When considering Social Security benefits, it is important to know that benefits are calculated using the highest 35 years of indexed earnings and wages, including zero-earning years. In addition, knowing the following prior to applying for Social Security benefits can also be monumentally helpful:
Receiving Benefits
The earliest age at which retirement benefits may be received is 62. Benefits generally begin after the recipient has been 62 for an entire calendar month. The date of birth is calculated from one day prior to the recipient’s actual birthday; therefore, an individual who turns 62 on August 2nd would be able to collect benefits during the month of August. For people who were born between 1943 and 1954, full retirement age (FRA) is 66; however, FRA is gradually increasing to 67. After a recipient reaches FRA, a delayed retirement credit applies to the benefit amount in the form of an 8 percent annual increase. The amount increases to 32 percent between 66 and 70. Therefore, beginning to collect benefits as late as possible is advantageous, especially for a surviving spouse who will later receive the benefits of a deceased spouse.
Spousal Benefit
The spousal benefit is 50 percent of the higher-earning spouse’s FRA Social Security benefit. If a spouse is deceased, the surviving spouse will receive 100 percent of the deceased spouse’s FRA benefit or the amount the deceased spouse was receiving at the time of death. Surviving spouse benefits (SSB) may be claimed when the recipient has reached age 60 unless he or she is taking care of a child who is 16 or under. If taking care of a child who is 16 or younger, the surviving spouse may collect SSB at any age. Children who are under 18, or 19 if still in high school, may also collect social security benefits for a deceased parent.
In the event that benefits begin at age 60, the amount will be reduced by 29.5 percent. If a surviving spouse wishes to collect SSB prior to reaching FRA, the maximum income cap of $14,160 will apply. Benefits will be reduced one dollar for every two dollars that exceed the maximum income allowance. For surviving spouses who wish to receive SSB within a year of reaching FRA, the surviving spouse may earn a maximum income of $37,680. If his or her income exceeds the maximum, one dollar for every three dollars in excess will be deducted from the benefit amount. Once a surviving spouse reaches FRA, he or she may receive the full benefit amount without deduction regardless the amount of his or her income.
Claim and Suspend
Single people may wish to consider a strategy known as “claim and suspend,” which requires filing for SSB, but instructing the Social Security Administration not to send a check. While benefits grow eight percent annually, the individual will have the option of requesting the accumulated checks if the need arises. Claim and suspend should be considered by all single people as the strategy has no downsides.
Married couples should consider the same strategy and filing a restrictive application. There might be additional benefits to using these strategies.
Consulting a professional advisor who understands social security benefits of paramount importance as research indicates that the difference between the highest and lowest payout options can be as much as $10,000 annually. Ideally, applicants should work with a professional adviser to establish a plan prior to going to the Social Security Administration as the people who work at the local Social Security office are simply order takers.
Gary M. Kaplan, Certified Public Accountant and President of Gary M. Kaplan, C.P.A., P.A. is a Certified Specialist in Retirement Planning™ (CSRP). Gary is licensed to practice in Florida, Maryland, Utah, Washington, D.C., and New York. He has gained a reputation as a professional who provides quality work, value, and personal attention to his clients. If you need help understanding Social Security Benefits, Gary Kaplan, CPA can help. Contact Gary today for more details!
