Maximizing Your Social Security Benefits Mary Beth Franklin National Press Foundation Washington, D.C. April 8, 2013 MBF001 Form 001

Timing is Everything Knowing when and how to claim Social Security benefits can boost your retirement income by tens of thousands of dollars over your lifetime. Today’s volatile stock market and historically low interest rates creates a challenging investment environment for retirees. If you’re looking for guaranteed income that you can’t outlive, the first place you should look is Social Security. MBF002 Form 001

For Married Couples The right Social Security claiming strategy can mean the difference of $100,000 or more over your joint lifetimes. Consequently, you should treat your Social Security claiming decision just as seriously as any other part of your investment strategy. MBF003 Form 001

For Singles Your choice when to begin Social Security benefits depends on your health, finances and whether you plan to continue working. But if you are divorced or widowed, you may have additional claiming options. Because single individuals don’t have to worry about coordinating their benefits with a spouse, they should focus on their own health and finances when they decide when to collect Social Security benefits. MBF004 Form 001

Your Age Matters You can collect retirement benefits as early as 62, but they will be reduced by 25% or more for the rest of your life. If you wait until your normal retirement age, currently 66, you can collect your full retirement benefit even if you continue to work. Or, if you delay collecting benefits beyond your normal retirement age, you can increase the amount by 8% per year up to age 70. If you collect benefits early, you will receive a smaller amount but for a longer period of time. You will receive a bigger benefit if you wait longer to collect, but you may need to rely on other sources of income, such as savings or continued employment, in between. MBF005 Form 001

What’s Your Number? Birth Year Full Retirement Age Benefit Reduction at 62 1943 – 1954 66 25.00% 1955 66 and 2 months 25.83% 1956 66 and 4 months 26.67% 1957 66 and 6 months 27.50% 1958 66 and 8 months 28.33% 1959 66 and 10 months 29.17% 1960 and later 67 30.00% Different reduction percentages apply to spousal and survivor benefits if you collect them before your normal retirement age. MBF006 Form 001

Why 66 is the Magic Age If you wait until 66* to claim Social Security, you can: --Collect full retirement benefits --Exercise some creative claiming strategies --And, avoid losing benefits to earnings cap restrictions. *If your normal retirement age is higher, so is your magic age. If you claim benefits before your normal retirement age, you will not only receive a smaller benefit, you will be subject to the earnings test if you continue to work and you forfeit your right to engage in some claiming strategies that could increase your household income in retirement.  MBF007 Form 001

Earnings Cap Rules If you collect Social Security benefits before your normal retirement age and continue to work, you will lose $1 in benefits for every $2 you earn over the limit. For 2013, that limit is a mere $15,120. There’s a more generous earnings test for the months before your birthday in the year you reach your normal retirement age. For 2013, that higher earnings test is $40,080 per year or $3,340 per month. You lose $1 in benefits for every $3 earned over that limit. The earnings cap disappears once your reach your normal retirement age meaning you can earn as much as you like without forfeiting any benefits. Starting in the month you reach your normal retirement age, the earnings test no longer applies. You can earn as much as you like without jeopardizing any of your Social Security benefits.   Those benefits lost to the earnings test are not gone forever; they are merely deferred. Once you reach your normal retirement age, the Social Security Administration recalculates your benefits. MBF008 Form 001

Lesson #1 If you plan to keep working, in most cases it makes no sense to claim reduced retirement benefits before your normal retirement age. Essentially, if are under age 66 and earn more than $45,000 this year while collecting Social Security benefits, all you benefits will be lost to the earnings cap. But those benefits are really gone forever. They are merely deferred. Social Security will recalculate your benefits when you reach your full retirement age. Let’s say you began benefits at age 62 and over the next few years, you lost the equivalent of a year’s worth of benefits because your earnings exceeded the annual limit. At age 66, your benefits would be recalculated to factor in the money you gave back. In this example, it would be as if you started benefits at age 63 instead of age 62, and your retirement benefits would be permanently reduced by 20% instead of 25%. Still it’s not worth it because by claiming early if you plan to keep working because even if your recover the lost benefits, you’ll forfeit the right to engage in more creative claiming strategies which require that you wait until age 66 to exercise them. MBF009 Form 001

