Last Week’s Question of the Week: What famous investor from Nebraska once said, “successful investing takes time, discipline and patience”? ANSWER: Warren Buffet.
HOST: Your subject today revolves around Social Security. You talk a lot about when is the best time to begin social security? What things should I consider if I’m approaching retirement?
KLAAS FINANCIAL: Well that depends on your overall financial situation. Some of the questions you need to explore are:
- What type of debt do you have going into retirement? What are your income needs? Do you have a spouse who will also be collecting SS?
- When is the right time to collect SS? FRA stands for “Full retirement age” or “normal retirement age” is the age at which a person may first become entitled to full or unreduced retirement benefits from Social Security. Remember you may start receiving benefits as early as age 62 or as late as age 70. Born before 1954, FRA is 66; born between 1955-1959 it is 66 + some months; born after 1960, it is 67 years old.
- If you are working, how much will you be earning? Perhaps it is worth waiting to collect. Remember, there is a limit to your income if you collect social security prior to your FRA. To be explained later.
- A lot of considerations, if you wait, you could receive Delayed Retirement Credits of 8% up to age 70. The largest number of delayed retirement credits for those who are reaching full retirement age now is 48 months, or a 32% increase to benefit amounts. That’s because the age beyond which new delayed retirement credits are no longer available is set at 70, regardless of what the full retirement age is.
- Early retirees are finding now that their full retirement age is higher than 66, with those turning 62 in 2018 having a full retirement age of 66 and four months. That will go up gradually over the next several years, topping out at 67 for those who were born in 1960 or later.
- What that means for those considering delayed retirement credits is that there will be fewer of them to claim. If your full retirement age is 67, then the largest number of credits you can get is 36 months, because that’s the length of time between full retirement age and reaching age 70. That makes the maximum boost to your benefits 24% instead of 32%, working out to a loss of $120 in potential delayed retirement credits on a monthly basis.
HOST: If I take my social security early, prior to Full Retirement Age what restrictions do I have to watch out for?
KLAAS FINANCIAL: The Social Security administration may reduce or postpone your benefits between the ages of 62 and full retirement age (66-67) if your total earned income is over $16,920 in 2018. Be careful of this!
SS deducts $1 from benefits for each $2 earned over $16,920.
- There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
- Also, if you have earned your own social security benefit, then You are entitled to ALL of your own social security benefit or 50% of your spouses (whichever is greater) in retirement. Be aware of age differences, etc.
HOST: What is the average Social Security retirement benefit in the United States?
KLAAS FINANCIAL: The average monthly Social Security retirement benefit for 2017 was $1368 or around $16,416 per year; the maximum annual benefit was $2687 IF you retired at your full retirement age.
If you retired at age 70 in 2017, your maximum benefit would be $3538. This gives you an idea of the power of DRC’s of 8%.
Another interesting fact is that only 2% of all workers wait to age 70 to begin collecting their social security benefit.
HOST: What if I am married, but have no Social Security benefit that I earned coming to me?
KLAAS FINANCIAL: Remember that you are entitled to all of your benefit or half of your spouse’s benefit, whichever is greater (be aware of age discounting). Married for at least a year. They would have their benefit and you collect ½ of theirs.
Divorced? If your marriage lasted at least 10 years, you may be able to get benefits on your former spouse’s record.
What happens when one person in a couple passes away in terms of our SS benefits income? You will only keep the highest of the two SS benefits, and upon your death, no benefit from SS will continue to your family (similar to a pension). Widow’s benefits can begin as early as age 60.
HOST: How can I get a Social Security Statement that shows a record of my earnings and an estimate of my future benefits? And how soon should I apply for benefits?
KLAAS FINANCIAL: Go to ssa.gov to set up your own personal Social Security Statement account. Check for accuracy of income reporting.
You should apply for retirement benefits three months before you want your payments to start. The easiest and most convenient way to apply for retirement benefits is by using the online application at ssa.gov.
Some pensions can have Social Security offset due to not paying into the Social Security system (ex: post office employees).
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
