Frequently Asked Questions About Social Security Retirement Benefits

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: What age do you have to be to get full benefits?
A: It depends on when you were born.

Q: If I start receiving social security, do I automatically qualify for Medicare?

A: No. You are eligible for Medicare only when you reach age 65.

Q: How will working part-time prior to claiming social security decrease or increase my benefit?

A: Your social security retirement benefit is based on an average of your highest 35 years of earned income, adjusted for inflation. This may include years with zero earnings, such as when a parent takes time off to raise children. Working additional years will never reduce your benefits, because low-wage years never replace higher-wage years. In fact, working part-time in retirement will usually help increase your primary insurance amount (PIA)—the basis for determining benefits—even if you are already drawing benefits. You may not realize the increase immediately if your benefits are temporarily reduced because you earn too much.

Q: But I always thought working during retirement reduced benefits. Is that not the case?

A: While earned income over a threshold of $15,480 in 2014 (or $41,400 in the full retirement age year) can result in a reduction of benefits for retirees who are under their full retirement age (FRA), it is only a temporary reduction. The Social Security Administration (SSA) will recalculate the worker’s benefit at FRA to take into account any months in which the social security benefit was completely offset (i.e., in nonpay status). Also, since the earnings will be credited to the worker’s history, they may result in an increased benefit at FRA.

Q: Do a spouse’s earnings from work reduce the other spouse’s benefits—if both spouses are receiving social security retirement payments based on their own work record?

A: No, only the working spouse’s benefits, including dependent benefits, are reduced by excess earned income before FRA. If you receive a combination of your own benefit and a spousal benefit, only the spousal portion is affected by your spouse’s excess earnings.

Q: What if I apply for social security benefits mid-year?

A: Only your earnings from work after you apply for social security are factored into the excess earnings test. Your earnings prior to retirement do not cause an offset of your benefits.

Q: What is considered earned income?

A: Earned income includes wages or net earnings from self-employment. Pensions, 401(k) distributions, severance and other post-employment pay, dividends, interest, and IRA distributions are not treated as earned income.

Q: Can I start to receive reduced benefits at age 62, or prior to FRA, and then change my mind?

A: Yes. You can apply for reduced benefits prior to FRA and then, within 12 months, withdraw the application and reapply at a later date. You must pay back all benefits received, including dependent benefits.

Q: What are spousal benefits?

A: While you are living, your spouse can receive a dependent benefit of up to 50 percent of your full retirement amount. Benefits paid to your spouse will not decrease your retirement benefit. In fact, it is possible to receive a combination of benefits as a worker and as a spouse, although the maximum you will receive is the higher of the two.

Q: Does my early retirement reduce my spouse’s or widow(er)’s benefit?

A: If you retire prior to your own FRA, your benefits will be permanently reduced based on your age at application. Your early retirement does not affect a spouse’s benefit. If he or she applies for a dependent spouse benefit before his or her FRA, any reduction will be based on his or her age at application. A widow or widower, on the other hand, steps into your shoes and receives an amount equal to the benefit you would have received if you were living. So, if your retirement benefit was reduced due to early retirement, your widow(er)’s benefit would also be reduced, and it may be further reduced based on the widow(er)’s age at application.

Q: Can I apply for spousal benefits if my spouse hasn’t yet filed for social security?

A: No. You cannot get spousal benefits until your spouse has applied for social security retirement benefits. You can apply for a benefit based on your work record and, when your spouse retires, qualify for a spousal benefit, if higher, at that time. Or, your spouse can apply for benefits at his or her FRA and then withdraw the application. This will allow you to receive a spousal 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

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