One of the biggest Social Security answers people want to know is simple: When should I start claiming Social Security benefits?
That depends on various factors, such as life expectancy, health factors, financial needs, and other sources of retirement income. While you can claim benefits as early as age 62, doing so will result in a reduced monthly benefit. On the other hand, delaying your claim beyond your full retirement age (FRA) can lead to increased benefits. What’s right for you?
The answer, again unfortunately, is more complex. The people who work at your local Social Security office (or on the other end of the phone) are hard-working and well-meaning; but, they are not financial planners and often – again, thinking they are helping – provide the wrong advice. For that reason, it’s best to get your Social Security answers from fiduciary advisors who can integrate all of your planning. One client of mine, a widow who had not reached full retirement age, was told to claim her deceased husband’s benefit now because it would be much higher. The advice was correct, but it was also wrong. She didn’t need the income now. She could claim her reduced benefit now and allow her husband’s benefit to continue growing until full retirement age later. The difference would be significant. If she had followed the well-intentioned advice of the Social Security worker, she would have been frozen into a benefit that would have been much lower than she could have received for many years.
How is my Social Security benefit amount calculated?
The Social Security Administration (SSA) calculates your benefit amount based on your average indexed monthly earnings (AIME). The AIME is determined by adjusting your lifetime earnings for inflation and considering your highest-earning years.
The SSA applies a formula to your AIME to calculate your primary insurance amount (PIA), which is the monthly benefit you would receive if you claimed benefits at your FRA. The PIA is subject to adjustments based on the age at which you claim benefits (reductions for early claiming or increases for delaying).
Can I work and receive Social Security benefits at the same time?
This is one of those Social Security answers that often surprises. Yes, you can work and receive Social Security benefits simultaneously. However, if you claim benefits before reaching your FRA and earn above the annual earnings limit, your benefits may be temporarily reduced. Once you reach your FRA, there is no earnings limit, and you can work and receive your full Social Security benefits without any reduction.
Here’s something few people realize: if your benefits were reduced due to early claiming and excess earnings, the SSA will recalculate your benefits at your FRA to account for the reduction. This means your monthly benefit will increase to make up for the withheld amounts. So, don’t let this concern keep you from working.
What happens if I continue working after claiming Social Security benefits?
If you continue working after claiming Social Security benefits, your earnings may affect the taxation of your benefits. You see, depending on your total income, a portion of your benefits may become subject to federal income tax. It’s based on something called provisional income. The exact calculation can be complex. You may want to talk to your tax professional. If you are working with a CERTIFIED FINANCIAL PLANNER® professional, s/he can be of help here, as well.
Again, if you continue working and earning a higher income, your future Social Security benefits may be recalculated. The SSA reviews your earnings record annually and adjusts your benefits accordingly, potentially increasing your future benefits if your new earnings replace lower-earning years from the past.
What happens to my Social Security benefits if I divorce?
If you are divorced, you may still be eligible for Social Security benefits based on your ex-spouse’s earnings record. To qualify, you must have been married for at least ten years, be currently unmarried, and be at least 62 years old. Additionally, your ex-spouse must be eligible for or already receiving Social Security retirement or disability benefits.
If you meet these requirements, you may be entitled to claim either your own benefits or a spousal benefit, whichever is higher. Claiming benefits based on your ex-spouse’s earnings record will not affect their benefits or their current spouse’s benefits. Like I said, Social Security answers can often be surprising.
What happens to my Social Security benefits if I remarry?
If you remarry, you generally cannot continue to receive Social Security benefits based on your former spouse’s earnings record, unless your subsequent marriage ends either by death, divorce, or annulment. However, if you are eligible for benefits based on your new spouse’s earnings record, you may be able to claim benefits as a spouse.
This is one of those Social Security answers people seek that can be costly without proper planning. It is important to review the specific rules and regulations surrounding Social Security benefits for divorced individuals and those who remarry to understand how your benefits may be affected.
Is Social Security financially stable for the future?
There’s probably more misinformation surrounding this issue than any other. Much of it because of the ambitions of politicians. Concerns about the long-term financial stability of Social Security are widespread. While the program faces challenges due to demographic shifts and an aging population, it remains a vital safety net for retirees and individuals with disabilities.
The Social Security Trustees regularly review the program’s financial status and make projections about its future. Currently, the Trustees’ reports indicate that Social Security has sufficient reserves to pay full benefits until 2034. Beyond that point, if no changes are made to the program, it is estimated that incoming revenue will be able to cover around 76% of scheduled benefits.
Efforts are being made at the legislative level to address the long-term sustainability of Social Security. However, it is important to stay informed about potential changes and consider them in your retirement planning.
Are you ready to do your homework?
If so, you can begin here, where you’ll find a brief discussion and links to some education. Grab some coffee and get ready to take some notes. Many of the Social Security answers you seek can be found here. I think you’ll find this will be a worthwhile one-hour classroom. The notes you take will give you an excellent list of ‘conversation starters’ when you meet with your CFP® professional or tax advisor.