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Social Security

Delayed Retirement Credits for Social Security

When you delay filing for your Social Security retirement benefit until after your Full Retirement Age (FRA), your future benefit increases due to a factor known as Delayed Retirement Credits, or DRCs. These credits accrue at the rate of 2/3% for each month of delay, which equates to 8% for every full year of delay. It’s important to know a few facts about DRCs. For one – the delayed retirement credits are accumulative, not compounding. If your Full Retirement Age is 66 (if you were born between 1943 and 1954), you can accrue a full 32% in DRCs. This means that the amount of benefit that you would normally receive at FRA (which is your Primary Insurance Amount, or PIA) would be multiplied by 132% at your age 70. If your FRA is above age 66, your maximum delayed retirement credit is something less than 32% – as little as […]

Divorcee Social Security Planning

If you’re planning to retire and you’re a divorcee, you may be entitled to additional retirement benefits based on your ex’s earnings record. This can be quite a boon for an individual whose ex-spouse has had a significant earnings record over his or her lifetime. Especially so, if your own benefit is lower because you didn’t work outside the home for a significant number of years. You may be eligible for this additional benefit if you are at least age 62, your marriage lasted for at least ten years, and your ex-spouse is at least 62 years of age (and therefore eligible for Social Security benefits). If your ex hasn’t filed for his or her own Social Security benefit, the last factor is that your divorce must have been final for at least two years. If your ex has filed for benefits, this time limit is eliminated. How Can You […]

Credit for Reduced Social Security Benefits When Subject to the Earnings Test

Continuing to work while receiving Social Security benefits may cause a reduction to your benefit – if you earn more than the annual earnings test (AET) amount. But this reduction isn’t permanent – you will get credit for reduced Social Security benefits when you reach Full Retirement Age. So how does this work? Earnings Test The earnings test limit is $15,720 for 2015 if you are under Full Retirement Age for the entire year. The limit is $41,880 in the year that you reach Full Retirement Age. Full Retirement Age (FRA) is age 66 if you were born between 1946 and 1954, ratcheting up to age 67 if your birth year is 1960 or later. So for 2015 if you were born after 1949 and you are receiving Social Security benefits, for every two dollars that you earn over $15,720, one dollar of your benefit is withheld. For example, if […]

Will Work After Retirement Age Increase My Social Security Benefit?

This question comes up every once in a while: Will work after retirement age increase my Social Security benefit due to the additional earnings going on my record? The answer, as with many of these calculation-type questions, is a fully-qualified “maybe”. The amount of your earnings from work in any year may have a positive impact on your benefit – not just work after retirement age. On the downside, depending upon your benefit amount it may not be much of an increase. The reason it’s not certain whether work after retirement age will increase your benefit is because of the nature of the calculations involved. If you’ll recall from the article on calculation of your Primary Insurance Amount (PIA) – the foundation of this calculation is a figure called your Average Indexed Monthly Earnings, or AIME. The AIME is an average of the 35 highest indexed earnings years in your […]

Social Security Earnings Test

When you’re receiving Social Security benefits before your Full Retirement Age (FRA, which is age 66 ranging up to age 67 for folks born in 1960 or later), there is an earnings test which can reduce or eliminate the benefit you are planning to receive. If your earned income* is greater than $15,720 (2015 figure), for every $2 over this limit, $1 will be withheld from your Social Security benefit. So, for example, if you earn $20,000 in 2015, a total of $2,140 in benefits will be withheld – 50% of the over-earned amount of $4,280. If you are receiving a Social Security benefit of $1,070 per month, this means that 2 months’ worth of benefits will be withheld. This can come as a surprise if you’ve been receiving the full benefit and the earnings test is applied at the beginning of the following year, when you don’t receive a […]

Mandatory Retirement Plans

A few weeks ago I finished a paper arguing for mandatory retirement contributions from both employers and employees. Though arguably the paper will not come close to changing public policy on retirement plans, it did raise some arguments in favor of the United States adopting a mandatory savings plan. In the paper I explained that research has shown that individuals risk not having enough saved for retirement. This could be due to employees not having a retirement plan through work or because employees face an abundance of mutual fund options in the plan that they don’t know where to begin. Some of these employees choose the default option or simply go with what a colleague recommends. Another problem the paper addresses is the declination of defined benefit pensions. Such pensions are employer sponsored and funded, thus removing funding an investment risk from the employee. At retirement the employee receives a […]

