When Should I Start Collecting Social Security
Ultimately, the decision of when to begin collecting Social Security is one you have to make. It depends on your age, your health status, how much you spend and how much you have saved. Its generally best to start collecting as late as you can, because you get a larger monthly payment, which is adjusted for inflation each year.
Consider a retiree who was born in 1950 and averaged $50,000 a year in salary. If she has $3,000 a month in expenses, her Social Security check would cover 48 percent of her expenses if she started Social Security at age 62. If she waited till age 70, her check would cover 85 percent of her expenses. Every year she delays retirement, her Social Security payout which is adjusted annually for inflation rises by about $1,649.
Traditionally, the retirement system in the U.S. has been a three-legged stool: Social Security, savings and pensions. Social Security was never intended to be the sole source of income for retirement. Increasingly, however, employers have been moving away from their employer-sponsored pension plans in favor of tax-deferred retirement savings accounts, such as 401 plans.
The Concept Of Dual Entitlement In Social Security Benefits
The simplest way to understand the concept of spousal benefits is to think of them as an assurance that if the lower-earning spouse files for Social Security at full retirement age, they will not receive less than half of the higher-earning spouses full retirement age benefit.
We can look at an example to see how spousal payments could work in the real world.
Lets assume we have a couple where the husband worked outside the home and paid into Social Security over his career. The wife managed the home and thus did not pay into Social Security.
At full retirement age, the husband has a monthly Social Security benefit of $2,000. Because the wife did not work in a role that allowed her to earn the required 40 credits, she wont have a benefit of her own.
However, as an eligible spouse, shed be eligible for a benefit of $1,000 per month as a spousal payment at her full retirement age.
But what if the wife did earn the required 40 credits for her own benefit, and earned less than the husband? This is where dual entitlement rules come into play.
If the husband in our example has a full retirement age benefit of $2,000 per month and the wife has her own benefit of $800 per month, dual entitlement says the wife is still eligible for a total benefit of $1,000.
Are Social Security Benefits Taxable
If you have a lot of income from other sources, up to 85% of your Social Security benefits will be considered taxable income. If the combination of your Social Security benefits and other income is below $25,000, your benefits wonât be taxed at all. The amount of your benefits that is subject to taxes is calculated on a sliding scale based on your income. Money that Social Security recipients pay in income taxes on their benefits goes back into funding Social Security and Medicare.
If your retirement income is high enough that your benefits are taxable, how do you pay those benefits? You can ask Social Security for an IRS Voluntary Withholding Request Form if youâd like the government to withhold taxes from your Social Security benefits. Otherwise, youâre expected to file quarterly tax returns to pay these taxes over the course of the year.
That covers federal income taxes. What about state income taxes? That depends. In 12 states, your Social Security benefits will be taxed as income, either in whole or in part the remaining states do not tax Social Security income.
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Spousal Benefit Reduction Due To Own Retirement Benefit
If you are receiving a retirement benefit of your own, your benefit as a spouse will be reduced by the greater of:
Example: In addition to receiving a benefit as Janes spouse, Bob is also receiving a retirement benefit of his own. Because he is entitled to a retirement benefit of his own, he will not receive the full spousal benefit . Instead, his spousal benefit will be reduced by the greater of a) his own PIA or b) his monthly retirement benefit.
Strategy For Late Claimers
If one partner has little or no earnings history, the best strategy is for the wage earner to postpone applying for Social Security retirement benefits until age 70 to get the highest amount possible. Full retirement age is 66 for most baby boomers and 67 for everyone born in 1960 or later, but by delaying claiming benefits until age 70, the wage-earner will accrue delayed retirement credits that will increase the monthly payments by 8% for each year of delay.
Keep in mind that this won’t affect the spousal benefit amount. Spousal benefits differ from personal benefits when it comes to delaying payments. If you delay claiming for personal retirement benefits past full retirement age, the benefit increases over time, as explained above. However, that will have no impact on your spouse’s benefits, since they max out at full retirement age . In other words, there is no benefit for your spouse in delaying the spousal benefit claim past your full retirement age.
On the other hand, if both partners work, and their earnings are more or less equal, their individual Social Security benefits will each be greater than the spousal benefit, so the best strategy for both is to postpone applying for benefits until age 70.
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How Much Do Widowed Spouses Receive
Social Security survivors benefits are especially important to women , because wives tend to earn less than their husbands, and they also typically outlive their husbands. When a retired worker dies, the surviving spouse receives a benefit equal to the deceased workers full retirement benefit.
