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 […]
Social Security
Know Your Options When Talking to Social Security
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 […]
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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 […]
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Earnings Tests Apply to Spousal and Survivor Social Security Benefits As Well
If you’re receiving Spousal or Survivor Social Security benefits and you’re under Full Retirement Age, you need to know that any earnings that you have can have an impact on the benefits that you’re receiving. These are the same limits that apply to regular retirement Social Security benefits, and they apply in the same manner. For 2013, if you will not reach Full Retirement Age during this calendar year, the earnings limit is $15,120, or $1,260 per month. For every $2 over that limit that you earn for the year, your Social Security benefit will be reduced by $1. For example, if you earned $20,000 for the year, you are over the limit by $4,880, and you’ll lose $2,440 of your benefit. If you will reach Full Retirement Age in 2013, the earnings limit is $40,080, or $3,340 per month – and the treatment is different. In this case, for […]
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A Quick and Dirty Way to Determine Your PIA
We’ve gone over the long, painful, detailed way to calculate the Primary Insurance Amount (PIA) in many different articles and my book. The PIA is central to most of the calculations we do, such as your own benefit (reduced or increased if you file early or late), survivor benefits, and the like. Sometimes it is difficult to actually know find out what your PIA actually is. Here’s a quick and dirty way to figure it out: Go to the Social Security website and get your statement (www.socialsecurity.gov/mystatement). On page 2 at the top you’ll see either your Full Retirement Age (FRA) benefit amount, or the amount at your current age if you’re over FRA. Oftentimes we refer to this FRA amount as your PIA, but nearly always with a qualification. This is because the benefit amount illustrated on this statement is assuming that you continue earning at your current level […]
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Calculating the Reduced Social Security Spousal Benefit
Among the pile of very confusing calculations for various Social Security benefits is the incredibly confusing Spousal Benefit. This calculation becomes even more confusing when filed for prior to Full Retirement Age (FRA), as it is further reduced. Briefly, the maximum amount that a Spousal Benefit can be is 50% of the other spouse’s Primary Insurance Amount (PIA). PIA, if you’ll recall, is equivalent to the amount of benefit that the other spouse would receive in benefits at his or her own Full Retirement Age. The calculation is actually a bit more complicated than that. The Spousal Benefit for Jane (on her husband John’s record) is calculated as follows: John’s PIA times 50% minus Jane’s PIA times the early-filing reduction factor That amount is then added to Jane’s benefit, which could be reduced by filing early or enhanced by Delayed Retirement Credits for filing later, to come up with Jane’s […]
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Another Good Reason to Delay Social Security Benefits
As you likely know from reading many of my articles on the subject, I have long advocated the concept of delaying your Social Security benefit as long as possible. This shouldn’t be a surprise – many financial advisors have espoused this concept for maximizing retirement income. Lately there has been a white paper making the rounds, from a Prudential veep, Mr. James Mahaney, entitled Innovative Strategies to Help Maximize Social Security Benefits. The white paper supports the very theme that I wrote about a couple of years ago in the post Should I Use IRA Funds or Social Security at Age 62?. This paper seems to have struck a chord with a lot of folks, as I’ve received it no less than a dozen times from various folks wondering if the strategies Mr. Mahaney writes about would be useful to them. The point is very clear: It makes a great […]
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An Unexpected Result From Roth Conversion – Increased Medicare Premiums
Many folks took advantage of the one-time opportunity in 2010 to convert funds from traditional IRAs to Roth IRAs and subsequently spread the tax over the following two years, 2011 and 2012. This was a very good option for some folks who wanted to do the conversion and reduce future tax costs. However (and there’s always a however in life!), with the coming of 2013, many of these same folks are experiencing an unexpected result of the conversions: a significant increase in Medicare Part B premiums. Beginning after 2003, Medicare Part B premiums have been partly determined by income – primarily higher income. For 2013, the increased Part B premium begins for single folks with incomes above $85,000, married couples above $170,000. The income used to calculate the Part B premium is always based on the most recent tax return, which in this case would be the 2011 tax return. […]
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Are You Leaving Social Security Money on the Table? You Might Be, If You Don’t Understand and Use This One Rule
Note: with the passage of the Bipartisan Budget Bill of 2015 into law, File & Suspend and Restricted Application have been effectively eliminated for anyone born in 1954 or later. If born before 1954 there are some options still available, but these are limited as well. Please see the article The Death of File & Suspend and Restricted Application for more details. Many couples that have done some planning with regard to filing for Social Security retirement benefits have figured out how to coordinate between the higher wage earner’s benefit and the lower wage earner’s benefit. Often it makes the most sense to file for the lower wage earner’s benefit early, at or sometime near age 62, while delaying the higher wage earner’s benefit out to as late as age 70. This method allows for a maximization of those two benefits. If you’re really astute, you probably picked up on […]
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Social Security Bend Points in 2013
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 […]
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How is the Maximum Social Security Benefit Calculated?