Exceptions: Collect Social Security benefits early if: You really need the money and are no longer working or earn less than the earnings cap. Or, if you’re in poor health and may not live until your normal life expectancy. The whole premise of delaying Social Security benefits until older ages when they will be worth more is based on the assumption that you are likely to live at least until your normal life expectancy or beyond. On average, a 65-year-old man is expected to live an additional 17 years, and a 65-year-old woman another 20 years. But that’s the median life expectancy. Half of American retirees will live even longer. MBF010 Form 001

Married couples have more flexibility. Sometimes it makes sense for the lower-earning spouse to collect benefits early, assuming she is no longer working or subject to the earnings cap. It’s a way to boost household income and probably will not affect survivor benefits. Even if your collect reduced retirement benefits early, you can still collect full survivor benefits later as long as you are at least normal retirement age when you collect them. MBF011 Form 001

Coordinating Benefits In most cases, it makes sense for the higher earning spouse to delay benefits as long as possible, up to age 70, to lock in the maximum retirement benefit as well as the largest survivor benefit should he die first. The lower earning spouse may want to claim reduced benefits early at 62, assuming she or he is no longer working. But there’s room for a little “magic” in between. Social Security claiming strategies are gender neutral. I’ve used the example here of the husband filing and suspending his benefit, but it could just as easily be the wife who takes this action. MBF012 Form 001

Spousal benefits = 50% of worker’s benefit at 66 Social Security benefits are smaller if you collect them before your normal retirement age because it is assumed you will collect them for a longer period of time. Spousal benefits = 50% of worker’s benefit at 66 Survivor benefits = 100% of worker’s benefit at 66 MBF013 Form 001

Magic Strategies to Boost Benefits File and Suspend--Triggers benefits for a spouse but allows worker to delay collecting his or her own benefit. Restrict claim to spousal benefit only—Lets you collect only your spousal benefit while deferring your own retirement. To exercise these magic strategies, you must wait until 66 or later to first claim benefits. At least one of you must be at least normal retirement age when you first claim Social Security benefits in order to exercise these income-boosting strategies. If you are both at least 66, and you both have earned retirement benefits on your own earnings record, you might be able to combine these strategies. MBF014 Form 001

Bonus for Waiting You earn 8% for every year you delay claiming Social Security retirement benefits beyond your normal retirement age up to age 70. If you wait until 70 to collect your benefits, they will be worth 32% more than at your full retirement age. The bigger benefit will create a larger base for future cost-of-living adjustments. MBF015 Form 001

Who Collects Delayed Retirement Credits? The 8%-per-year increase in benefits between ages 66 and 70 applies only to the worker’s retirement benefit. It does not apply to a spousal benefit. But if he dies first, her survivor benefits are equal to 100% of what he received during his life—including delayed retirement credits. There’s a lot of confusion about who gets the benefit of these extra credits. Only the worker benefits from the delayed retirement credits during his lifetime. It does not increase spousal benefits. But if he dies first, his widow would receive 100% of what he collected—or was entitled to collect at the time of his death—including the delayed retirement credits. MBF016 Form 001

Lesson #2 Creating the largest possible benefit for the surviving spouse should be the main goal for most married couples. It’s important to remember that RETIREMENT benefits and SURVIVOR benefits are two separate pots of money. When the higher earning maximizing his benefits, it not only locks in a larger retirement amount for him, but a larger survivor benefit for his surviving spouse. At that point, her own lower retirement benefit would disappear. MBF017 Form 001