Depending on the widows or widowers circumstances, however, this benefit may substantially reduce her monthly household income because only one Social Security benefit is now arriving , not the two benefits that the couple received before the spouses death. Women who had worked and earned their own Social Security benefits, in particular, may find themselves struggling to meet the rising fixed expenses that come with aging.
For more information on Social Security and survivor benefits, please visit the Social Security Administration at ssa.gov/benefits/survivors/.
Who Qualifies For Social Security Spousal Benefits
If your spouse has filed for Social Security benefits, you can also collect benefits based on the spouse’s work record, if:
- You are at least 62 years old.
- Regardless of your age, if you care for a child who is entitled to receive benefits on your spouses record, and who is under age 16 or disabled.
When you apply for spousal benefits, you will also be applying for benefits based on your own work history. If you’re eligible for benefits based on your own earnings, and that benefit amount is higher than your spousal benefit, that’s what you’ll get. If it is lower, you’ll get the spousal benefit.
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What If I Continue Working In My 60s
Many people whose health allows them to continue working in their 60s and beyond find that staying in the workforce keeps them young and gives them a sense of purpose. If this sounds like something youâd like to do, know that working after claiming early benefits may affect the amount you receive from Social Security. Why? Because the Social Security Administration wants to spread out your earnings so you donât outlive them. If you claim Social Security benefits early and then continue working, youâll be subject to whatâs called the Retirement Earnings Test.
If youâre between age 62 and your full retirement age, and youâre claiming benefits, you need to know about the Earnings Test Exempt Amount, a threshold that changes yearly. For 2022, the Retirement Earnings Test Exempt Amount is $19,560/year . If youâre in this age group and claiming benefits, then every $2 you make above the Exempt Amount will reduce by $1 the Social Security benefits you’ll receive.
Contrary to popular belief, this money doesnât disappear. It gets credited back to you – with interest – in the form of higher future benefits. You may hear people grumbling about the Social Security âEarnings Taxâ, but itâs not really a tax. Itâs a deferment of your benefits designed to keep you from spending too much too soon. And after you hit your full retirement age, you can work to your heartâs content without any reduction in your benefits.
The Bottom Line On Spousal Benefits
Spousal benefits can boost your Social Security if your spouse earns significantly more than you. However, if youre employed for most of your working years, you may still qualify for a bigger benefit on your own. If youre wondering how much youd qualify for on your own record or your spouses, you can create a my Social Security account to estimate your benefits and kickstart your retirement planning.
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Spousal Social Security Rules
For many working couples, both partners will be eligible to collect individual benefits. However, that does not preclude either person from collecting under the other person’s account. When you apply for benefits, both accounts will be checked to determine which claim will result in a higher benefit amount.
If your own benefit is larger, you will automatically receive that amount. If your spousal benefit is larger, you will receive a combination of benefits that total that amount.
While you can apply for spousal benefits as early as age 62, your benefit will be permanently reduced from what you would receive at your full or “normal” retirement age. Full retirement age, for Social Security purposes, is between 66 and 67, depending on your year of birth.
One exception: If you are caring for your spouse’s child who is under age 16 or who receives Social Security disability benefits, you can collect spousal benefits at any age without a reduction.
In addition, if you decide to claim before full retirement age, your benefit amount may be reduced if you continue working, depending on how much you earn. Eligibility for government, foreign, or public service pensions may also affect your payments.
If you wait until full retirement age to claim benefits, you’ll receive the maximum amount you can collect as a spouse. That is equal to 50% of your spouse’s benefit amount.
The benefits claiming strategy known as “file and suspend” has been totally eliminated.
Calculating Social Security Spousal Benefits
Spousal benefits are based on your spouses primary insurance amount, which is the amount theyre eligible for at full retirement age . Depending on how old you are when you start Social Security, you can receive 32.5% to 50% of your spouses benefit.
If you wait until your full retirement age which is 67 if you were born in 1960 or later youll qualify for the 50% maximum. But if you claim as soon as youre eligible at 62, youd only receive 32.5% of their full benefit.
When you take your own retirement benefits, you can earn 8% delayed retirement credits for each year you wait past your full retirement age until you reach your benefit cap at age 70. However, you cant earn delayed retirement credits when youre taking spousal benefits. Youll receive your maximum benefit once you reach full retirement age.
You also wont earn extra if your spouse waits past their full retirement age. The rules are different for surviving spouses, as well discuss shortly.
If you take spousal benefits, you wont affect the benefits your husband or wife receives. Their benefit is based solely on their primary insurance amount and when they claim.
