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social security benefits

Social Security Bend Points for 2016

When the Social Security Administration recently announced that the maximum wage base and the Cost-of-Living Adjustment (COLA) would remain unchanged for 2016, they also announced the bend points that are used to calculate both the Primary Insurance Amount (PIA) for Social Security benefits. In addition, the Family Maximum Benefit (FMax) bend points for 2016 were also announced. Wait a second! You may be wondering just why the bend points are changing when there was no increase to the COLA? Excellent question, as it shows you’ve been paying attention. This is because the bend points are based upon the Average Wage Index, which adjusts annually regardless of whether the numbers go up or down, whereas the COLA and the maximum wage base only goes up. Bend points can go down from one year to the next – it’s only happened once, in 2009, but it could happen again. For more on […]

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 […]

Should You Delay Retirement?

The question of delaying retirement may arise as you get closer to your “goal year” of when you want to retire. For some individuals’ fortunate enough to be covered under a company or state pension, it can be tempting to retire as soon as possible and collect the pension benefit. The same may be true for folks wanting to start taking Social Security at age 62. Before making the decision to retire or retire early an individual should consider the effects on delaying retirement and continuing to work. This is assuming that they can accrue extra pension benefits for the extra years of service. For Social Security, this would be delaying past an individual’s normal retirement age as long as to age 70. For example, let’s say an individual has the opportunity to be eligible to retire at age 55 and receive a pension of $5,500 per month. However, if […]

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.

Social Security Filing Strategies for the Single Person

You can listen to this article by using the podcast player below if you’re on the blog; if you’re reading this via RSS, there should be a “Play Now” link just below the title to access the audio. If you’re receiving this article via email, there should be a “Download Now” link within the text of the message to retrieve the audio file. Most Social Security filing strategies are focused on married folks, or those who have been married and are now divorced or widowed. Single folks who have never been married seem to get short shrift – but it’s not because the decisions are any less important. The reason Social Security filing strategies for the single person are not often reviewed is because there are very few things that can be done strategically for the single person’s Social Security filing. We’ll go over the primary options for a single person […]

Making Every Month Count – Excerpt from A Social Security Owner’s Manual, 3rd Edition

You can listen to this article by using the podcast player below if you’re on the blog; if you’re reading this via RSS, there should be a “Play Now” link just below the title to access the audio. Did you realize that even delaying a few months can have a significant impact on your Social Security benefit? This is the case for all Social Security benefits, including your own, a Spousal Benefit, or a Survivor Benefit. This applies whether you are taking the benefit before FRA or after, since your age is always calculated by the month. Increase or reduction factors are applied for each month of delay or early application, respectively.

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 […]

Your Social Security Benefits: Are They Taxable?

If you’re receiving Social Security benefits, either for disability, retirement, or survivor’s benefits, when you file your tax return you will need to figure out if the benefits you’ve received during the prior year are taxable to you. You’ll receive a Form SSA-1099 from Social Security sometime in the first months of the year, showing what your benefits were in the prior year, as well as any deductions that were made throughout the year – including Medicare premiums (Part B and/or Part D) if applicable, and federal income taxes withheld. But are the benefits taxable to you?  At most, 85% of your benefit might be taxed – and it’s possible that none of your benefit is taxable, all dependent upon your total income for the year.  See this article for a detailed explanation of How Taxation of Social Security Benefits Works.  The IRS recently published their Tax Tip 2014-23, which […]

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. […]

A Few Things for a Single Person to Consider When Planning Social Security Filing

The decision of when to begin receiving Social Security benefits can be a bit daunting, because there are many things to take into account when making this decision. The basic concept of the lifetime value of benefits taken at various ages is the most common thing to consider, when this is really not as important as you might think.  This is especially true for single person – since the benefit reduction and increase factors are designed to achieve a similar lifetime result for the average lifespan. In other words, if you are an average person with an average lifespan, it won’t make much difference at what age you file for benefits, as you’ll receive approximately the same amount by the end of your average life, whenever you begin receiving the benefits. However. Another factor that you need to keep in mind is how Social Security benefits are treated, tax-wise.  At […]

3 things you can do if you’ve filed for Social Security benefits too early

I often hear from people who, for whatever reason, decided to file for their Social Security retirement benefit immediately upon reaching 62 (or 66, or whatever age), and now they have found out that this wasn’t necessarily the best option for them to maximize their lifetime Social Security benefits. There are several things that you can do about this – three that come to mind at the moment.  Below we’ll work through each of these ways to fix a situation where you filed too soon. Pay it back If it’s been less than 12 months since you filed, it’s possible for you to withdraw your application for benefits and pay back all that you’ve received to date.  Once you’ve done this, as far as Social Security is concerned, you never filed.  All of your benefit options are intact, just as if you hadn’t filed in the first place. If your […]

Restricted Application is Available via the Online Application

I learn something new almost every day. Today (well, not today but recently), I learned something about the online application for Social Security that I didn’t know: the restricted application for Spousal Benefits is available as a choice when you apply using the online application system! (If you want more information on why a restricted application is important, see this article about Leaving Money on the Table.) For quite a while now I’ve been telling folks that the best way to apply for the restricted application is to go to your local office.  When you get there and explain that you want to submit a restricted application for Spousal Benefits only, the first person that you talk to will likely tell you that you can’t do this, because your own retirement benefit is greater than half of your spouse’s PIA, or something like that.  Then my advice has been to […]

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 […]

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 […]

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 […]

Early Social Security Filing Examples

Most of the examples that you see indicate that filing for Social Security benefits as late as possible is the best way to go.  However, this is not always the case, given that you’re receiving the benefit (albeit at a reduced rate) for a longer period of time.  Let’s work through some examples to show how this works.  This article will only deal with single individuals – we’ve covered spouse benefits in several other articles, it’s time to provide some guidance for single folks. Example 1, Filing at 62 vs 66 John is single, age 62, and his benefit at Full Retirement Age (FRA) has been estimated at $2,000, so his benefit at age 62 would be $1,500, or 75% of the amount at FRA.  If he takes the benefit now, he’ll receive $18,000 per year for the next four years. (COLAs have been eliminated in this example to keep […]