Social Security Benefits: What you need to know
In October, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), will be released. Early indications suggest that the cost-of-living adjustment that will take effect for social security recipients at the beginning of 2019 could come in between 2.5%-3.00%. This is the first increase in some years that has not been consumed by Medicare premium hikes. Do you know enough about Social Security to leverage your benefits?
- “I can’t collect until I stop working (e.g. actually “retire”); any income I earn will reduce the benefit dollar for dollar.” True?
False - You can work and receive Social Security. If you are younger than your “full retirement age” (FRA) and earn over the earnings limit, a portion will be withheld [$1 for every $2/$3 over the limit, depending on the circumstances]. Any amounts withheld are repaid over your lifetime, beginning at your FRA. If you have hit your FRA, your benefit is not reduced regardless of how much you earn. Plus, income other than wages – rental income, capital gains, etc. – generally does not impact your benefit regardless of your age.
- “The longer I wait to start collecting, the bigger the benefit; I should work as long as possible and not collect until I actually retire.”
Like most things, it really depends.
It is true that, if you choose to receive your Social Security retirement before FRA, your monthly benefit (and future COLA) is reduced. However, if you start early, you may receive that amount for a longer time.
If you delay collecting until after your FRA, your monthly benefit (and future COLA) is increased – up to 32%! But delaying works only if you live long enough to take advantage of it, so health and life expectancy must be taken into account.
And there are maximums, caps, and limits, so there are diminishing returns. The maximum monthly benefit for a person retiring in 2018 at FRA is $2,788 per month. Each year of delay can increase that maximum, but only up to 32% total. And the credits for delay end at age 70, regardless of whether you hit the 32%.
- “My spouse is insisting on starting benefits now, so I have to start mine as well.”
Each individual can make the decision to start early, at FRA, or delay, and married people can make different choices for their own benefits. For some married couples, the smartest move may be to take advantage of both early commencement and delayed benefits.
- “Where were you 6 months ago? I filed for Social Security already so I can’t take advantage of delayed credits now.”
While the government has restricted “do overs” significantly in recent years, you can still change your mind and delay your benefits. You must make the decision within 12 months of your election, and repay any benefits received.
- “Even if I don’t get the full advantage from Social Security, at least whatever remains will benefit my family.”
Social Security retirement benefits are only paid while you are alive. If you are married and both qualify, your surviving spouse may be able to “step up” his or her benefit (e.g. receive the greater of his/her own benefit or your benefit), but won’t receive both. And your children cannot receive benefits unless they are minors or disabled at the time of your death. So planning to take full advantage of Social Security now is key.