Survivors Can Switch Benefits Widows and widowers can collect survivor benefits as early as age 60, but are subject to benefit reductions and the earnings cap if they continue to work. They can collect survivor benefits—equal to 100% of the deceased spouse’s benefit initially—and then switch to their own benefit that continues to grow at 8% per year until age 70. Remember, survivor benefits and retirement benefits represent two different pots of money. In many cases, a widow or widower can begin receiving one benefit at a reduced rate and then, at full retirement age, switch to the other benefit at an unreduced rate.   For example, if you receive benefits as a widow or widower or as a surviving divorced spouse—which you can collect as early as age 60-- you can switch to your own retirement benefit later. Wait age 70 to switch, and you can collect an enhanced retirement benefit on your own record, locking the largest possible benefits which provides a bigger base for future cost of living adjustments. Your own retirement benefits accrues delayed retirement credits between age 66 and 70. A survivor benefit does not. MBF018 Form 001

Collect on Your Ex As long as you were married at least 10 years, And are not currently married, You may be able to collect on your ex-spouse’s work history as early as age 62. As a divorced spouse, you don’t have to wait until your ex-spouse begins collecting Social Security benefits. Once your ex becomes age eligible for benefits, you can collect on your ex-spouse’s work record as early as age 62—but you may not want to. If you collect at age 62, your retirement benefits will be reduced by 25% and you will be subject to the earnings cap restrictions. MBF019 Form 001

Better strategy for ex-spouses Wait until 66 and you can “restrict your claim to spousal benefits only”, collecting half of your ex’s full benefit and delay collecting your own until it is worth the maximum amount at age 70. This can be a valuable strategy for divorced spouses, particularly for those who plan to work until at least their normal retirement age. Divorced spouses are also entitled to survivor benefits when an ex-spouse dies even if he or she has remarried.   And, if your ex-spouse dies, you are entitled to a monthly survivor benefit as early age 60—even if he or she has remarried. But remember, any time you collect benefits before your normal retirement age they are worth less than if you wait until age 66 to collect them and you are subject to the annual earnings cap. Normally, you must be unmarried to collect Social Security benefits on an ex-spouse. But there’s one exception: if you wait until at least age 60 to remarry, and your ex-spouse dies, you may be able to collect survivor benefits—even if your ex remarried. Both his ex-wife and his widow are entitled to survivor benefits. MBF020 Form 001

Do-over strategy If you claim benefits early and then change your mind, you have a once-in-a-lifetime chance to suspend your benefits within 12 months of first claiming them, repay what you have received and restart your higher benefits at a later date.  And if someone else has collected benefits on your earnings record—such as your spouse—you would have to repay those benefits, too. MBF021 Form 001

Back-up Plan If you miss that initial 12-month window, there’s another option. Wait until 66 and you can voluntarily suspend your benefits—but not repay them— and earn 8% per-year in delayed retirement credits up to age 70. If you started collecting reduced benefits early at 62, stopped them at 66, and restarted them at 70, you would restore nearly all of the reduction, ending up with 99% of the benefits you would have had if you had waited until 66 to start collecting.   Let’s say you were entitled to a benefit of $2,000 a month at age 66, but you decided to claim as early as you could at age 62, even though you knew you would take a permanent 25% haircut. So you accept your $1,500 per month and you’re happy. But now that you’re 66, you wish you had held out for a bigger benefit. So you tell the Social Security Administration you want to voluntarily suspend your benefits. At age 70, you turn you benefits back on and thanks to those four years of delayed-retirement credits, you start collecting $1,980 per month—that’s a third more than you were collecting before and it virtually restores your full benefit that you would have received if you had waited until your full retirement age to collect. Now, I don’t recommend this strategy as a way to turn benefits on and off. For one thing, if you collect early and die prematurely, you’ll be leaving your surviving spouse with a smaller-than-necessary Social Security benefit. But it’s a good way to reverse a hasty decision. MBF022 Form 001

Don’t forget the Kids If you are collecting retirement benefits and you have minor dependent children at home, they are eligible for benefits, too—up to half of your benefit amount. With so many divorces and later remarriages these days, it’s not so unusual to have a retirement-age father with school-age kids. MBF023 Form 001