Social Security may make up only a small part of your expected retirement income, but it can be a crucial part, perhaps covering a significant portion of your basic expenses. Figuring out what you’ll actually receive, however, can be complicated, and you’ll have to choose from among many variables that could make a big difference in the amount of monthly income for you and your spouse. Understanding Social Security’s complex rules needs to be an essential part of your retirement planning.
Social Security retirement benefits are generally based on your lifetime earnings and your age when you request the benefits. If you opt to start getting a monthly check at age 62, the earliest possibility, you’ll receive less than you would if you started receiving benefits at your full retirement age— between ages 65 to 67, depending on the year you were born. Full retirement age for baby boomers born from 1943 through 1955 is 66.
How much you’ll lose by beginning benefits at age 62 ranges between 20% and 30%, again depending on when you were born. For example, the reduction for someone born in 1950 is 25%. So if you would be entitled to a $2,500 monthly benefit at age 66, you would receive only $1,875 if you retired at age 62. The later you were born, the steeper the reduction, which peaks at 30% for those born after 1959.
There’s an additional incentive for postponing benefits even longer. If you wait until age 70 to begin taking Social Security, you’ll receive a significantly higher monthly amount—an extra 8% for each year you delay benefits—than if you had started at full retirement age. For someone born in 1953, for example, waiting those four extra years, from age 66 to age 70, could add more than 34% to the monthly benefit.
Things get really tricky when you try to figure out Social Security retirement benefits for a married couple. Each spouse is entitled to a benefit based on his or her own earning history and the age at which benefits begin. But if a wife, for example, has earned considerably less than her husband has, her benefit at full retirement age will be the greater of her own benefit or a spousal benefit that could be as much as half of her husband’s benefit.
Other complications may arise if one spouse continues to work. If the low-earning spouse works past full retirement age while the other spouse has retired, also at full retirement age, the working spouse can begin receiving the 50% spousal benefit. Then, when the working spouse reaches age 70, he or she can claim increased benefits in lieu of the spousal benefit.
Though the Social Security Administration sends you an updated estimate each year of what your future benefits may be, that’s unlikely to answer all of your questions. Here are two hypothetical examples illustrating strategies that might maximize a couple’s total benefits. The first involves something known as the 62/70 split. Suppose that a husband’s full retirement benefit is $2,150 a month and the full benefit for his wife, who’s the same age, is $1,080. If she begins taking benefits at age 62, she’ll receive a reduced amount—$720 a month. But if her husband delays his claim until age 70, he’ll collect $3,300. If he dies at 82, his monthly benefit will have grown to $4,600, and that becomes the wife’s survivor benefit—almost 90% more than she would receive if her husband had also begun taking benefits at age 62.
Are there other options? Suppose that the husband applied at age 66 for a spousal benefit based on his wife’s earnings record, letting his own benefit continue to grow. Because he has reached his full retirement age, under previous rules the husband would qualify for the maximum spousal benefit of $540 a month—half of the wife’s $1,080 benefit. When he reached age 70, he could drop the spousal benefit and begin collecting his own much larger benefit. However, legislation enacted in 2015 effectively ends this "file and suspend" strategy after April 30, 2016.
Beyond studying your annual benefits statement from the government, you can visit www.ssa.gov for a wealth of additional information as well as online calculators that can help you estimate your benefits under different scenarios. But as you weigh your choices, you may also want to factor in other factors, including your health, your life expectancy, your need for cash during retirement, and the retirement lifestyle you’re planning. We can help you consider the role Social Security may play for you and work with you to make informed decisions about your government benefits.
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