SHOW NOTES: 2020-02-27 MiM

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Last Week’s Question of the Week: According to the Bureau of Labor and Statistics, how much LESS in living expenses does the average retired household have than working households? Is it 50% or 22%?

ANSWER: The correct answer was 22%.

HOST: Obviously when you begin discussing future retirement income, I assume Social Security is probably at the top of the list. Today you are discussing whether it makes sense to take your social security benefit early or to wait till a later age. What do we need to know?

KLAAS FINANCIAL: We always come back to this topic because for many people planning for retirement, this will usually be an important part of their future income, and for some perhaps their only income.

Some FACTS about Social Security:

  • Social Security (SSA.GOV) — WONDERFUL resource for people regarding social security. Set up a login to view your own account.
  • How Soon to Take Your Benefit? There is a difference from when you can FIRST take it and when it is actually your full retirement age.
  • FULL RETIREMENT AGE= FRA: Born between 1943-1954, your full retirement age is age 66, for those born between 1955 and 1959 your full retirement age is 66 plus some months. After 1960, it is age 67.
  • TAKING BENEFITS EARLY: You can choose to collect your own benefit starting at age 62 or anytime up until you’re 70. Those who collect early get a smaller monthly payout because they usually collect benefits over a longer period than those who wait.

BEST TIME TO COLLECT: It’s generally advisable to wait at least until you’ve reached full retirement age to start collecting Social Security because the monthly benefit is so much higher. For example, if you were born in 1955, your full retirement age is 66 years and 2 months. That would be the age at which you can collect 100 percent of your benefit.

ANOTHER CHOICE: Delay your retirement past your full retirement ag: Social Security benefits are increased a certain percentage (depending on your date of birth) if you delay receiving benefits until after your full retirement age. DRC- Delayed Retirement Credits can allow your benefit to increase up to 8% per year until you start taking benefits, or until you reach age 70. Therefore, almost NO reason to NOT pull once reach age 70.

HOST: How will my social security benefit be determined? And can it ever increase?

KLAAS FINANCIAL: Excellent question. Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages of your highest years. Each year’s wages are adjusted for inflation before being averaged.

You are eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70. Cost-of-living increases to your benefit beginning with the year you reach 62, and up to the year you start receiving benefits. The cost of living adjustment for Social Security for in 2020 was 1.6%. There are currently 69 million people receiving Social Security benefits.

If you’re a government worker with a pension, a different formula is applied to your average indexed monthly earnings. To find out how the Windfall Elimination Provision (WEP) affects your benefits, go to and use the WEP online calculator.

HOST: So how do you know what age is right for yourself? And can our full retirement age change in the future?

KLAAS FINANCIAL: It depends. We need to look at their other sources of income, including their spouses benefit at the same time. It is a little bit of a gamble either way. Social Security doesn’t see itself as an oddsmaker, but it does require you to bet on your longevity. Some people advocate drawing Social Security benefits at the first opportunity. And yes, it is likely that over time the full retirement age will be adjusted.

BREAK-EVEN POINT: For example, the break-even point for someone who earned the inflation-adjusted equivalent of $70,000 per year for 35 years is about age 80. If this person waits until 70 to claim Social Security and lives until at least age 90, he’ll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there’s a possibility of losing the bet and getting nothing.

WHAT IS THE ACTUAL REDUCTION IN BENEFITS by taking your benefit early? EXAMPLE: if your full retirement age is 66 years and 2 months, and you start receiving retirement benefits at 62, you will get only 74.2 percent of the monthly benefit 65, you will get 92.2 percent of the benefit.

FACT: Even though we understand that your benefit will go up if you wait: 62 is still by far the most popular age for people to claim their Social Security, according to the government’s most recent data.

HOST: How many credits do you need to qualify for to even get a Social Security Benefits?

KLAAS FINANCIAL: Credits are the “building blocks” Social Security uses to find out whether you have the minimum amount of covered work to qualify for each type of Social Security benefit. For most people, the minimum number is 40 credits. If you stop working before you have enough credits to qualify for benefits, your credits will stay on your record. If you return to work later on, more credits will be added. No benefits can be paid if you do not have enough credits.

If you do not have at least 40 credits, you are not currently entitled to a retirement benefit, but you may become entitled with additional work. Go to the SSA.GOV website and read their publication, “How You Earn Credits,” for more information.

Also, if you are not entitled to retirement benefits based on your own work record, you may still be entitled to benefits on the work record of a current or divorced spouse. For more information on this you can read a Survivors Benefits or Spouse Benefits page on their website.

They also have a variety of calculators you can use to help you plan better. To qualify for spouse’s benefits, you must be: At least 62 years of age; or Any age and caring for a child entitled to receive benefits on your spouse’s record who is younger than age 16 or disabled. If you start receiving benefits as a spouse at your full retirement age, you will get 50% of the monthly benefit your spouse would receive if their benefits started at full retirement age. Your benefit will be permanently reduced, if you start receiving benefits at an earlier age.

WIDOW or WIDOWER BENEFITS: A widow or widower can start collecting Social Security benefits based on their own earnings record, then switch later to survivors’ benefits. Or, they can begin with survivors’ benefits and later switch to benefits based on their own earnings record — even if they are filing before full retirement age. If an ex-spouse dies, you may be able to receive benefits similar to a widow or widower.
If you are at least 60, the marriage lasted at least 10 years and you didn’t remarry before age 60, you’ll most likely be able to collect your late spouse’s benefit.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.