The best laid schemes o’ mice an’ men Gang aft agley — Robert Burns To a Mouse, on Turning Her Up in Her Nest with the Plough As with many great ideas, in practice the concept of exclusive electronic delivery of Social Security benefit statements seems to have gone “agley”. Apparently a very small percentage of folks actually took advantage of the online version of these statements (primarily my client base, I’m guessing). As a result of this and apparent feedback from customers, advocates and Congress, Social Security is resuming the physical delivery of paper Social Security Statements. The new delivery schedule will be based upon the age of the potential Social Security benefit recipient, with statements being sent automatically 3 months before your 25th, 30th, 35th, 40th, 45th, 50th, 55th, and 60th birthdays. You will only receive this statement if you are not currently receiving Social Security benefits AND […]
Social Security
10 questions: Social Security Spousal Benefits
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. I recently had the pleasure of taking part in a live interactive event with Yahoo! Finance, where folks were able to ask virtually any question they wished. We received and responded to over 200 questions – they’re all on Facebook on the Yahoo! Finance page (click the link to go to the page). One recurring theme played out over and over: Social Security Spousal Benefits are not understood by a vast number of folks. Naturally I find this to be disturbing. Social Security Spousal Benefits often represent a […]
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Social Security Wage Base Projected for 2015
Update 10/22/2014: The wage base has been set for 2015. See the article Social Security Wage Base Set for 2015. According to the Social Security Administration trustees, the Social Security wage base for 2015 is projected to be $119,100. This represents an increase of $2,100 from the 2014 wage base of $117,000. This is an increase of 1.79% – and won’t be finalized until October when the other increases for Social Security amounts are announced. This is a relatively small increase when compared to recent annual increases we’ve seen. The previous 3 years’ increases have averaged 3.09%. This is different from the COLA (Cost of Living Adjustment), which has increased an average of 2.27% in the past three years. The 2014 COLA (applicable to 2015 benefits and other figures) will be released later in the year, typically in October.
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3 Do Over Options For Social Security Benefits
You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow? At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can! Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were […]
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How to Compute Your Monthly Social Security Benefit
So you’ve seen your statement from Social Security, showing what your benefit might be at various stages in your life. But not everyone files for benefits at exactly age 62 or 66 – quite often there are months or years that pass before you actually file. This article will show you how to compute your monthly Social Security benefit, no matter when you file. Computing your monthly Social Security benefit First of all, in order to compute your monthly Social Security benefit, you need to know two things: your Primary Insurance Amount (PIA) and your Full Retirement Age (FRA). The PIA is rather complicated to define, but for a shorthand version of this figure, you might use the figure that is on your statement from Social Security as payable to you on your Full Retirement Age (or “normal” retirement age).
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Social Security Spousal Benefits After a Divorce
We’ve discussed many different factors about Social Security Spousal Benefits, but what happens to Spousal Benefits after the couple has divorced? We know that a divorcee can file for Spousal Benefits if the marriage lasted for at least 10 years – but only after a 2-year period has passed if the ex-spouse has not already filed for benefits. The only other factors that must be in place are for the ex-spouse to be at least 62 years of age, and of course the ex must have a benefit record to calculate Spousal Benefits from. On the other hand, if a couple is divorcing and one of the spouses (soon to be ex-spouses) has already filed for his or her own Social Security benefits, the other spouse can file for Spousal Benefits either before or after the divorce is finalized with no waiting period, as long as they were married for […]
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The Unmarried Penalty With Social Security (and the Divorce Advantage)
Okay, penalty probably is the wrong term for it – maybe the better term would be short-change. You’ve undoubtedly heard of the marriage penalty for income taxes – this is where it can be beneficial tax-wise for two people to remain single than to be married and be forced to file either jointly or separately. The tax code contains several ways that this is true. But did you know that there is a way that married folks might level the field versus singles in the Social Security law-scape? Plus, divorced folks may also have an advantage over singles AND married folks who were never divorced (or who divorced after marriage of less than ten years)? The Marriage Advantage When a worker remains single over his or her working life, there is an inequality in benefits paid out based on his or her record when you compare it to that of […]
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The Inequity of Spousal Social Security Benefits
