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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 ask for a supervisor and explain it again, and keep insisting that you’re eligible to do this (make sure that you are, first of course!), until you get the right person to agree with you.

As it turns out, for some time now you’ve been able to select this option via that online application.  See below – this is a screenshot of the application system (sorry it’s not very legible).  The last part in bold says:

If you are eligible for both retirement benefits and spouse’s benefits, do you want to delay receipt of retirement benefits?

bene app screenshot restricted app

It’s clear that this option gives you the ability to delay the receipt of your retirement benefit and only receive the spouse’s benefit, assuming that you’re at least at Full Retirement Age and your spouse has applied for his or her benefit.

This is great news – since now you won’t have to go through the hassle described above in order to submit a restricted application for spousal benefits.

An additional, likely unintended positive to this development is that you could use this blog to show the first person you talk to (if you still opt to visit the local office) in order to help prove your eligibility for this option.

Notify Social Security of Major Changes in Your Life

Change happens

You know how, after you’ve put your kids through college and they go off on their own, sometimes you don’t hear from them as often as you’d like?  Major things occur in your kids’ lives and you don’t know about them until after the fact, possibly long after.  So you get onto them about it, and ask the kids to call more often (or you call them more often) so that you can keep up with what’s going on…

It’s kinda like that with the Social Security.  They want to know when major changes occur in your life, as soon as possible.  This is primarily due to the fact that, quite often, these changes will result in adjustment to your Social Security benefits.

The first one that comes to mind is the death of a Social Security recipient.  Naturally you need to notify the Social Security Administration as soon as possible upon the death of a recipient.  The benefit that the deceased recipient was receiving might transfer to his or her spouse if the rules allow.  Otherwise, the benefit will cease for that recipient, and other benefits may begin for dependents of the recently deceased.

If you are receiving Social Security benefits and you get married (or re-marry, either after the death of a spouse or after a divorce), it’s important to let the SSA know about your change of marital status.  This is because your marital status may have an impact on any benefits that you are receiving that are based on a former spouse’s record.  In addition, a new marriage could result in new dependents for you, and so your new dependents could be eligible for benefits based on your record.

In addition to death and marriage, SSA also wants to know if you are earning more than the allowable limits if you’re less than Full Retirement Age.  This is because a portion of your benefit will be withheld due to the additional earnings.  You can’t escape it, they’ll eventually figure this out and possibly ask for repayment.  Plus, if you’re receiving a pension from a non-SS covered job, you need to let SSA know about it so that your benefit is adjusted for WEP or GPO if either of those factors apply to your situation.

Obviously you need to let SSA know if your name or address changes and if your direct deposit account changes – you need to make sure that you will continue to receive your benefits and that important notices make them to you in the mail.

If your change of address includes an extended stay outside of the United States, you need to let SSA know about it.  You should also know that there are some countries that Social Security can’t send payments to – Cambodia, Cuba, North Korea and Vietnam.  Otherwise, you can have payments sent to you if you’re living in another country, but you’ll need to arrange this with Social Security.

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Know Your Options When Talking to Social Security

Cardpunch operations at U.S. Social Security Administration

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 folks that they are in contact with.  As I understand it, disability claims are backlogged by as much as three years in some cases – so you can imagine how difficult it is for the staff to handle new, unusual cases.

Listed below are a few examples that I’ve heard recently where folks have gotten erroneous or incomplete responses to basic questions presented to SSA staff.  This is not intended to be an exhaustive list, just a few things I’ve heard about recently.

Restricted Application

An husband, age 66, wishes to delay his filing to age 70.  At the same time, his wife, age 62, is filing for her own benefit today.  The husband wishes to file a restricted application for spousal benefits only – which would allow him to receive a benefit equal to half of his wife’s PIA (not her reduced benefit) while he continues to delay his own benefit to age 70.  SSA staff told him that since his own benefit would be greater than half of his wife’s PIA, he would not be able to do this.

Of course, if you’ve read this blog or my book, you know that this is incorrect.  The man called me and asked about it – and I told him to go back to the SSA and make the request again, specifically requesting to file a “restricted application for spousal benefits only”.  I then recommended that if he still received a negative response to request to speak to a supervisor about it.  Eventually, with this guidance, he was able to get the benefit that he asked for.

“Bonus” Lump Sum

If you are over Full Retirement Age (age 66 these days) and you go to or call the Social Security Administration to file for retirement benefits, you may be presented with an option for a “bonus” lump sum of up to six months’ worth of benefits, to be paid to you when you receive your first check.  Don’t fall for it without knowing what’s going on!

