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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As reviewed in the article The Family Maximum Benefit (Retirement), there is a maximum amount that can be paid on a particular Social Security record.  As you’re planning for your family’s benefits, it is important to know what is involved in establishing the maximum benefit, as well as what can be impacted by the maximum limit.

What’s Not Included

Maybe it would be easiest to point out a few things that don’t go into the calculation for the Family Maximum limit:

• Ex-spouse spousal benefits are not included
• Ex-spouse survivor benefits are not included
• Any delayed retirement credits on the primary beneficiary’s record are not included

So – with those items excluded, that leaves us with the question of what IS included:

What Is Included

Included in calculating the Family Maximum benefit limit would be everything else that wasn’t specifically excluded, based upon the primary recipient’s record:

• Primary beneficiary’s benefit, up to the Primary Insurance Amount
• Spousal Benefits for a current spouse (not an ex)
• Survivor Benefits for the spouse who was married to the primary beneficiary at the date of death
• Child’s benefits
• Spouse benefits for a spouse caring for young children under age 16
• Other beneficiary benefits, including aged parents, other dependents, etc.

What Can Be Impacted by FMB

Once the Family Maximum Benefit amount is calculated, certain benefits can be reduced as a result (if the maximum is breached).  First of all, it’s important to note that those benefits mentioned in the “What’s Not Included” section above are not subject to reduction by the FMB.  In addition, the primary beneficiary’s retirement or disability benefit would also not be reduced by a limit imposed by FMB.

All of the other, secondary benefits, such as survivor benefits by the last-current spouse, spousal benefits, child’s benefits, and other beneficiary benefits can be reduced.  Each benefit is reduced pro-rata depending on the FMB figure that has been developed.

Example

So let’s work through an example: John, age 70, just filed for his retirement benefit, in the amount of $3,000.  His Primary Insurance Amount (PIA) is $2,273.

John was married twice previously, to Jane first (age 62) and then to Sally (age 63), and each of those marriages lasted more than ten years.  He married his current wife, Celeste (age 30), three years ago and they have newborn triplets.

The family maximum benefit is calculated as follows (2012 figures):

1) 150% of the first $980 = $1,470

2) 272% of the next $435 = $1,183

3) 134% of the next $430 = $576

4) 175% of the remaining PIA ($428) = $749

5) adding these up ($1,470 + $1,183 + $576 + $749) = $3,978 <= this is the FMB limit for John’s record

Now, we know that Jane’s spousal benefit and Sally’s spousal benefit are not included in the FMB.  Additionally, John’s Delayed Retirement Credit ($727) is also not included.  The following benefits are included in determining if the FMB has been reached:

John’s PIA of $2,273

Celeste’s benefit for caring for the children of $1,136 (half of John’s)

Each child’s benefit of $1,136 (x3 = $3,408) (also half)

For a total of $6,817, which is $2,839 more than the FMB.  Since John’s PIA amount cannot be reduced, Celeste’s and the childrens’ benefits will be reduced at a rate of 58% less than their original amounts – to $477 for each of the benefits.  (That calculation was done by taking the full FMB, subtracting John’s PIA, and then splitting up the remaining amount pro rata among the other beneficiaries.)

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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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!

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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How is the Spousal Benefit calculated?  I’ve covered this topic in several prior posts, but thought I’d give it another shot, to hopefully close this chapter for now.  I’ve heard conflicting answers from various corners of the SSA world – both personally and from reader communications.  Too often there is a pat answer that the Spousal Benefit, if taken at FRA (Full Retirement Age) is always 50% of the other spouse’s PIA (Primary Insurance Amount).  This is not always the case, if the individual has begun receiving retirement benefits based on his or her own record before FRA and then later begins receiving the Spousal Benefit.

When an individual begins receiving retirement benefits based upon his or her own record has a lasting effect on the amount of all retirement benefits that this individual will receive, including Spousal Benefits.  This is due to the fact that the Spousal Benefit, when the retirement benefit is present, is an offset amount based upon the difference between the maximum Spousal Benefit (50% of the other spouse’s PIA) and the PIA of the first spouse.

The early retirement benefit amount calculation is fairly straightforward (at the link you’ll find a detailed explanation).  The individual’s PIA is reduced by a factor based upon the number of months prior to Full Retirement Age that he or she has applied for benefits.