We’ve covered a lot of ground talking about Spousal Benefits and strategies for filing, and other facts to know about Spousal Benefits. But did you realize that there is a flaw in the process that shortchanges some couples when it comes to Spousal Benefits? Here’s a pair of example couples to illustrate the inequity: The first couple: Jane has worked her entire life and has earned a Social Security benefit of $2,600 per month when she retires. Her husband Sam has been a struggling artist his whole life, as well as a stay-at-home Dad to their three kids when they were young. As a result, Sam has never generated enough income on his own to receive the requisite 40 quarter-credits to have a Social Security benefit of his own. The second couple: Sid and Nancy have both worked and had earnings within the Social Security system over their lifetimes. Sid […]
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Social Security and the Non-Citizen Spouse
With our increasingly global society today, many married couples are made up of a US citizen and a non-citizen. In some cases, the non-citizen spouse has never been covered by the US Social Security system – he or she may have been covered by another system in his or her home country. In other cases, the non-citizen spouse may have worked in a Social Security-covered job while living in the US, and so may have generated a Social Security earnings record of his or her own. At any rate, it is important to know that your lawful spouse who is a non-citizen may be eligible for Social Security benefits based on your earnings. As long as other qualifications are met (length of marriage, age of the spouse, and your filing status with Social Security), your non-citizen spouse may qualify for Spousal Benefits based upon your record. By the same token, your […]
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Social Security Spousal Benefits versus Survivor Benefits
I’ve written a lot about Social Security Spousal Benefits and Survivor Benefits on these pages, but oftentimes there is confusion about how they are applied. There are things about them that are common, but for the most part there are some real differences that you need to understand as you make decisions about applying for one or the other of these benefits. For one thing – Survivor Benefits and Spousal Benefits are benefits that you may be entitled to that are based on someone else’s record: your spouse (or ex-spouse) to be exact. No matter what your own Social Security benefit might be, you have access to the Spousal Benefit and Survivor Benefit, if, of course, you have or had a spouse with a Social Security retirement benefit available on his or her record. In addition, it is important to note that Spousal Benefits and Survivor Benefits are mutually exclusive. […]
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Annuities – Fees, Expenses, and Taxes
Last week we covered some of the differences in annuities and the various types of annuities someone can purchase. In our final annuity installment (no pun intended) I want to explain some of the fees and expenses that some annuities and annuity providers employ. As mentioned in my first annuity article annuities are an insurance product – insuring against living too long. Most companies that offer annuities will charge for this insurance by means of what are called mortality and expense charges. M&E charges can be as low as .25% to as high as over 2%. These charges are the expenses the annuity company charges to the entire risk pool of policyholders in order to pay for the few that will outlive their life expectancy. Most policyholders and annuitant will not outlive their life expectancy and thus pay for those that do. M&E charges will also help the annuity company […]
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Social Security Figures Increase for 2014
Recently the Social Security Administration released the updated figures for 2014, including the wage base, earnings limits, and the increase to benefits. For 2014, the wage base for Social Security will rise to $117,000. This is the maximum amount of W2 wages that are subject to the 6.2% employer- and employee-paid Social Security tax. This amount represents an increase of $3,300 over the wage base of $113,700 in 2013. In addition to that increase, benefits to eligible recipients of Social Security retirement will increase by 1.5% in 2014. This is slightly less than the 1.7% increase to benefits in 2013. This brings the average monthly benefit for all retired workers up by $19, to$1,294 in 2014. For the average couple who are both receiving Social Security benefits, the COLA increase is $31 per month, for an average benefit of $2,111 in 2014. Likewise, there was an increase announced to the […]
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How Adding to Your Earnings Can Increase Your Social Security Benefits
Given the way that Social Security benefits are calculated, it should come as no surprise that increasing your income over time will make a difference in your eventual Social Security retirement benefits. But how much of a difference does it make when your income is increased? Of course, this is going to depend upon what your current income is, and how many years you have left before you’ll begin receiving benefits. Keep in mind how your benefits are calculated – see this article for information about Computing Your Social Security Monthly Benefit – it’s based on your average monthly income over your lifetime. Increasing that average will increase your PIA, which will in turn increase your benefit. It’s definitely not a simple calculation to figure out what difference each increased dollar of income will have on your benefit. Let’s walk through a few examples to see how it plays out. […]
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Social Security Filing Strategies for Surviving Spouses