Each year when the Social Security Administration announces the Cost Of Living Adjustment to benefits for the coming year, with similar ballyhoo they announce the maximum benefit amount available for the coming year. For 2013, the maximum Social Security benefit for someone reaching Full Retirement Age (FRA) in that year will be $2,533, an increase of $20 over 2012. In the wake of these announcements a couple of weeks ago, a reader (thanks, DS!) sent me a question: Why is it that the maximum Social Security benefit only increased from $2,513 to $2,533? This is only an increase of 0.8%, while the COLA increase indicated that benefits would climb by 1.7%? This is a drawn out and complicated situation to explain, but I think it’s important to fully understand. First, you have to realize that when the Social Security folks publish this maximum amount, they are talking specifically about someone […]
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Factors to take into account when planning Social Security filing
As with the overall process of planning for retirement income, there are certain important factors external to Social Security benefits that you need to take into account while planning when to file for benefits. In the list below I will detail some of these factors and why they are important to the process. Important Factors When Planning Social Security Filing Pension income. Pension income must be considered with special care when planning your Social Security filing strategy. Often, pensions will increase in value up to a certain age of commencement and then there are no increases after that age. Coordinating your pension with your Social Security benefits can enhance your overall income stream – since a pension is generally a guaranteed source of income for yourself and possibly your spouse. In addition, since many pensions are not indexed for inflation, meaning that there are no Cost-of-Living-Adjustments (COLAs), it probably makes […]
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2013 COLA for Social Security is Set
The increase to Social Security retirement benefits for calendar year 2013 has been announced at 1.7%. Much ballyhoo has been made about the fact that this is one of the smallest increases in history, following the 3.6% increase at the beginning of 2012. This is actually an increase of more than the average that was received with the most recent increase, since there was no increase at all between from the beginning of 2009 until the beginning of 2012. So the average increase over the past three years was 1.2%. Inflation has been extremely low over period, so this small increase is not unexpected. Medicare premiums are also expected to increase, which likely will wipe out approximately half of the Cost-of-Living Adjustment.
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Can I Switch to My Spouse’s Benefit At FRA?
This is a question that comes up pretty frequently, in several different flavors. Basically, here’s the full question: I started benefits at age 62, and now I’m 66 (Full Retirement Age) – can I switch over to my spouse’s benefit now that I’m age 66? And will it be based on his benefit when he was 66, or his benefit now. (He’s 70 now, and has been collecting benefits since he turned 66.) There are a couple of questions being asked here, and I’ll cover them one-by-one. Can I switch to my spouse’s benefit? The wording here is troubling, because the asker specifically wishes to “switch” to another benefit. If an individual is already receiving retirement benefits, the spousal benefit is not a “switch”, but rather an “addition” to the retirement benefit. The second issue is implied, and maybe not troublesome to the question at hand. The Spousal Benefit at […]
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The Value of Your Social Security Benefits
As you consider your Social Security benefits and when you might begin to draw them, keep in mind that the benefits you’re receiving are actually akin to an annuity – a stream of income that you will receive from the time you start the benefits throughout your life. As with an annuity, if you live longer than average, you will receive much more than the original value (premium) of the annuity. If you have a way to increase the amount of the stream of income, by delaying start of the benefits, the overall amount that you eventually receive will increase as well (assuming you live longer than average). Let’s say that your Social Security benefit would be $1,500 at Full Retirement Age. If you started your benefit early at age 62, your benefit would be reduced to 75% of that amount, or $1,125; if you delayed your benefit to age […]
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How is the Social Security Survivor Benefit Calculated?
This is one of those very complicated and difficult to understand areas of the Social Security universe, but it’s very important to know what amount of benefits a surviving spouse will be eligible for upon the passing of his or her spouse. There are different rules that apply, depending upon whether or not the late spouse was already receiving benefits based on his or her own record, as well as the age of the surviving spouse when he or she begins receiving survivor benefits. We’ll look at the easy one first: when the late or decedent spouse was not already receiving benefits based on his or her own record. When The Decedent Spouse Was Not Receiving Benefits In the case where the late spouse had not already begun to receive benefits based upon his or her own record, there are three factors that you need to take into account: the […]
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A Social Security Option Strictly for Divorced Folks
There is a loophole in the rules surrounding how divorced folks’ Social Security benefits are treated. As you may know from other articles you’ve read here and elsewhere, if you were married for at least ten years and you’ve been divorced for two years, as long as your ex is at least age 62, you are eligible to file for a Spousal Benefit based upon the ex’s record. In addition, as long as you fit the circumstances, if your ex passes away before you, you will have access to his or her Social Security benefit amount as a Survivor Benefit. These things are pretty much the same as if you were still married to your ex-spouse. There’s one rule that is different for ex-spouses than for a married couple – and it has to do with the restricted application for Spousal Benefits. Restricted Application for Spousal Benefits If you’ll recall, […]
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Clarification on Questions About Spousal Benefits
Note: with the passage of the Bipartisan Budget Act of 2015 into law, File & Suspend and Restricted Application have been effectively eliminated for anyone born in 1954 or later. If born before 1954 there are some options still available, but these are limited as well. Please see the article The Death of File & Suspend and Restricted Application for more details. Since I’ve been receiving quite a few inquiries about certain aspects of the Spousal Benefit, I thought I’d put up an article with a few definitive statements about this confusing part of the Social Security system. 1. If you are eligible for a Spousal Benefit and you’re under Full Retirement Age, when you file for your own benefit, you are automatically filing for both your own benefit and the Spousal Benefit at the same time. This is known as the deemed filing rule. By “eligible”, we mean that […]
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How Social Security Earnings Limits Impact Total Family Benefits
As we’ve discussed in the past, there are limits on the amount of earnings that a person can receive while also receiving Social Security benefits, if the person on whose record the benefits are being received is under Full Retirement Age. But those earnings limits don’t only impact the benefit of the primary receiver of benefits – anyone else who is also receiving benefits based on his or her record will also be impacted by the earnings limits. How Does This Work? As you know from the previous article, in 2012 if an individual is receiving wage income in excess of $14,640, for every $2 of earnings over that amount, benefits received are reduced by $1. If there is no one else receiving benefits on his or her record, the individual would lose benefits by $1 for each $2 over the limit. However, if someone else is receiving benefits on […]
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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) […]
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