Knowing the individual’s PIA, the next factor in the calculation is the other spouse’s PIA, and the maximum amount of Spousal Benefit will be 50% of that PIA.  This factor is available if the individual is at least Full Retirement Age.  The reduction in overall benefits is the difference between 50% of the second spouse’s PIA and the first spouse’s PIA.

Example

Okay, this is confusing as all get-out without an example.  Let’s say Dick and Jane are a married couple, with PIAs of $2,200 and $800 respectively.  Dick and Jane are both age 66, Full Retirement Age.  Jane started receiving her own retirement benefit at age 62, which is reduced to $600 since she started early.  Dick intends to delay his retirement benefit to age 70 for the maximum benefit.  Dick files and suspends his retirement benefit, which then allows Jane eligibility to file for the Spousal Benefit, while Dick’s benefit continues to accrue delayed retirement credits.

How much of a total benefit will Jane receive, under these circumstances?  Here’s how it works: Jane’s PIA is subtracted from half of Dick’s PIA – $1,100 minus $800 = $300.  This amount is the Spousal Benefit offset for Jane, which is added to her own benefit for her total benefit.  Adding $300 to $600 equals $900.  This is $200 less than 50% of Dick’s PIA (remember the pat answer from before?).

Another Example

Okay, what if there are a few changes to the above example: Dick is two years older than Jane – she’s 64 and he’s 66.  He still files and suspends at age 66, his Full Retirement Age, and Jane then applies for the Spousal Benefit at her current age of 64.

Here is the way this calculation works (and some shorthand for the reductions):

• Determine Jane’s reduced monthly benefit ($600)
• Take Jane’s unreduced PIA and subtract it from Dick’s unreduced PIA ($1,100 minus $800 = $300). This amount is referred to as the Excess Spouse Benefit amount.
• If Jane is under Full Retirement Age (FRA), determine the number of months before FRA – in her case, it’s 24, as age 64 is 24 months before age 66.
• Multiply the Excess Spouse Benefit amount by the amount determined by subtracting her number of months prior to FRA from 144.  ($300 times (144 minus 24) equals $36,000).
• Then divide that number by 144 ($36,000 divided by 144 equals $250).  $250 is then added to her own retirement benefit amount to come up with the total benefit ($250 plus $600 equals $850).

Now, taking this one step further: If Jane is eligible for the Spousal Benefit more than 36 months before FRA (such as if Jane was 62 when Dick is 66), then the above calculations would be changed slightly:

• Determine Jane’s reduced monthly benefit ($600)
• Take Jane’s unreduced PIA and subtract it from Dick’s unreduced PIA ($1,100 minus $800 = $300). This amount is referred to as the Excess Spouse Benefit amount.
• If Jane is under Full Retirement Age (FRA), determine the number of months before FRA – in this case, it’s 48, as age 62 is 48 months before age 66.
• Multiply the Excess Spouse Benefit amount by the amount determined by subtracting her number of months greater than 36 prior to FRA from 180.  ($300 times (180 minus 12) equals $50,400).
• Then divide that number by 240 ($50,400 divided by 240 equals $210).  $210 is then added to her own retirement benefit amount to come up with the total benefit ($210 plus $600 equals $810).

It should be noted that if Jane had not filed for her own benefit before FRA and she waits until FRA to file for the Spousal Benefit, she will be eligible for a Spousal Benefit equal to 50% of Dick’s PIA – assuming that Dick has filed for his own benefit, or filed and suspended.  Jane does not have to take her own benefit at this time, especially if her own benefit will potentially be greater than the Spousal Benefit.

Hope this helps to clear things up a bit.  If not, please leave your questions in the comments section below and we’ll work together to come up with answers.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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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 $1,400, or 70% of the amount at FRA.  If he takes the benefit now, he’ll receive $16,800 per year for the next four years. (COLAs have been eliminated in this example to keep it less confusing.)

If he is in a position where he doesn’t necessarily need the money, he could invest the funds as he receives them.  If he invested those funds at a 5% fixed rate, when he reaches age 66 he’ll have a total of approximately $74,220.  He’ll also continue to receive the same $16,800 year-after-year.

Now, let’s assume at this age that John needs the $2,000 for living expenses.  If he uses the current $1,400 of Social Security benefits and supplements it with his “stash” he’s built up over the previous four years, letting the remainder grow at interest, it will take fourteen years before he’s run out of the stash account.

