  But how much of a difference does it make when your income is increased? Of course, this is going to depend upon what your current income is, and how many years you have left before you’ll begin receiving benefits.  Keep in mind how your benefits are calculated – see this article for information about Computing Your Social Security Monthly Benefit – it’s based on your average monthly income over your lifetime.  Increasing that average will increase your PIA, which will in turn increase your benefit. It’s definitely not a simple calculation to figure out what difference each increased dollar of income will have on your benefit.  Let’s walk through a few examples to see how it plays out. […]

Be Careful When Using Your Social Security Statement for Planning

Recently I received an interesting email from a reader (thanks, JRT!) that illustrates one of the problems with interpreting your statement from Social Security on a regular basis.  Part of the email follows: I am just reaching 66 and have been self employed for many years.  I have worked continuously for 30+ years reaching $100,000 or so per year  but have been slipping into retirement and last years income dropped to $70000. SS has already reduced my monthly payment estimate.  It appears that if I postpone beginning taking my SS retirement I will lose in the long term because each year I have reduced income before retiring my SS distribution will be less. For instance if I defer to 70 and have 4 years with zero income won’t I be hurting myself??? In the situation described above, what the reader is describing is the amounts he is seeing on statements […]

How to Reduce or Eliminate Windfall Elimination Provision Impact to Your Social Security Benefit

In prior articles we have discussed the Windfall Elimination Provision (WEP) which has the effect of reducing a portion of your Social Security retirement benefit if you’ve worked in a job that was not covered by Social Security which also provides a pension.  This article deals with two ways that you can remove the impact of the WEP from your benefit – neither of which is simple, and neither of which can be done after you’ve retired. The two methods are: Add years of “substantial earnings” to your record Take a lump sum distribution from your pension before you are eligible to receive the pension. Adding Substantial Earnings Years If you have the opportunity to work in a job that is covered by Social Security withholding and you have “substantial earnings” from that job, each year that you work in this SS-covered job adds to your ability to begin eliminating […]

Factors to take into account when planning Social Security filing

As with the overall process of planning for retirement income, there are certain important factors external to Social Security benefits that you need to take into account while planning when to file for benefits.  In the list below I will detail some of these factors and why they are important to the process. Important Factors When Planning Social Security Filing Pension income.  Pension income must be considered with special care when planning your Social Security filing strategy.  Often, pensions will increase in value up to a certain age of commencement and then there are no increases after that age.  Coordinating your pension with your Social Security benefits can enhance your overall income stream – since a pension is generally a guaranteed source of income for yourself and possibly your spouse. In addition, since many pensions are not indexed for inflation, meaning that there are no Cost-of-Living-Adjustments (COLAs), it probably makes […]

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 […]

Average Indexed Monthly Earnings Years

We’ve discussed the AIME (Average Indexed Monthly Earnings) calculation before, and it’s not like anything has changed about those calculations.  It turns out that the calculation process can be a bit confusing (shocked? I think not). The AIME is calculated using what’s known as the “base years”, which are those years between your age of 22 and 62 that occurred after 1950 (I realize most folks needing to know about this didn’t need that 1950 reference, but it’s part of the rules, so I included it).  Of those 40 years, only the 35 years with the highest earnings are used to calculate the AIME.  The earnings for each year is indexed (see the original article for details) and then the earnings are averaged. One of the questions that comes up is how years after age 62 are handled in this process.  If earnings in subsequent years are greater (after indexing) […]

“Swim With Jim” Radio Interview by Jim Ludwick

I recently had the honor of being interviewed on the radio by Mr. Jim Ludwick, a colleague that I admire and look up to a great deal.  Jim is a CERTIFIED FINANCIAL PLANNERTM professional, and his practice is based in Odenton, Maryland with additional offices in Washington, DC, Santa Barbara, California, San Mateo, California, and New York City.  Jim also is a fellow member of the Garrett Planning Network. In the interview we talk very briefly about some of the important factors of Social Security that baby boomers need to address as they plan for Social Security benefits. You can follow Jim’s radio program on BlogTalkRadio; his channel is Swim With Jim.   Listen to internet radio with Swim with Jim on Blog Talk Radio To hear the interview, click the “Play” button above. In the interview I mention that it can be helpful to have an advisor work with you […]

Working While Receiving Social Security

[Hank Gowdy, Dick Rudolph, Lefty Tyler, Joey Connolly, Oscar Dugey (baseball)] (LOC) (Photo credit: The Library of Congress) For many folks, starting to receive Social Security as early as possible is important – even if they’re still actively working and earning a living. Something happens when you do this though: depending on how much you’re earning, you will be giving up a portion of the Social Security benefit that you would otherwise receive.  Up to the year that you will reach Full Retirement Age, for every two dollars that you earn over the annual limit ($14,640 for 2012, or $1,220 per month), your Social Security benefit will be reduced by one dollar. Then in the year you will reach Full Retirement Age (FRA) there is a different income limit – actually $3,240 per month.  For every three dollars over that limit, your Social Security benefit will be reduced by one […]

The Mystery of Social Security

Social Security has become a significant part of many retirees’ sustenance, ever since it was first introduced back in the 1930’s. As the traditional pension plan goes the way of the buggy-whip and common investor behavior leads to poor results in savings plans (if there are any savings at all!), the Social Security benefit becomes more and more important. Unfortunately, the way Social Security works is a mystery for most folks. There’s really not much in the way of guidance for using the system, and relying solely on the phone representatives from the Social Security Administration is bound to lead you to a less-than-optimal result. As with most financial activities, it pays to learn as much as you can about your options, possible strategies, and the pluses and minuses of various choices that you make. A Social Security Owner’s Manual is an attempt at providing you with the groundwork to […]