What is happening is that the SSA staff is suggesting an option to you that is available – of retroactively applying for benefits six months prior to the actual date.  Effectively, if you are (for example) 67 years old when you take this option, you will be filing as if you are 66 years, 6 months of age.  This will reduce your Delayed Retirement Credits by that 6 months, or 4%.  You’ll end up with a lump sum check for the six months that you hadn’t received up to that point, but your future benefits will be 4% less than they would have been had you filed at your attained age of 67.

If this is what you want, then go for it – but realize that not only is your own future benefit going to be permanently reduced from what it could have been, any survivor benefits that your spouse will receive are also reduced.

Divorcee planning

A divorced person who is qualified to receive benefits based upon her ex’s work record often has difficulty in planning when to receive benefits.  This is especially troublesome if you are pretty certain that your Spousal Benefit will be significantly more than your own benefit, and you’d like to maximize that benefit.  The trouble is that you may not have access to the complete information about your ex’s benefit (and therefore, any spousal benefit you could receive).

The key to this is to have the correct documentation about your situation when you talk to Social Security.  Most often, this is going to require a visit to the local office, although I’ve been told this can be done over the phone.  I assume in a case like that there are several calls involved because you’ll have to send your documentation for the SSA to verify.

At any rate, if you have your marriage license and your divorce paperwork, which show that you were married for ten or more years and the divorce occurred more than two years ago, along with your ex’s Social Security number and date of birth, the SSA staff will be able to provide you with information about what benefits you are eligible to receive based on the ex’s record.  Without this documentation, you will be denied access to the information.

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Social Security Bend Points in 2013

Always Coca-Cola

When the Social Security Administration announced the Cost of Living Adjustment (COLA) for 2013, this also allowed for calculation of the bend points for 2013.

Bend points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series.  They’re called bend points because they represent points on a graph of your AIME graphed by inclusion in calculating the PIA.

If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA.  Here, however, we’ll go over how Bend Points are calculated each year.  To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis.  According to the AWI Series, in 1979 the Social Security Administration placed the AWI figure for 1977 at $9,779.44 – AWI figures are always two years in arrears, so for example, the AWI figure used to determine the 2013 bend points is from 2011.

With the AWI figure for 1977, it was determined that the first bend point for 1979 would be set at $180, and the second bend point at $1,085.  I’m not sure how these first figures were calculated – it’s safe to assume that they are part of an indexing formula set forth quite a while ago.  At any rate, now that we know these two numbers, we can jump back to 2011’s AWI Series figure, which is $42,979.61.  It all becomes a matter of a formula now:

Current year’s AWI Series divided by 1977’s AWI figure, times the bend points for 1979 equals your current year bend points

So here is the math for 2013’s bend points:

$42,979.61 / $9779.44 = 4.3949

4.3949 * $180 = $791.08, which is rounded down to $791 – the first bend point

4.3949 * $1,085 = $4,768.47, rounded down to $4,768 – the second bend point

And that’s our bend points for 2013. Enjoy!

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2013 Social Security Wage Base Projected

Cardpunch operations at U.S. Social Security Administration

jb update 10/16/2012: The wage base for 2013 was confirmed at $113,700.

The Social Security Administration trustees recently projected the wage base for 2013.  This is the maximum amount of wage income that an individual earns for the year that is subject to Social Security withholding tax.  For 2013, this amount is projected at $113,700.

The new amount is $3,600 more than the 2012 wage base, which is set at $110,100, for an increase of 3.27%.  Keep in mind that this is only the increase in the taxed wage base, and there is little correlation between this and any potential increase in benefits for the year.

Future years’ estimated wage bases are projected as follows:

2014: $117,900

2015: $123,000

2016: $128,400

These are only projections, each year in October the SSA trustees will set the amount for the coming year.

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SS Earnings Info Online; Plus Paper Statements Are Coming Back!

From "Why Social Security?" (1937)
From “Why Social Security?” (1937) (Photo credit: Tobias Higbie)

Remember way back in 2011, when the Social Security Administration used to send you a paper statement every year?  This was a useful statement, which included the estimates of your future benefit at age 62, full retirement age, and age 70, as well as a run-down of your year-by-year earnings information.  Ah the good ol’ days…

Sometime in 2011 the SSA stopped mailing those statements, and instead made available on their website a series of calculators which would give you your Primary Insurance Amount (the amount you’d receive at Full Retirement Age) estimate, but little else.  This calculator was nowhere near as useful, and lots of folks were upset about it.

Well, apparently someone at SSA listened, because now there is a new option on the SSA website, at www.socialsecurity.gov/mystatement, where you can create an account and receive essentially the same information that was previously available on the paper statement – including earnings history!  How about them apples??

But that’s not all…

I have also have it on good authority from a source within SSA that the paper statements will be coming back.  Only for folks age 60 and older, but hey, that’s who really needs this information anyhow, so this is great!