The problem is, once John has done that now, he’ll be stuck with an income that is $600 less (in today’s dollars) than what he needs.  If he has no other resources, such as a 401(k), pension, or IRA, he’s in a pickle.

If John was somehow able to generate 7% from his savings, he’ll buy himself another four to five years, but that’s really it.

Example 2, Filing at age 62 vs 70

Same facts as Example 1, but now we’ll compare the outcome if John is able to hold off to age 70, at which point his benefit would be increased to $2,640.

Running the numbers again, upon reaching age 70, John’s savings account at 5% will have grown to approximately $164,837.  Now, if John’s income requirement is still only $2,000 per month, his side account generates enough interest (at 5%) to sustain over time without depleting it. (This assumes that he is financially in a position to delay, using other sources to cover his expenses up to age 70.)

However, if John had delayed receiving his benefit to age 70 and then began using $2,000 for expenses and banking the rest in the same type of savings account, he’d still have more money in the account if he started early benefits – for fifteen years, to his age 85.  From that point forward, it would be more beneficial to have waited to age 70.

Example 3, Filing at age 66 vs 70

Again, same facts, but John waits to file at Full Retirement Age (FRA), age 66, and puts the full amount of his benefit in the same savings account at 5% interest.  Now, when he reaches age 70, the savings account has grown to more than $106,000.

He still only needs $2,000 to live on – and when compared to delaying up to age 70, since he is able to save a portion of the larger, full benefit, he is able to build up his savings account, but the “wait ‘til 70” account doesn’t become larger than the “file at 66” account until he reaches more than 93 years of age!

Conclusion

In these examples, which I’ll admit are far from comprehensive, we can see that longevity makes all the difference.  If you live a very long life, it makes more sense to delay, assuming you can cover your expense needs in the meantime.

In many cases though, the individual cannot wait, needing the money earlier.  In addition, most folks take a view that they’ll not likely live to the age needed in order to make the delay option pay off.  So – all things considered, it might be better for you to file earlier, as always, depending upon your circumstances.

Leave your own situations in the comments section below (not too complicated though!), and I’ll gather some of the more common situations and show how some tactics might play out at differing filing ages.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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WOMEN'S HISTORY MONTH (Photo credit: mademoiselle louise)

In determining your retirement benefits from Social Security, as well as those of any dependents who may claim benefits based upon your record, the Primary Insurance Amount, or PIA, is an important factor.  The PIA is the amount of benefit that you would receive if you began receiving benefits at exactly your Full Retirement Age, or FRA. (see this article for information about determining your FRA).

The PIA is only one of the factors used in determining the actual amount of your retirement benefit – the other factor being the date (or rather your age) when you elect to begin receiving retirement benefits.

So, how is PIA calculated?

There are several factors that go into the calculation of the PIA.  You start off with your Average Indexed Monthly Earnings (AIME – which we defined in this article about the AIME).  Then, we take into account the bend points for the current year.  For 2012 the bend points are $767 and $4,624.  Here’s the calculation:

• the first $767 of your AIME is multiplied by 90%
• the amount between $767 and $4,624 is multiplied by 32%
• any amount in excess of $4,624 is multiplied by 15%

Note: these are the figures for 2012.  Each year the bend points are increased slightly (or most years they are), and so the PIA calculation may change.

So let’s work through a couple of examples:

Our first retiree is age 62 in 2012, and is hoping to begin taking Social Security benefits immediately upon eligibility – to get what’s coming to her.  Her AIME has been calculated as $6,500.  Applying the formula, we get the following:

• first bend point: $690.30 ($767 * 90%)
• second bend point: $1,234.24 ($4,624 – $767 = $3,857 * 32%)
• excess: $281.40 ($6,500 – $4,624 = $1,876 * 15%)
• For a total PIA of: $2,205.90 ($690.30 + $1,234.24 + $281.40)

The second example retiree also is age 62 in 2012.  His AIME has been calculated as $4,000.  Applying the formula:

• first bend point: $690.30
• second bend point: $1,034.56 ($4,000 – $761 = $3,233 * 32%)
• excess: $0
• For a total PIA of: $1,724.80 ($690.30 + $1,034.56)

You should note that the PIA is always rounded down to the next multiple of $0.10.