Age Adjustments for Social Security

Image via Wikipedia With all the talk about how Social Security is running out of money (or will be), one of the topics that often comes up is the age limits for benefits.  As you’re aware, the Full Retirement Age (FRA) has been adjusted upward from the original age 65, gradually to age 67 for folks who were born in 1960 or later.  This upward adjustment was put into place with the 1983 amendments, ostensibly to reduce impact on the system. With that adjustment in place, and the resulting benefit that the system has received from making that change, you might wonder why some of the other age limits have not been changed.  Specifically, why has the early retirement age remained at 62, and the upper limit (maximum benefit age) has also remained set at 70? I don’t have any definitive information to back this up, but I think there […]

When Can Social Security Benefits Begin?

Image by freakgirl via Flickr As you’re nearing the point when you are planning to receive your Social Security benefits, it may occur to you to question just when do these milestones take effect?  Just when are you considered first eligible for benefits, when are you at Full Retirement Age, and when have you reached the maximum age? For Social Security age purposes, the month of your birthdate is important – but that’s not the date at which you reach the milestone.  It’s actually the month after your birthday, the month when you are that particular age for the entire month. For example, if your birthdate is January 15, 1950, you will actually reach age 62 on January 15, 2012 – but you’ll be eligible for benefits beginning with February of 2012.  Likewise, since your Full Retirement Age is 66, you will reach Full Retirement Age by Social Security’s records […]

Should I Use IRA Funds or Social Security at Age 62?

Image via Wikipedia Folks who have retired or are preparing to retire before the Social Security Full Retirement Age (FRA) face a dilemma if they have IRA assets available.  Specifically, is it better to take an income from the IRA account during the years prior to FRA (or age 70) in order to receive a larger Social Security benefit; or should they preserve IRA assets by taking the reduced Social Security benefits at age 62? At face value, given the nature of IRA assets, it seems like the best method would be to preserve the IRA’s tax-deferral on those assets, even though it means that your Social Security benefit will be reduced. If you look at the taxation of Social Security benefits though, you might discover that delaying receipt of your Social Security will provide a much more tax effective income later in life.  In the tables below I’ll work […]

Deemed Filing

Many times the question comes up – Since my spouse has filed for Social Security retirement benefits, can I file for only the Spousal Benefit? Image by T a k via Flickr This is certainly available for the individual that is at or over Full Retirement Age (FRA).  This is a common circumstance that many folks employ.  One spouse files for benefits and the other, hoping to achieve the full Delayed Retirement Credits (DRCs), while still receiving a benefit, files for the Spousal Benefit only.  This is a perfectly allowable method.  See this article for more information on filing for the Spousal Benefit only. On the other hand, if you’re under FRA, this option is not available to you.  This is because, prior to FRA, if you file for the Spousal Benefit, you are deemed to have filed for your own benefit as well.  This is known as “deemed filing”, […]

Coordinating the Survivor Benefit With Your Own Benefit

Image by Tatters:) via Flickr If you’re a widow or widower and you are eligible for Social Security Survivor’s Benefits based on your late spouse’s record, you have some decisions to make that could affect your overall benefits. Timing the receipt of benefits is, as with all Social Security benefits, the primary factor that you can control.  If you have worked over your lifetime and you have a retirement benefit based upon your own record coming to you, it becomes even more important how you time receipt of your own benefit versus the Survivor’s Benefit. If your own benefit will be greater than the Survivor Benefit, it could be useful beneficial to you in the long run to take the Survivor Benefit as early as possible (as early as age 60) even though it will be reduced.  You could then continue receiving this reduced benefit for several years to your […]

Boosting Your Social Security Benefit

As we’ve discussed elsewhere, your Social Security benefit is calculated based on your highest 35 years of earnings over your career, indexed to the current year.  So what impact can continuing to work past age 62 (or later) have on your Social Security benefits? Image by Arjan Richter via Flickr   Any year in your earnings history that had very little or no earnings covered by Social Security works against you – since the calculations assume 35 years of earnings.  If you only had, for example, 30 years of earnings on your record and five “zero” years, these years with no earnings will reduce your average earnings that are used for calculating your benefit amount.  Continuing to work, even for a minimal amount, will eliminate these zero years from your record for calculation. In addition, if you’re earning a higher salary relative to your earnings record, some of the lower […]

Social Security Earnings Tests

As you know, you can receive Social Security retirement or survivors benefits and continue working.  If you happen to be less than Full Retirement Age (FRA) and you earn more than certain amounts though, your benefit will be reduced.  (Note: these reductions are not really lost, your benefit will be increased at FRA to account for those benefits withheld due to earlier earnings.  This later increase does not, however, apply to spouses and survivors who are receiving benefits that are reduced because of work.) Earnings Tests (2010 and 2011) If you’re at or older than FRA when you begin receiving retirement or survivors benefits, you may earn as much as you like and your benefit will not be reduced.  If, however, you are younger than FRA, your benefit will be reduced $1 for every $2 you earn over $14,160 before the year of FRA.  The benefit will be reduced by […]