Great job, Social Security!

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One More File and Suspend Option

Spider's egg sac
Image via Wikipedia

We’ve discussed the file and suspend option in multiple articles, but did you know that there is one more option for file and suspend. This is one that provides you with the opportunity to earn delayed retirement credits (DRCs) on your Social Security benefits, even if you started receiving benefits early.

File and suspend is generally an option that is used by a married couple – providing a method by which one of the two can receive Spousal Benefits while the other delays receiving benefits until later, earning DRCs.  (For more on this, see this article on Spousal Benefits.)

This additional option is available at Full Retirement Age (FRA), just like otherwise.  But what’s different about this is that the suspend option is used when you’ve already been receiving benefits, most likely early at a reduced rate, and by suspending at FRA you make yourself eligible to earn Delayed Retirement Credits (DRCs) on your present benefit.

Here’s how it works: Say you started receiving your benefit early, at age 62.  By doing so you permanently reduced your benefit.  If you’d waited until Full Retirement Age (FRA), you could have received a benefit of $2,000, but by taking the benefit early you are now receiving a reduced amount, $1,500.  And ever since that time, you have been kicking yourself because you had plenty of money to keep you going, and you wished you had waited and delayed your benefit.

Without overcomplicating this with Cost-of-Living Adjustments (COLAs), let’s say you’ve now reached Full Retirement Age (FRA).  Having reached FRA, you now have the option to enact the file and suspend option.  This means that you can now suspend receiving your benefit and begin earning Delayed Retirement Credits of 8% per year, between now and your 70th birthday.  This means that your overall benefit could be increased by as much as 32%, to a total of $1,980.  This could be a way to bump up your future benefits, as well as your surviving spouse’s Survivor Benefit.

In the event that you try to put this one into action, expect for some opposition from Social Security staff.  Even in the most-accepted of circumstances, Social Security staff often claim to know nothing of the file and suspend option.  So one way to help yourself in talking to the representatives is to refer to the webpage at http://www.socialsecurity.gov/retire2/suspend.htm.  I’ve copied the text below for your reference:

Voluntary Suspension of Retirement Benefits

If you have reached full retirement age, but are not yet age 70, you can ask us to suspend retirement benefit payments.

  • If you apply for benefits and we have not yet made a determination that you are entitled, you may voluntarily suspend benefits for any month for which you have not received a payment. Your request to suspend benefits may include any retroactive benefits that might be due.
  • If you are already entitled to benefits, you may voluntarily suspend current or future retirement benefit payments up to age 70 beginning the month after the month when you made the request.Reminder: We pay Social Security benefits the month after they are due. If you contact us in June and request that we suspend benefits, you will still receive your June benefit payment in July.

You do not have to sign your request to suspend benefit payments. You may ask us orally or in writing.

Note: If you started receiving Social Security benefits less than 12 months ago and you changed your mind about when they should start, you may be able to withdraw your Social Security claim and re-apply at a future date. If your request is approved, you must repay all the benefits you and your family received based on your retirement application.

 

Before you make your decision

There are some things you need to know about what will happen if you suspend your retirement benefits.

  • If you are enrolled in Medicare Part B (Supplementary Medical Insurance), you will be billed by the Centers for Medicare & Medicaid Services (CMS) for future Part B premiums.These premiums cannot be deducted from your suspended retirement benefits. If you do not pay the premiums timely, you may lose your Part B Medicare coverage. (You will have the option of automatically paying the bill from an account at your bank or financial institution.)

    Exception: If you also receive benefits as a spouse or ex-spouse, we can deduct your Part B premium from that benefit payment.

  • If you also receive Supplemental Security Income (SSI) benefits, suspending your retirement benefits will make you ineligible for SSI.
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Fixing Social Security

Social Security Poster: old man
Image via Wikipedia

Much has been written about the ills of our Social Security system as it stands today.  There has been considerable banter about how the system is a Ponzi scheme (it’s not), how it will go bankrupt soon (it can’t), and how we’ve got to do something about it soon (we do) like abolishing it completely (we can’t).

The above issues have already taken up a lot of cyber-paper, as many other writers have covered them far more completely than I will attempt here.

Briefly, the Ponzi concern is out of the question, as the Social Security system isn’t a savings plan, it’s an insurance plan.  And, like all insurance plans since many receivers of benefits have put little if anything into the plan (dependents and survivors of participants, for example), many participants will receive less from the plan than they put into it.  The Social Security system was never intended to pay you back what you put into it – it’s a social insurance system, so many pay into it with little return.  Like it or not, that’s what we’ve put in place, and that fact is not likely to change.