And that’s it.  As mentioned, your PIA is the basis for all of your other benefit calculations. For more information, you can pick up A Social Security Owner’s Manual.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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This particular situation was presented to me by a reader.  Since the facts represent a fairly common situation that we haven’t addressed here in the past, I thought I’d present it here for discussion.

Here’s the original question (altered a bit for clarity):

My wife and I are age 65 & 67 respectively.  We’re both still working part-time, and my wife has now 20 years of earnings on her Social Security record.  At this point her PIA is approximately 45% of my PIA, and increasing with each additional year of earnings added to her record.  We are in a position to delay retirement benefits to age 70 to increase our Delayed Retirement Credits (DRCs) to the maximum.  What is a good strategy for us to maximize Social Security retirement and Spousal Benefits?

Given that the wife in this example has a PIA equal to something less than half of the husband’s PIA, once the wife reaches FRA she can begin receiving the Spousal Benefit alone, which would amount to 50% of the husband’s PIA.  The husband will need to file and suspend in order for her to do this, but as we know, this will have no negative consequence to either of the retirement benefits in the future.

As the wife’s own benefit increases due to her additional work record and the Delayed Retirement Credits (DRCs), her own retirement benefit will continue to increase in value. Eventually there will be a crossover point when the Spousal Benefit is actually less than her retirement benefit.  At that time she can choose to switch over to her retirement benefit (instead of the Spousal Benefit) or she could continue to receive the Spousal Benefit and earn DRCs.

As it turns out for this couple, the crossover point will occur when they reach the ages of 68 and 70.  At that time, he will go ahead and file for his retirement benefit since it has maxed out the DRCs; she will probably continue to receive the Spousal Benefit and allow her own retirement benefit to continue accruing DRCs.

It should be noted that if she chooses to switch over to her own retirement benefit at some point, her husband could file solely for the Spousal Benefit based upon his wife’s record – if he is under age 70.  Once he reaches age 70 there is no further increase to his retirement benefit from DRCs, so he may as well go ahead and take his retirement benefit.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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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 dollar – up until the month that you actually reach FRA.  Once you’ve reached FRA, there is no income limit, and you can earn as much as you want, without any of the reductions that are applied to earnings prior to FRA.

These reductions aren’t  lost – you’ll actually get credit for them later on at FRA.  So if you’re earning enough (for example) to reduce your benefit down to a point where your benefit is eliminated, you’ll get credit for that “lost” month once you reach FRA.

As you most likely already know, your Social Security benefit is reduced based upon the number of months prior to FRA that you’ve applied for and begin receiving benefits.  For every month that your benefit is eliminated (or reduced and withheld by SSA) prior to FRA, these months will be credited back to your account, reducing the number of months that were originally used to calculate your reduced early retirement benefit.

As with all of these explanations, an example is in order.  Dick, age 62, has a Primary Insurance Amount of $2,000.  When he files for benefits at age 62 his benefit is reduced by 25%, to $1,500.  Dick is still working, and his job pays him $60,000 per year ($5,000 per month).  With that income, Dick’s Social Security benefit will be reduced by $2 for each dollar over $1,220 that he earns.  So $5,000 minus $1,220 equals $3,780, so his benefit will be reduced by $1,890 – more than his benefit.  This means his benefit will be completely withheld.

When Dick reaches FRA, assuming he’s continued earning at that same pace up to that point, he will begin receiving his benefit at the same amount as if he had waited until FRA to apply for the benefit.  This is because he’s gotten credit back for all of those months that he had his benefit withheld.

Why would Dick do this, you might ask?  One reason might be if he had dependents, such as his wife and/or children, that could receive benefits based on his record if he’s actively filed.  Even though his benefit is being withheld, the dependents’ benefits can continue – these benefits are limited by the income of the individual receiving them.  So if his wife was receiving Spousal Benefits based on his record, she would have the same earnings limits as listed above, and the same goes for the children.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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Following up my article which provided several brief examples of the Social Security Spousal Benefit, I thought I’d provide some further explanation and background for the provision. It appears from some of the feedback I have received that there is a great deal of confusion over this provision, so hopefully the further background explanation that I’m providing here will be of help.

I have listed below several additional background details about how the Social Security System works, in order to help you better understand the prior article.

Additional Background Explanation

As stated at the outset of the previous article, this is one of the most confusing provisions of the Social Security system. Don’t expect to fully understand the tenets of the provision in a brief reading – you’ll want to read through the examples carefully, comparing each example to your own situation and considering the outcomes.

