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 […]
Social Security
Calculating the PIA
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 […]
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It Pays to Wait For Your Social Security Benefits
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 […]
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A File and Suspend Review
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. I get a lot (a LOT) of questions about the File and Suspend tactic for Social Security benefits, so I thought some more review would help. For the uninitiated, File and Suspend is a tactic that married couples can use to help maximize their total Social Security benefits. In this post I’ll try to cover some of the more common questions. File and Suspend works like this: One of the two in the couple can file an application for Social Security benefits and then immediately suspend in order […]
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Tax Bill Higher Than You Expected?
Now that you’ve (hopefully) filed your return for 2010, you may have noticed that the bill was higher than you expected. This may be due to some subtle changes to the tax law that affected your return for this year. Listed below are some of the changes that you may have been impacted by: Social Security taxation: Especially if you had unusual income taxed in 2010, such as a Roth Conversion, you could be subject to as much as 85% taxation of your Social Security benefit. Alternative Minimum Tax: If you’ve been impacted by this, not only are your ordinary income tax items taxed at a higher rate, but your capital gains and dividends could be taxed at a rate higher than 15% as well. This happens for folks with incomes between $150,000 and $439,800 (or $112,500 and $302,300 for singles) as the AMT exemption phaseout occurs. Image via Wikipedia […]
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Proposed Social Security Wage Base Increases
October 19, 2011 update: the expected wage base increase has been confirmed as $110,100 for 2012. For more information, see this article. The Social Security Administration has released the proposed figures for the increase in the wage base for taxation for 2012 and projected some figures for the years up to 2015. This is the limited amount of income against which Social Security withholding tax is applied. For 2009 through 2011, the wage base has been static – at $106,800 for each year. The amount did not increase for these years since the average wage index (AWI) actually decreased from 2008 to 2009, and the modest increase in the index from 2009 to 2010 did not make up for the decrease in the prior year. For 2011, the AWI is expected to increase once again, by 3.08%. This sets the projected wage base for 2012 at $110,100, up a total of […]
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Your 2% Opportunity in 2011
By now you’ve heard the news from the 2010 Tax Act – one of the provisions is that during calendar year 2011, the Social Security withholding tax is reduced from 6.2% to 4.2%. This means that you have an additional 2% of your income, up to the $106,800 limit, available to you to do with as you wish. This is your opportunity to make a splash! I think it would be a very good idea to bump up your 401(k) deferral by 2% if you aren’t already maxed out. If you have maxed out your 401(k), you could use the extra money to contribute to your Roth IRA, or put some money into your taxable investment account. No matter what, since this money was originally intended to be for retirement (if it had been withheld for Social Security, it would have gone to *someone’s* retirement), you should put it toward […]
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Social Security by the Numbers
Here are some Social Security numbers I recently ran across that I found interesting. The figures are from the current information available as of October, 2010: The average retired worker receives $1,172 in monthly Social Security retirement benefits, and the average couple receives $1,892. The average disabled worker receives $1,066 in Social Security disability benefits each month, and this amount increases to $1,803 for a disabled worker with a spouse and child. The average widow or widower receives a total of $1,106 in Social Security survivor benefits per month, whereas a younger widow or widower with two children receives an average monthly benefit of $2,391. Each month, over 34 million people receive Social Security retirement benefits, and over 4 million are receiving survivor’s benefits as a widow or widower. Over 8 million people are receiving disability benefits from the Social Security system each month, as well. Photo by Pink Sherbet […]
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SSA Revises Withdrawal Policy
On December 8, 2010, the Social Security Administration published a revision to their “withdrawal policy”. It’s important for you to know what has changed about this rule, especially if you have been counting on this in your planning for Social Security benefits. You can see the actual text of the SSA’s announcement 20 CFR Part 404 by clicking here. What’s Changing? Essentially SSA has decided that this rule, as it stood, represented a little too good of a deal, even though very few people ever took advantage of it. The rule, in brief, allowed an individual to begin taking retirement benefits at any age, and then at any point in the future the individual could pay back all of the benefits (without interest) and re-set his or her beginning date for receiving benefits. This strategy allowed the individual to receive benefits and invest them, then pay back the entire amount […]
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2011 Retirement Plan Limits Published
The IRS has published the numbers for the annual contribution and income limits for retirement plans for 2011. You can find the highlights at the page Annual Limits for Retirement Plans – 2011. Essentially, very little changed from 2010 – IRA contribution limits are the same, as are 401(k), 403(b) and 457 plan contributions. The catch up provisions are the same for each type of plan as well. A few of the phase-out limits on MAGI were increased, but by negligible amounts. On the bright side, the Social Security taxation limit did not increase over 2010. Whee! Photo by Wikipedia
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Additional Social Security Resources
There are a few resources, above and beyond the guides available at socialsecurity.gov, that I’ve located for you – to help you as you make decisions and learn about your Social Security benefits. The good folks over at the Center for Retirement Research at Boston College have developed several resources that you can find at their website. Specifically, there is a guide to help you as you face the decision of when to apply, called the Social Security Claiming Guide. This electronic booklet provides you with all the background information you need – as well as answering some of the common questions that arise with this process. The other publication of note at this website is called the Social Security Fix-It book. In this guide you’ll find a review of the overall Social Security system, what’s presently wrong with it and what the future looks like, as well as several […]
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More Information About the Ultimate “Do-Over”
12/8/2010 update – the SSA revised the “Do Over” a bit. See the article “SSA Revises Withdrawal Policy” for details. If you don’t know about this tactic, you can read the article The Ultimate “Do Over” by clicking the link. Briefly, this tactic provides a way for you to file for your Social Security benefit and then later, after your benefit would have been potentially increased had you not filed, you can re-pay what you’ve received and start over at your new age. (Read the article at the link above, it’s explained much better there…) I didn’t tell the complete the story in that article though: there are a few items that you need to keep in mind with regard to this tactic. I’ll finish the story below. More Information Affordable Annuity. This tactic is called the Ultimate “Do Over” because it represents an extremely affordable annuity. By this I […]
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The One Downside to the File and Suspend Tactic
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. Some time ago I wrote about The File And Suspend Tactic for Social Security Benefits. Briefly, this is where you file for your Social Security benefit, most often at your Full Retirement Age (FRA), and then suspend payments, so that your spouse can begin taking the Spousal Benefit based upon your FRA benefit amount. You then delay receiving your benefit until age 70, maximizing your lifetime (and potentially your spouse’s Survivorship) benefits. There is one downside to the File and Suspend tactic, though: since you have filed, any […]
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The File and Suspend Tactic for Social Security 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. This is another provision of the Social Security system that is filed under the “Little Known Facts” section – although it is becoming more known these days. How it works and what’s important about it is the subject of this article. How File and Suspend Works and Why It’s Important Any worker can establish a benefit amount by applying at any time after Full Retirement Age – but he or she doesn’t have to continue receiving that benefit. The worker can immediately suspend the receipt of benefits, so […]
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A Little-Known Social Security Spousal Benefit Option
Most everyone is familiar with the concept of Social Security Spousal Benefits – if not, click this link for a complete explanation. In this article, we’ll be discussing an option that is available to all married recipients of Social Security retirement benefits – but you might not have thought of it. For most all married couples, it makes the most sense for the spouse with the higher wage base – that is, the spouse that has earned the most money throughout his or her working career – to delay receiving Social Security retirement benefits as long as possible. As described in the article about credits for delaying Social Security benefits, each year that you delay receiving your Social Security retirement benefit past your full retirement age (FRA) can result in up to an 8% increase in your benefit amount. When delaying like this, it often also makes sense for the […]
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