Submitted by Nancy J. LaPointe, MBA, CFP®, ChFC®, CLU®, CASL® for Navigate Financial
The following information addresses common concerns about collecting social security retirement benefits, including the effects of part-time work and other earnings on benefits, the age at which you may begin collecting, and spousal benefits.
Q: Can a retiree choose which benefit to receive—his or her own benefit or his or her spouse’s?
A: If your spouse has already applied for retirement benefits, you cannot apply for a reduced spousal benefit at age 62 and then step up to an increased benefit based on your own record at FRA. There are two limited exceptions, however. If you haven’t received any benefits before reaching your FRA, you can then apply for spousal benefits and delay applying for benefits under your own record up to age 70. This will allow you to take advantage of the delayed retirement credit, which increases your benefit by a certain percentage if you delay your retirement beyond your FRA.
Another exception applies if you claim benefits before your spouse does. In that case, you can start to receive benefits based on your work and elect to add a spousal benefit when eligible. Remember that your combined benefit will be reduced based on your age at application.
Here’s an example:
Jane qualifies for her own benefit at age 62, when her PIA is $800. Because she is 48 months under her FRA, her benefit is reduced to $640.
Two years later, when her husband, Jack, retires, Jane qualifies for a spousal benefit of $900 at her FRA, based on Jack’s PIA of $1,800. She has the option to wait to apply for a spousal benefit at her FRA, but she decides to apply for her increased benefit at age 64. The SSA will first subtract her PIA from one-half of Jack’s PIA ($900 − $800). It will then reduce her spousal benefit of $100 to $91 based on her current age of 64. Her new combined benefit is $731 ($640 + $91).
Q: How can a couple maximize their social security benefits?
A: If current cash flow is not an issue, the spouse with the lower earning history could apply for benefits as early as possible while the higher-earning spouse would delay benefits as long as possible. Let’s say Sally and Jim are age 62 and 65, respectively. Sally retires at 62 and applies for reduced social security benefits. Her husband, Jim, also retires but does not apply for benefits. At his FRA of 66, Jim applies for spousal benefits based on Sally’s work record. At this time, he would qualify for 50 percent of Sally’s PIA. He will continue to accrue delayed retirement credits of his own—equivalent to an 8-percent increase per year—until age 70. At age 70, Jim will need to apply for social security under his own work record.
Q: How does a divorce affect benefits?
A: A divorced spouse can get benefits based on a former husband’s or wife’s social security record, provided the marriage lasted for at least 10 years and the divorced spouse is 62 years old or older and unmarried. You do not have to wait until your former spouse retires to receive benefits, and you can receive benefits even if your former spouse remarries.
Q: What happens when my spouse, or divorced spouse, dies?
A: You can receive widow or widower benefits at age 60 (age 50, if disabled). You will get a survivor’s benefit equal to 100 percent of your spouse’s benefits. You will not receive both your spouse’s and your own benefit, however. The amount you receive will depend on your age at application for widow(er) benefits and whether your deceased spouse was receiving reduced benefits.
Please note: A widow or widower has the option of taking a survivor benefit now and then switching to an unreduced benefit based on his or her own work record anytime after FRA, or vice versa.
Q: What happens if I remarry?
A: If you are a widow(er) or divorced widow(er) and you remarry before age 60 (age 50, if disabled), you are not eligible for your deceased spouse’s benefits. You can apply for spousal benefits under your new spouse, however. If you remarry after age 60 (age 50, if disabled), you can choose between your deceased spouse’s survivor benefit or your new spouse’s spousal benefit.
Q: What does windfall elimination provision mean?
A: This term relates to a job, such as a public school teacher or government worker, where no contributions were made to social security because a public pension was available. If you also worked at jobs covered by social security, your social security retirement benefits may be reduced by an amount equal to 50 percent of your public pension.
Please note: This provision will not reduce your survivor’s social security benefits.
Q: What does government pension offset mean?
A: This term relates to a job during which one spouse did not contribute to social security—usually because he or she was employed in a federal, state, or local government job. If you receive a public pension, you may also be eligible to receive spousal or widow(er) benefits from your spouse who worked in private industry. Your spousal or survivor benefits may be reduced by an amount equal to two-thirds of your public pension.
Q: How reliable is the estimate on my social security statement?
A: The social security statement assumes you will continue to work at the same level of earnings until retirement. If you stop working but decide to delay benefits, your benefits may be less. Use the Retirement Estimator on the SSA website to see how not working could affect your monthly benefit.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Nancy J. LaPointe is a financial advisor located at 4520 Intelco Loop Ste 1 D Lacey, WA 98503. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 360-628-8175 or at Nancy@navigatefinancialnw.com
© 2014 Commonwealth Financial Network®
