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 […]
Social Security
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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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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“Swim With Jim” Radio Interview by Jim Ludwick
I recently had the honor of being interviewed on the radio by Mr. Jim Ludwick, a colleague that I admire and look up to a great deal. Jim is a CERTIFIED FINANCIAL PLANNERTM professional, and his practice is based in Odenton, Maryland with additional offices in Washington, DC, Santa Barbara, California, San Mateo, California, and New York City. Jim also is a fellow member of the Garrett Planning Network. In the interview we talk very briefly about some of the important factors of Social Security that baby boomers need to address as they plan for Social Security benefits. You can follow Jim’s radio program on BlogTalkRadio; his channel is Swim With Jim. Listen to internet radio with Swim with Jim on Blog Talk Radio To hear the interview, click the “Play” button above. In the interview I mention that it can be helpful to have an advisor work with you […]
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Wealth Defense: When Should You Start Social Security Benefits?
The foregoing is a re-post of an article that I wrote which was included in The Motley Fool’s Rule Your Retirement newsletter. Enjoy! Want to double a chunk of your retirement income? It’s easy — just delay taking Social Security by about six years! OK, so it’s not really that simple. The time to apply for Social Security benefits is different for each individual; there is no magical “best age” for everyone. Thus, to maximize your benefit, it’s important to understand the consequences of choosing to apply at different ages. It all starts with the most important age: your full retirement age, or FRA (see table below). If you receive your Social Security retirement benefit before your FRA, the benefit will be reduced. The biggest reduction is at age 62, the earliest you can begin receiving benefits (except for widows and widowers, who can begin survivors’ benefits at 60). Year […]
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Increase Your Social Security Benefit After You’ve Filed: File and Suspend Doesn’t Have to Be All at Once
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. We’ve discussed the File and Suspend activity many times on this blog, but most of the time we refer to the activity as happening all at the same time. This is because very often we’re talking about one spouse setting the table for the other spouse to begin receiving Spousal Benefits. There is another situation where File and Suspend could be used – you could earn delayed retirement credits after you had already started receiving your retirement benefits by suspending your benefit. You must be at least Full […]
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Why It Can Be So Important to Delay Social Security Benefits
It seems like every time I write an article about Social Security benefits that includes a recommendation to delay benefits, I get a lot of responses from well-meaning folks who disagree, sometimes vehemently, with the conclusions. There are several points of view that I see in the responses, all believing that you should start taking benefits as soon as you’re eligible: you never know how long you’re going to live; Social Security is going broke, we all know it; IT’S MINE, DADGUMMIT, THEY OWE IT TO ME; and it’s all part of a huge conspiracy; among other reasons too numerous to mention. Believe me, I have no reason to recommend that people do something that isn’t in their best interests. As a financial planner, my job is to help folks do things that are in their best financial interests all the time. Sometimes those things that I recommend run counter […]
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The Restricted Application for Social Security 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. One provision of Social Security benefits that is relatively unknown is the restricted application for Spousal Benefits. This provision allows a person to apply for benefits based upon his or her spouse’s record while delaying receipt of benefits based upon his or her own record. The restricted application is only available when three factors have been met: 1 – the individual filing the restricted application has reached Full Retirement Age (FRA); and 2 – the individual has not filed for his or her own Retirement Benefit; and 3 […]
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Important Factors When Planning Social Security for Couples
Planning for Social Security benefits for a couple can be complicated. There are many factors to consider, including the amount of benefits each member of the couple is entitled to at various ages, as well as the relative ages of the spouses to one another. Other factors include whether or not one member of the couple (or both) will earn wages past age 62, as well as longevity: the potential of the couple (at least one member) living past normal life expectancy. Longevity is one of the most important factors to consider – and for a couple this isn’t as straightforward as it is for one person. According to the National Association of Insurance Commissioners’ Annuity 2000 table, a couple who are both age 50 stand a 50% chance of one member living to at least 91 years of age. For another example, if the husband is 62 and the […]
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Additional Factors About Survivor Benefits
Seems like there is always something to learn. No matter how much you know and study a subject, it seems there are always factors that are uncovered that you weren’t aware of – and I find this sort of thing from time to time. Recently, I have been made aware of a couple of factors that I had misunderstood previously about Social Security Survivor Benefits – thanks to my friend Dana Anspach, who blogs over at MoneyOver55.About.com. Thanks Dana! Limit on Reductions to Survivor Benefits The first factor is one that I wasn’t even aware of – regarding how reductions on Survivor Benefits work in a very specific situation. The situation is when the deceased spouse was not at least at Full Retirement Age and he or she was receiving retirement benefits as of the date of death. In this situation, the amount of benefit that is used to begin […]
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Ideal Roth Conversion Candidate – Protecting Non-Taxation of SS Benefits
This is the second in a series of posts about Ideal Roth Conversion Candidates. See the first post, Low or Zero Tax, at this link. One of the planning options that most all folks have available to them is the Roth IRA Conversion. For the uninitiated, a Roth IRA Conversion is a transaction where you move money from a Traditional IRA or a Qualified Retirement Plan (QRP) such as a 401(k) into a Roth IRA. With this transaction, if any of the funds in the original account was pre-tax, that amount would be included in income as potentially taxable in the year of the Conversion. As you might expect, making a decision like this can result in a considerable tax impact, depending on the individual circumstances. A Roth IRA Conversion may make a great deal of sense for one individual, while another may decide that the Conversion cost is too […]
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2013 Social Security Wage Base Projected
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) (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 […]
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Social Security Spousal Benefit Calculation Before FRA
Jane’s Double Twisted 3D stars2_rev (Photo credit: mimickr) 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 […]
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