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If You Will Be Eligible For Spouse’s Benefits And Have Access To Your Spouse’s Estimate:
Complicating Factors: Spousal Benefit Reductions
An assortment of other factors can come into play, which could reduce your benefit as a spouse. For example:
- If you are receiving a retirement benefit of your own, your spousal benefit will be reduced.
- If you file for spousal benefits prior to your full retirement age, your spousal benefit will be reduced.
- If you are receiving a government pension from work that wasnt covered by Social Security taxes, your spousal benefit will be reduced by the government pension offset.
- If your spouse is disabled or if you have a minor child or adult disabled child, the family maximum rules may result in your spousal benefit being reduced.
- If you are collecting a spousal benefit while under full retirement age and you are working, the earnings test may result in some or all of your spousal benefit being withheld.
We will discuss the GPO, family maximum rules, and earnings test in other articles. For now, we will discuss only the first two potential sources of reduction: entitlement to your own retirement benefit and filing prior to full retirement age.
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Calculate My Social Security Income
These days thereâs a lot of doom and gloom about Social Securityâs solvency – or lack thereof. And regardless of whether you think Social Securityâs future is secure, the fact remains that you shouldnât plan on living exclusively off your Social Security benefits. After all, Social Security wasnât designed to make up a retireeâs entire income.
Still, many people do find themselves in the position of having to live off their Social Security checks. And even if you have other income sources in retirement, Social Security can make up a significant part of your retirement income plan. That’s why itâs important to know all the rules surrounding eligibility, benefit amounts, taxation and more.
Do you need help managing your retirement savings? To find a financial advisor who serves your area, try our free online matching tool.
Who Is Entitled To Survivors Benefits From Social Security
How Social Security Can Help You When a Family Member Dies SSA.gov/benefits/survivors
Social Security is a key source of financial security to widowed spouses. About 7.8 million individuals aged 60 and older receive Social Security benefits based, at least in part, on a deceased spouses work record. These surviving spouse beneficiaries are overwhelmingly women.
These beneficiaries include 3.6 million people who are eligible only as widowed spouses. Another 4.2 million who are entitled to benefits based on their own work records but whose deceased spouses benefit amounts were higher than their own, will receive higher benefits as individuals .
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Start With Your Benefits Estimates
Your first step in maximizing your Social Security benefits should be to visit the Social Security Administration website. If you know your ex’s Social Security number, you can check for his or her benefits as well. Or you can ask your ex about his or her benefits if the two of you are on good terms.
If you’re not, the SSA can give you information about your ex’s benefits. You’ll need both your and your ex-spouse’s benefits estimates to determine your best Social Security claiming strategy.
When you file for Social Security, you file for all the benefits for which you’re eligible, including divorced spousal benefits. So even if you don’t know your former spouse’s Social Security number, you can still file for and receive divorced spousal benefits.
How The Restricted Application Strategy Works For Eligible Spouses
If you reach full retirement age and are eligible for your own benefits as well as spousal benefits, you may choose to collect benefits under your spouse’s account now and defer your own benefits until later. To file a restricted application, both you and your spouse must be of full retirement age, and you both must have filed for Social Security benefits.
Filing a restricted application can result in a higher benefit amount when you later file for Social Security under your own account. The reason is you will have accrued delayed retirement credits for each year you deferred retirement, up to age 70, when benefits max out.
Each year of delayed retirement is worth an additional 8% in benefits for those born between 1943 and 1954. So, for example, a person born in 1952 who retires in 2021 at age 69 will receive an additional 24% over and above what they would have received had they started collecting in 2018 at their full retirement age. However, only one person per couple may collect spousal benefits while earning delayed retirement credits on his or her own account.
And, to repeat, this option is no longer available to anyone who wasn’t born on or before Jan. 1, 1954.
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When To Apply For Benefits How Much Youll Get
AARP, Updated May 25 , 2022
All the information presented is for educational and resource purposes only. It is not intended to provide specific or investment advice. We don’t guarantee the accuracy of the tool and suggest that you consult with your advisor regarding your individual situation.
Entering Spouse Social Security Income
Financial plans with only one client will have the option to add the Spouse Social Security income card. This card can be used to model Spouse’s Social Security benefits for a divorced or widowed client. To add the Spouse Social Security income card, use the Profile > Income > Add Income dropdown menu to chose Spouse Social Security.
The Spouse Social Security card will allow you to capture the essential information required to illustrate Spousal Social Security benefits the client may be entitled to. This benefit will be calculated using the rules for either a divorced spouse or a deceased spouse. The data inputs will adjust based on the relationship selected and whether the spouse was already receiving Social Security income. This data card will not impact the Social Security Optimization tool nor will it offset benefits from the default Social Security income card.
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