Social Security Survivor Benefit Coordination

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 may have some timing decisions to make that could significantly affect your overall benefits. This is especially true if you are also eligible for Social Security benefits based on your own earnings record. Timing the receipt of benefits is, as with most all Social Security benefits, the primary factor that you can control.  If you have worked over your lifetime and you have a  becomes even more important. The decision process is dependent upon the relative size of your own Social Security benefit as compared to the Survivor Benefit based on your late spouse’s record. Own SS Benefit Greater than Survivor Benefit  If your own benefit will be greater than the Survivor Benefit, it could be beneficial to you in the long run to take the Survivor Benefit […]

Complications with Social Security Filing for Divorcees

Social Security filing decisions are tough enough – and so is being divorced. Add the two together and you have all sorts of complications. In this article we’ll review one type of complication with Social Security filing for divorcees that can work in your favor and one that can work against you. Let’s start with the provision that may work against you – Deemed Filing. Deemed Filing When you file for benefits prior to Full Retirement Age (FRA, which is 66 for folks born between 1943 and 1954, ranging up to age 67 if born in 1960), a provision called “deemed filing” takes effect. Deemed filing means that you are “deemed” to have filed for all available benefits – generally meaning your own benefit and any spousal benefit that you are eligible for as of the date of filing. The reason that deemed filing might work against you if you’re […]

Maximum WEP Impact

Rounding out our series of articles about the Windfall Elimination Provision, or WEP, I thought we should talk a bit about the maximum impact that WEP can have on you. In other articles we’ve discussed this in part, but it hasn’t necessarily been fleshed out completely.  As you may know, the maximum WEP reduction is equal to the lesser of 50% of the first “bend point” for each year or 50% of the amount of the pension from income that was not subject to Social Security taxation. In 2015 this is $413 per month at most. What’s important to know is that this reduction is against your Primary Insurance Amount (PIA), not necessarily against your benefit amount. Depending upon when you file relative to your Full Retirement Age, the WEP impact to your benefit could be more or less than that amount. Wait – what? As you may recall, the […]

File & Suspend vs. Restricted Application

These provisions in Social Security filing are, without a doubt, the two that cause the most confusion. Being very complicated provisions and also provisions that can be very helpful to folks wishing to maximize benefits, file & suspend and restricted application are often mis-used or completely misunderstood. So at the suggestion of a reader, seeing a comment response I’d given to another reader, I will provide some additional background on just what is the difference between these two, as well as when one is used versus the other. First of all – although it is technically possible for one person to both file & suspend and file a restricted application, typically this results in either no benefit at all or very little benefit. You should not consider both of these to be done by one person unless there are some extenuating circumstances that require it (I can’t for the life […]

When Does WEP NOT Impact My Social Security?

Recently we covered the Windfall Elimination Provision a bit more completely, including how to eliminate WEP and how WEP can impact your dependents. This prompted quite a few folks to write to me about their own situations, wondering if WEP would impact them.  So today we’ll cover those cases where you might be wondering about this, when WEP does NOT impact your Social Security. First of all, if you have worked all your life in a job where Social Security tax was withheld, WEP does not impact your Social Security at all. This is true even if you worked in a government job – as long as your wages (earnings) were subject to Social Security tax withholding, WEP will not impact you. As well, if you have worked and received substantial earnings from Social Security covered jobs for 30 or more years during your career, and you also have a […]

How Does WEP Affect My Dependents?

We’ve reviewed how WEP impacts your own benefits in prior articles. Briefly, when you’re receiving a pension based on work that was not covered by Social Security, your own Primary Insurance Amount will be reduced by as much as $413 per month (2015 figures) or 50% of the pension, whichever is less. But can this reduction to benefits affect my dependents’ benefits as well? Since the nature of the WEP calculation is to reduce your Primary Insurance Amount (PIA), that means any benefit that is based on your PIA will also be reduced. So, if your spouse is planning to receive spousal benefits based on your earnings record and your PIA is reduced due to WEP, the spousal benefit available to your spouse will also be reduced. For example, Jennifer, age 66 was a teacher for 25 years, and her employment was not covered by Social Security taxes. In addition […]

How to Eliminate WEP

If you are receiving a pension from a non-Social Security covered job and you’re also entitled to receive Social Security benefits, the Windfall Elimination Provision (WEP) may reduce your Social Security benefit. There are ways that this WEP reduction can be eliminated. How to Eliminate WEP As discussed in other articles, it is possible to reduce the impact of WEP by working in a Social Security-covered job and earning “substantial earnings” ($22,050 in 2015) for 21 or more years. For the first 20 years, there is no reduction to the WEP impact. For each year of substantial earnings greater than 20, the impact of WEP is reduced by 10%. When a total of 30 years of substantial earnings have been recorded on your earnings record, WEP is eliminated completely. Another way to eliminate WEP is when the primary numberholder (the individual subject to WEP) dies. This is because WEP only […]

When is Your Social Security Birthday?

