Our cover story in the June issue of Encore—“What You Don’t Know About Social Security, but Should”—generated numerous questions from readers. Here, we offer some answers.Full retirement age
At several points in our June article, we mentioned the idea of “full retirement age”—but never defined the term (as several readers were quick to note). Our mistake.
Full retirement age, as defined by the Social Security Administration, is the age “at which a person may first become entitled to full or unreduced retirement benefits.” That age used to be 65 but is gradually climbing to age 67 (depending on your year of birth). Example: A person entitled to a monthly benefit of ,000 at a full retirement age of 66 would receive only 0 if he or she began collecting benefits at age 62 (the earliest age at which most people can file for benefits).
Note: As with most of the Social Security program, the idea of “full retirement age” is complicated. It’s also somewhat misleading. Your largest benefit is actually available at age 70, thanks to something called “delayed retirement credits.” For each year a person waits beyond full retirement age to first collect benefits—up to age 70—his or her monthly payout will increase 8%.
An excellent discussion about all of these concepts can be found at the Center for Retirement Research at Boston College. In the search box, enter: real retirement age is 70.Avoiding zeros
Several readers wanted to know what might happen to their Social Security benefits if they stopped working at, say, age 60 or 62 and waited to file for benefits until their full retirement age.
This raises an important, and often overlooked, point. Your annual Social Security statement (which is available at the Social Security website and which the agency is again mailing to many workers), estimates what your benefit will be at your full retirement age, given “your current earnings rate [and] if you continue working.”
Translation: If you stop working before full retirement age, your benefit could be smaller than you anticipate.
That’s because your Social Security benefit is tied to your 35 years of highest earnings (with early-year figures adjusted for the average increase in wages over time). Typically, your earnings in your 50s and 60s are at their peak and will displace lower inflation-adjusted earnings (from, say, your 20s) when the Social Security Administration calculates your benefit.
But if you stop working at, say, age 60, you could be stuck with some of those low-earning years in your benefit calculation. Or, if you don’t have 35 years of earnings, Social Security will use a zero for each year without earnings.
If you’re considering retiring early, the Social Security website features a good calculator that enables you to enter specific earnings figures (or the lack thereof) in the years leading up to retirement. It should give you a good estimate of your eventual benefit.Spousal Benefits/Getting Help
Spousal benefits—in which a person is able to claim Social Security based on a spouse’s earnings record—can be maddeningly complex. Several readers, for instance, assumed that a person could claim a spousal benefit at any time after age 62—whether that person’s spouse had claimed Social Security or not.
Wrong. A person can’t get a spousal benefit until that person’s spouse has applied for Social Security. (But the rule is different for divorced spouses: A divorced spouse—assuming all other criteria are met—can apply for benefits at age 62, even if his or her former spouse hasn’t yet filed for Social Security.)
All of which leads to this reader’s question: “Do you think it’s worth 0 to pay a professional consultant to evaluate a couple’s situation and advise on filing strategies?” As we discussed in June, a growing number of financial advisers and online services—some free, some not—will walk you through the maze of how and when spouses can apply for Social Security and how couples can maximize their payouts.
Start with the free services, and if you think you need additional help, move to a paid service. The fees vary, but paying anywhere from to 0 for help with spousal benefits can be a wise investment. Consider: The average monthly Social Security payment is just under ,300. Let’s say a person collects benefits for 15 years, or 180 payments. A 0 fee would represent just 0.0009% of the 4,000 in total benefits.Survivor benefits
Many readers—primarily men—wanted to know how large a survivor benefit a wife would receive if a husband dies first. A surviving spouse is eligible to receive 100% of the deceased spouse’s basic benefit—if the surviving spouse waits until her/his full retirement age to claim a survivor’s benefit.
Surviving (and divorced) spouses typically have more flexibility than they realize when it comes to claiming Social Security. A widow, for instance, could take a reduced benefit based on her own earnings record at age 62—and switch to a full survivor benefit at her full retirement age (and vice versa). Social Security has a good guide to many of these issues.Miscellaneous and resources
• Several readers asked for our take on claiming reduced benefits at age 62 and investing that money, rather than waiting until full retirement age (or later) to file for Social Security. You can certainly try, but you must keep risk in mind—the risk that your investments won’t return as much as the risk-free increases from delaying Social Security.
• One reader asked us to note that Social Security does allow you to change your mind. Once you claim benefits, you have 12 months to “withdraw your application” and pay back all the money you have received.
• Yes, if you continue to work after receiving benefits, the Social Security Administration will automatically check your record annually to see whether the additional earnings will increase your monthly benefit.
• No, waiting beyond age 70 to claim Social Security doesn’t increase the size of your payout. The benefit “maxes out” at age 70.
• And finally, here are three additional and valuable resources about Social Security: “Social Security: The Inside Story,” by Andy Landis (get the 2014 edition); “Social Security Strategies: How to Optimize Retirement Benefits,” by William Reichenstein and William Meyer; and “Maximizing Your Clients’ Social Security Retirement Benefits,” by Mary Beth Franklin, available at .
Mr. Ruffenach is a reporter and editor in The Wall Street Journal’s Atlanta bureau and the editor of Encore. Email: firstname.lastname@example.org.
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