The bankruptcy question is resolved by the fact that the system always has new money coming into it from tax rolls, which means it cannot be bankrupted.  The system could become insolvent, meaning more is going out than is coming in, but since the amounts paid out to new recipients can (and will) be adjusted, this insolvency won’t happen either.  Of course this means that the people paying into the system will receive fewer and fewer benefits as time goes on, which leads us to the next point.

We’ve got to do something to repair the system, but abolishing it isn’t the answer – it’s not even among the viable answers.  I’ve seen it written elsewhere that we could just shut down the system and give all current participants (those who have paid in) an account equal to the amount that they’ve put in, since there’s a trust fund holding non-marketable bonds already.  However, with so many folks relying on the system to provide benefits when they didn’t put anything into it, or didn’t put as much into it as they are receiving in benefits (such as folks on disability), abolishing the system altogether would leave these folks out in the cold.

What may work

Means testing is one of the matters that must be addressed.  As it relates to all forms of benefits, presently the only means test results in ordinary income tax on up to 85% of the benefits received.  This doesn’t go far enough – being a social insurance program, benefits are guaranteed to all eligible persons, including those who have no need for the funds in any way, such as the über-rich. I’d suggest that the means testing should go even farther than that, to include those not-so-über-rich, with incomes that far encompass the need for this additional social insurance.

Another area to resolve problems with our current system is in the complexity of the way it works and how benefits are paid to people.  There is a tremendous amount of bureaucracy involved with administering, responding to questions, and working through complaints with the way the system currently works.  If the system were changed to force folks to only file for retirement benefits at Full Retirement Age (FRA) and not before or after, much of this complexity would be removed.  Along with the removal of the complexity, much of the bureaucracy could be eliminated, reducing the overhead and costs, making the system more efficient.

By setting one specific age for retirement benefits, we would also have much better control over outflows from the system, and adjusting FRA would have an immediate and calculable impact on the system.  Granted, the impact on recipients would also be immediate under this proposal.

Don’t get me wrong, I’m not suggesting that this will fix everything.  We’ll have to get the actuaries involved to figure out how much of an impact these changes could have.  The end result is probably going to be that current drags on the system will require further reduction in benefits than I’ve proposed and/or additional taxation in order to keep the benefits flowing.  But taking a few steps right now can help to forestall the presently inevitable outcome.

If you’re looking for more on how the Social Security system works today, check out my new book – A Social Security Owner’s Manual. The book provides a well-rounded look at how your benefits work – you’re bound to find something you didn’t know.

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What Your Social Security Statement Is Telling You

Confusing signal
Image via Wikipedia

We covered the Social Security annual benefit statement in depth in another article, but there is a portion of the statement that is a constant source of misunderstanding – the projection portion at the top of page 2.

If you’ll take a look at this portion of the statement, you’ll see a projection of your Social Security retirement benefits, at Full Retirement Age (whatever that is for you), at age 70, and at age 62.  Also listed are the amounts that you would receive for Disability Benefits, as well as amounts that your family would receive upon your death as survivors.  What gets missed for many folks is the part at the top which reads:

At your current earnings rate, if you continue working until…

With that short phrase comes a great deal of confusion and misunderstanding.  What this means is that, when you receive this document, assuming that you are something less than Full Retirement Age (FRA), the statement reflects a projection of your future earnings from now until those projected ages (62, FRA, and 70) – and those amounts provided are based upon that projection.

If, for example, you chose to stop working at age 62 and delay receiving benefits until FRA, the benefit that you’ll receive will likely be less than the amount shown on your statement… because you did not continue earning at your current rate to FRA, as the projection assumes.

Another example is where you continue working, but your income has been reduced, due to layoff or other dramatic change in your employment.  With the jobs outlook being the way it has been over the past few years, it’s not hard to imagine a situation where this might be the case.

There are several calculators available on the Social Security website that can help you to get a clearer picture of your actual benefit if your projected earnings will be something different than what you’ve experienced up to the present (or actually, up to two years ago, since that’s all the more that is generally covered with the statement).

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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?

Dark clowds above the Social Security. Clock ?...

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 years’ earnings can be eliminated from your calculation record as well, thereby boosting your Social Security benefit by increasing the overall average.

Lastly, when you get your annual statement from the Social Security Administration, a projected benefit amount is reported.  If you read the fine print, the projected benefit amount assumes that you continue to work up to the retirement age indicated, with your earnings remaining roughly the same as your most recent year.

If you retire at age 62 and wait to age 66 to begin receiving benefits, the amount of benefit that was projected for you at age 62 will be lower because you will have added zero years to the end of your working career.  The estimate assumed that you continued working at (presumably) a high earnings rate relative to the rest of your record.

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