1. In the original article, I used two acronyms in my explanations, both of which were explained briefly at the outset of the article. I’ll explain and define each of them further here.

FRA – Full Retirement Age. This is the age at which you would become eligible for your full Social Security benefit (also known as your Primary Insurance Amount, which we’ll get to next). It used to be that FRA (Full Retirement Age) was 65 for all people – but with the 1983 amendment to the system, the age was gradually increased. Full Retirement Age (FRA) depends on your year of birth, according to the table below:

PIA – Primary Insurance Amount. This amount is, for most folks*, equal to the amount that you would receive at Full Retirement Age (FRA). This figure is the primary figure against which all calculations are run for figuring your retirement benefit, and for calculating a Spousal Benefit for your wife or husband.

* If an individual is also receiving a pension from a job which was not subject to Social Security withholding taxes, such as a teaching job or a federal, state or local government job, certain reductions will likely apply. You can read more about the impact of these non-Social Security jobs at this article which explains the Windfall Elimination Provision and the Government Pension Offset (WEP and GPO respectively, if you’d like more acronyms).

2. There is a minimum age at which you become eligible for Social Security retirement benefits, and this is the same for all people, 62. If you file at this age (or at any age before Full Retirement Age), you will be subject to a reduction from your Primary Insurance Amount (PIA) based upon the number of months you’re filing before Full Retirement Age. It’s a somewhat complicated formula (but then again, what about this system isn’t?) so rather than explaining how to build a watch I’ll show you what time it is.

The table below shows the reduction factors for various ages and years of birth. You’ll need to find the row for your Year of Birth, and then work your way across to the right for your reduction factor at various ages. Space limitations don’t allow us to display every possible age (limited to exact years), but you can get the idea of how the reduction works for ages in-between.

To use this table, find your Year of Birth in the first column. Move right until you reach the age that you wish to begin early benefits. This figure is the amount of reduction from your Primary Insurance Amount (PIA, see the explanation above) that you will experience by filing at this age.

At the earliest filing age of 62, for a person who was born in 1960 or later the reduction factor will be -30%. In other words, if this person files for benefits at age 62, the benefit would be 70% of the amount that this person would receive if he or she waited until Full Retirement Age (FRA) of 67 to file for benefits.

(FYI – there is also a maximum age for all people, after which your Social Security benefit will no longer earn delayed credits, and that is age 70. Delaying receipt of your benefit after Full Retirement Age causes an increase to your benefit, up to age 70.)

3. A Spousal Benefit can be available to one spouse or the other but not both. The maximum amount that this benefit could be is 50% of the other spouse’s Primary Insurance Amount (PIA, the amount that he or she would receive at Full Retirement Age). The 50% amount is available if the spouse applying for the Spousal Benefit is at least Full Retirement Age. If he or she is younger than Full Retirement Age, a reduced amount could be available. The reductions are listed below:

Following the example listed above where a person born in 1960 or later files for Spousal Benefits at age 62, the 50% factor is reduced by 35%. In other words, the Spousal Benefit factor for this person would be reduced to 65% of the full 50% factor, which calculates to 32.5% of the other spouse’s PIA.

4. Furthermore, the Spousal Benefit is only available if the other spouse has filed for benefits already. Stay with me on this – it’s confusing. This means that until the other spouse files for retirement benefits, the first spouse can’t file for Spousal Benefits. Once the other spouse files for retirement benefits, the first spouse, as long as he or she is at least age 62, can file for Spousal Benefits. It’s important to note that the Spousal Benefit is available only to one spouse in the couple at at time – not both, so you have to choose which option works out better for you and your spouse.

5. At Full Retirement Age, a special provision is available that allows one spouse or the other to file for her own benefit and then suspend receiving the benefit; this will enable the other spouse to file for Spousal Benefits based upon the first spouse’s record. Since the one spouse has suspended receiving her benefit, she can continue to accrue delayed retirement credits up to age 70, while at the same time the other spouse is now eligible to file for Spousal Benefits based upon her record.

6. If the Social Security recipient is filing for benefits prior to Full Retirement Age and he is also eligible for the Spousal Benefit at the same time (that is, his spouse has already filed for her own benefit), then another special provision applies, called Deemed Filing. Deemed Filing requires that, if the individual is eligible for both the Spousal Benefit and his own benefit and is younger than Full Retirement Age, then that individual must file for both benefits at that time. The only other alternative is not filing for either benefit.