There are a couple of strategies for Social Security filing that surviving spouses can use to maximize benefits throughout their lifetimes. The important factor to keep in mind for the surviving spouse is that filing for Survivor Benefits (based on your late spouse’s record) has no impact on filing for Social Security benefits based on your own record – other than the fact that you cannot file for both benefits at the same time. Coordinating these two benefits (Surviving Spouse benefits and your own benefits) can take a couple of different paths: you could file for the Surviving Spouse benefit first, allowing your own benefit to accrue Delay Credits up to as late as age 70; or you could file for your own benefit first, and then later file for the Surviving Spouse benefit. Sue’s husband Steve passed away when Sue was 61 years of age. Steve had just turned […]
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How Your Average Indexed Monthly Earnings is Determined
In order to calculate your Social Security benefit you need to know what your PIA (Primary Insurance Amount) is. In order to calculate the PIA, you need to know what your Average Indexed Monthly Earnings (AIME) factor is. So how is your AIME determined? During your working career, your Social Security-covered earnings were reported to the Social Security Administration. When you reach age 60, an index factor is applied to each year of your earnings in order to adjust each year’s earnings for inflation. After the index factor is applied, the top 35 years of earnings are totaled and then divided by 420 (the number of months in 35 years). This produces an average… indexed… monthly… earnings… factor. If you haven’t had a full 35 years of Social Security-covered earnings, the AIME is still calculated using 35 years as the divisor. This can result in a much lower benefit as […]
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Can Both Spouses File a Restricted Application for Spousal Benefits Only?
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. In the wake of my post last week, Can Both Spouses File and Suspend?, I received multiple iterations of the same question, which is the topic of today’s post: Can Both Spouses File a Restricted Application for Spousal Benefits Only? Unlike the original situation where technically it is possible to undertake but the results would not be optimal, in this situation it’s not technically possible. (The one exception is in the case of a divorced couple. For the details on how it works for divorcees, see this article: […]
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Can Both Spouses File and Suspend?
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 question continues to come up in my interactions with readers, so I thought I’d run through some more examples to illustrate the options and issues. The question is: Can both spouses file and suspend upon reaching Full Retirement Age, and collect the Spousal Benefit on the other spouse’s record, allowing our own benefit(s) to increase to age 70? Regarding file & suspend and taking spousal benefits, although technically both of you could file and suspend at the same time, only one of you *might* receive spousal benefits […]
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Social Security Spousal Benefit at or After FRA
Some time ago I wrote an article on the Social Security Spousal Benefit Before FRA, and an astute reader (thanks, SD!) pointed out the obvious to me: I hadn’t written the complementary piece on calculating the spousal benefit at or after FRA. So let’s get right to it! When you wait until Full Retirement Age to file for spousal benefits, there is no reduction of that portion of your benefits. In other words, the spousal benefit will be based on 50% of your spouse’s PIA minus your own PIA, and then this amount will be added to whatever retirement benefit that you’re receiving on your own record. This additional benefit can’t increase your total benefit to a point greater than 50% of your spouse’s PIA. Here are some examples: Started own benefits early Alice and Terry are both age 66. Alice started her own benefit early, at age 62. Her […]
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A Good Reason to File and Suspend: Back 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. In particular, the provision discussed below is no longer available to anyone. We’ve discussed the file and suspend option in the past as it relates to enabling your spouse or dependents to begin receiving benefits based on your record while you delay filing to accrue the delay credits. But there’s another reason that you might want to file and suspend at Full Retirement Age (FRA) – and this one has little to do with a spouse, even single folks can take advantage of this. When you file and […]
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Be Careful When Using Your Social Security Statement for Planning
Recently I received an interesting email from a reader (thanks, JRT!) that illustrates one of the problems with interpreting your statement from Social Security on a regular basis. Part of the email follows: I am just reaching 66 and have been self employed for many years. I have worked continuously for 30+ years reaching $100,000 or so per year but have been slipping into retirement and last years income dropped to $70000. SS has already reduced my monthly payment estimate. It appears that if I postpone beginning taking my SS retirement I will lose in the long term because each year I have reduced income before retiring my SS distribution will be less. For instance if I defer to 70 and have 4 years with zero income won’t I be hurting myself??? In the situation described above, what the reader is describing is the amounts he is seeing on statements […]
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