Last Week’s Question of the Week: When did annuities first come to America? ANSWER: Annuities first came to America in 1759.
HOST: As we talk about retirement every week on this show, we learn more and more about how Social Security will play a role, and how we need to understand how it will affect our own circumstances, correct?
KLAAS FINANCIAL: Yes, so since there is so much to understand about Social Security and your benefits, we try every month to break down different aspects of how your benefit may look different, or how you may choose to take it, or when you may choose or should take it.
Today we are focusing on the IF you are planning on continuing to work as you draw your social security and how that will affect your income. And also, on the WHEN you perhaps should consider pulling it.
Step One:
You will need to evaluate how much income your other investments and retirement accounts (IRAs, pensions, after tax accounts) may bring you on a yearly basis, and whether you will have any part-time working income, spousal income and then you can figure out the best time for YOU to begin taking your social security benefit.
Step Two:
Everyone wants to know WHEN they can or SHOULD take their benefit.
Determine when your full retirement age (FRA) is:
- For anyone born between 1943-1954, your FRA is age 66; for those born between 1955 and 1959, full retirement age is 66 plus some months.After 1960, it is age 67.
- Go to the website: www.ssa.gov – wonderful resource for people regarding social security. Can set up a login to view your own account at any time
- Remember that your FRA represents when you are eligible to take full benefit, with any other working income not affecting your benefit.
- Of course, you can choose to take your benefit as early as 62, but you need to remember that your benefit will be reduced. For example: If your FRA is 66 and you decide to start receiving retirement benefits at: age 62, you will get 75% of the monthly benefit because you will be getting benefits for an additional 48 months. At age 65, you will get 93.3% of the monthly benefit because you will be getting benefits for an additional 12 months.
- An interesting fact to note is that based on a study from 2013 (Center for Retirement Research at Boston College), at least 60% of retirees sign up for benefits before reaching their full retirement age.
HOST: So, if you do take your SS benefit BEFORE your full retirement age, what happens with regards to your benefit?
KLAAS FINANCIAL: As most people have heard there can be a limit to how much income you can earn when you are collecting Social Security without your benefit being affected. If you enroll prior to your full retirement age and you’re still working, the SSA can withhold part, or all, of your benefits based on how much you earn per year.
Remember, you can earn as much income as you want, but your SS benefit will be affected.
THE NUMBERS:
- In 2018, early filers who are under the full retirement age and have earned income over $17,040 a year ($1,420 a month) will have $1 in benefits withheld for every $2 in earned income over the limit. For folks who claim Social Security during the year they’re set to reach full retirement age, but aren’t there yet, in 2018 $1 in benefits could be withheld for every $3 in earned income over $45,360 ($3,780 a month) if you haven’t yet reached full retirement age, but will do so later this year.
- It’s also worth noting that if the SSA withholds your benefits and keeps you from double dipping between Social Security income and working wages, you don’t lose your benefits forever. Once you cross full retirement age, you’ll get them back in the form of a higher monthly payout.
- In 2018 there are approximately 42 million retirees are receiving Social Security payments averaging $1404 a month, or about $16,848 a year.
HOST: What is the benefit of waiting till I am 70 to collect my social security benefit?
KLAAS FINANCIAL: An interesting fact to note is that based on a study from 2013 (Center for Retirement Research at Boston College), at least 60% of retirees sign up for benefits before reaching their full retirement age.
The Social Security Administration designed delayed retirement credits to augment benefits for those who chose to wait beyond full retirement age before claiming their Social Security
When you delay your retirement past your full retirement age, Social Security benefits are increased a certain percentage (depending on your date of birth) Your benefit can 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.
Delayed retirement credits are available only to worker benefits under Social Security. Spousal benefits don’t qualify, so there’s no reason for a spouse intending to receive only spousal benefits to wait beyond full retirement age before making a claim and getting those monthly payments started. However, if a spouse could claim either spousal benefits or work benefits on the spouse’s own earnings history, then there could be reasons to hold off filing beyond full retirement age under current law.
The net impact still makes it smart to wait if you want your monthly check to be as big as it can be.
HOST: So, once I do start taking Social Security someday, will I get annual raises?
KLAAS FINANCIAL: Well, again that depends.
You’re 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. In 2018 the COLA for SS went up by 2%.
This is why we need other investments to draw off of besides Social Security in retirement.
HOST: What if I am married, and I have no Social Security benefit coming to me?
KLAAS FINANCIAL: Well, again that depends.
You are entitled to all of your benefit or half of your spouse’s benefit, whichever is greater (be aware of age discounting).
If you are 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? If the average current benefit is around $1200 for a person, and both have been collecting, keep in mind what happens when one person passes. Upon your death, no benefit from SS will continue to your family (similar to a pension); Widows benefits can begin as early as age 60.
HOST: How will my social security benefit be determined?
KLAAS FINANCIAL: First of all, it is good to understand that you’re not automatically given Social Security as a U.S. citizen. In order to qualify, you have to earn 40 lifetime work credits, of which a maximum of four can be earned annually. In 2018, it now requires $1,320 in earned income per lifetime work credit, or $5,280 for the full year.
Social Security takes a look at your lifetime earnings, adjusting them for inflation, and then calculates your average indexed monthly earnings during the highest 35 years of employment to determine your benefit.
You’re 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.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