Image by freakgirl via Flickr As you’re nearing the point when you intend 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? When is your Social Security birthday? (it’s not when you think) 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, 1954, you will actually reach age 62 on January 15, 2016 – but you’ll be eligible for benefits beginning with February of 2016.  Likewise, since your Full Retirement Age is 66, […]

Spousal Benefit Filing: Real World Examples

This business of filing for Spousal Benefits is complicated, as we’ve discussed in the past. The options available are difficult to understand, and the timing of the choices can make real dollar differences in benefits. Recently I received a couple of messages from readers that illustrate very good examples of Spousal Benefit decisions in real life. I’ve changed a few of the facts to protect each reader’s identity, but otherwise these are real world examples. I’m using these real cases because I often hear from readers (as in these cases) that their situations are just so unique that the examples provided can’t be applied. Hopefully these real-life situations will help you as well. Restricted Application or just file for my own benefit? This first email illustrates the great benefit of utilizing the Restricted Application instead of filing for (in this case the wife’s) own benefit. It might seem like you’re […]

Book Review: Get What’s Yours

This book, subtitled “The Secrets to Maxing Out Your Social Security” is written by Laurence J Kotlikoff (Professor of Economics at Boston University), Philip Moeller (of PBS NewsHour) and Paul Solman (also of PBS NewsHour). With this lineup of heavyweights in the Social Security commentary space, you are right to expect a very comprehensive, easy-to-understand, explanation of the subject – and that’s just what you get. This book covers every component of the Social Security retirement and disability benefit landscape with the aim toward taking action on those components that you have a degree of control over, in order to maximize your lifetime benefits. The authors are extremely well-versed in the ins and outs of the system, providing insights not found in many other texts. In addition to the authors’ own lifetimes of experience in covering the subject, every fact in the book has been reviewed by former Social Security […]

Missing your SSA-1099? Here’s How to Get It

The Social Security Administration has a lot on their plate. Along with handling the tax rolls from some 150 million-plus wage earners, servicing around 50 million retirees and surviving spouses and 11 million-plus disabled workers and dependents, there are 10,000 baby boomers reaching retirement age each day. These folks (current recipients of benefits and newly-eligible) are generating nearly half-million phone calls a day to SSA’s 800 number, and nearly 200,000 per day visiting the local offices. Every day. And they’re doing all this on administrative expenses of less than 1% of all the money they handle. Much has been written about what the SSA is not capable of doing – such as advising folks on the best way to file – but little has been written about what they are doing well. One of those things is their website.  

Why Social Security Decisions Are So Tough

If you’re facing the decision of when to file for your Social Security benefit, you’ve probably noticed just how confusing it can all be. There are so many decision-points in the system, it’s no wonder folks are confused.  Depending on your point of view and how you count the decision-points, each person facing this decision has thousands of possible combinations to consider as they decide when to pull the trigger and file for benefits. Recently I was going over a decision tree that I had built to describe the decision-making process for filing, and within this review I have counted that for a single, there are 14 decision-points and a total of 96 months in which a filing decision can be made, for a total of 1,344 combinations. 

WEP Impact Calculation Factors

In this blog we’ve covered the Windfall Elimination Provision (WEP) from many different angles. Here we’ll go into some more depth on the actual calculation of the WEP, including how some of the factors are determined. As you are likely aware, the Windfall Elimination Provision or WEP impacts your Social Security benefit when you are receiving a pension based on work where Social Security tax was not applied to the earnings. The point of WEP is ostensibly to act as an offset, since the reason no Social Security tax was applied to the earnings is because the pension is intended to replace Social Security benefits for that worker. WEP impact is applied as a reduction to the first bend point of the calculation of the Primary Insurance Amount. (Calculation of the PIA is explained further here.)  

Uncoupling File & Suspend

By now you should be somewhat familiar with the File & Suspend strategy, where an individual files for Social Security benefits and then immediately suspends them. This strategy is often used so that the individual can enable other dependents’ benefits (such as spousal or children) based upon his or her record, while delaying receipt of his or her own benefits in order to accrue delay credits on his benefit. What you may not realize is that you don’t have to file & suspend at the same time. These actions can be decoupled – in other words, you could file for benefits at any time that you’re eligible, and then later (as long as you’re at least at Full Retirement Age) you could suspend your benefits.