If the individual is not currently eligible for the Spousal Benefit and he is filing for his own benefit prior to Full Retirement Age, Deemed Filing does not apply – even if a month later his spouse files for her own benefit, making this first spouse eligible for the Spousal Benefit. Deemed Filing only applies in the first month that the individual is filing for his own retirement benefit, and then only if he is younger than Full Retirement Age. (Roles could be reversed, as always.)

Back to the examples

Now, with this additional background information, you should be able to go back to the first article and it will (hopefully) make more sense.

Keep in mind what I mentioned at the beginning: this is complicated. Don’t expect to pick up on it immediately. If all this does is raise questions, feel free to post your questions in the comments and I’ll try to address your questions as best I can.

In addition, bear in mind that I am an independent financial advisor; I don’t work for the Social Security Administration. As such, in these articles I am reporting the way the system works – not advocating it, not agreeing with it, not defending it. I agree that many of the provisions of the system can be unfair when applied, but I don’t have any sway with the Social Security Administration to fix the problems. I’m a taxpayer just like you, and I have to deal with the system the way it stands as well.

I have spent quite a bit of time studying how the system works in order to help my clients. As a result of my study of the system, I’ve also written a book that you may find useful – A Social Security Owner’s Manual. The Spousal Benefit and many other confusing provisions of the Social Security system are explained in the book.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
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It’s usually best, for most things in the financial world, to act now rather than waiting around. The notable exception is with regard to applying for Social Security benefits. We’ve discussed it before (in fact part of this article is a re-hash of an earlier post) but it is an important point that needs more emphasis, in my opinion. As you’ll see from the table below, if you’re in the group that was born after 1943 (that’s you, Boomers!) you can increase the amount of your Social Security benefit by 8% for every year that you delay receiving benefits after your Full Retirement Age (FRA – see this article for an explanation).

Delaying Receipt of Benefits to Increase the Amount

If you are delaying your retirement beyond FRA, you’ll increase the amount of benefit that you are eligible to receive. Depending upon your year of birth, this amount will be between 7% and 8% per year that you delay receiving benefits – which can be an increase of as much as 32½% if you delay until age 70 and you were born in 1941 – when your FRA is 65 years and 8 months, and the increase amount is 7½% per year at that age. See the table below for the increase amounts per year based upon birth year:

So you can see the impact of delaying receipt of retirement benefits – it can amount to more than 50% of the PIA (Primary Insurance Amount), when you consider early benefits versus late benefits. Of course, by taking benefits later, you’re foregoing receipt of some monthly benefit payments; given this, early in the game you’d be ahead in terms of total benefit received. This tends to go away as the break-even point is reached in your mid-70′s to early-80′s in most cases, which we’ll review in a later article.

An Example

Here’s an example of the benefit of delay in action: You were born in 1954, and as such your FRA is age 66. According to the benefit statement you’ve received from Social Security, you are eligible for a monthly benefit payment of $2,000 when you reach your FRA (which would be in 2020). If you delayed applying for your benefit until the next year, your monthly benefit payment would be $2,160 per month – an increase of $1,920 per year. If you delayed until age 68 (two years after FRA), the monthly payment would be increased to $2,320, for an annual increase of $3,840. At age 69, delaying would increase your annual benefit by $5,760, and at age 70, your monthly payment would be $2,640, for an annual benefit of $31,680 – $7,680 more than at FRA. This amounts to a 32% increase in your benefit by delaying receipt of the benefit by 4 years!

Notes

It’s important to note that this is not a compounding increase – that is, your potentially-increased benefit from one year is not multiplied by the increase for the following year. The factor for each year (or portion of a year) is simply added to the factor(s) from prior years. You also don’t have to wait a full year to achieve the benefit – this delay is calculated on a monthly basis, so if you delayed by 6 months your increase would be 4% over the FRA amount. The biggest benefit of this is that you can not only increase the amount you will receive over your lifetime, but also the survivor benefit that your spouse will receive upon your passing. For some folks this can make a huge difference as they plan for the inevitable.

You can pick up my book, An IRA Owner's Manual, in either the print version or the Kindle version by clicking the links.
Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).