Maximizing Social Security Benefits

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Although there are too many variables to offer suggestions that will work for everyone, I thought the topic might still be of interest to FWF and their families.
If you haven’t already done so, you can create an online Social Security account.

SSA

“Use a my Social Security online account to get your Social Security Statement, to review:
•Estimates of your retirement, disability, and survivors benefits;
•Your earnings record; and
•The estimated Social Security and Medicare taxes you’ve paid.”

There are many other strategies to increase the payout from Social Security, but I thought it might help by suggesting two options that may work for some people.

1. Assuming that you are in decent health and can afford to wait to begin collecting benefits, it may make sense not to collect benefits until you reach 70.

“Let’s say your full retirement age is 66 and your monthly benefit starting at that age is $1,000. If you choose to start getting benefits at age 62, your monthly benefit will be reduced by 25 percent to $750 to account for the longer period of time you receive benefits. This is generally a permanent reduction in your monthly benefit. If you choose to not receive benefits until age 70, you would increase your monthly benefit amount to $1,320. This increase is from delayed retirement credits you get for your decision to postpone receiving benefits past your full retirement age. The benefit amount at age 70 in this example is 32 percent more than you would receive per month if you chose to start getting benefits at full retirement age.“

What is the best age to start receiving retirement benefits?


2. For couples, “file and suspend” may provide additional benefits.

“Fine-tuning the plan. Most Social Security planning focuses on married couples' ability to "file and suspend," a strategy to help a couple get the most total benefits.

Typically, the higher earner claims his or her benefit at full retirement age, then suspends it. The higher earner can delay the benefit up to age 70, earning another 8% a year in delayed retirement credits. Meanwhile, the lower earner, at full retirement age, could take a spousal benefit and wait to file for his or her own benefit up to age 70, also earning another 8% a year.”

WSJ

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Do you have a spreadsheet or calculation you care to show?

I did a basic thing in excel without inflation indexing, and t... (more)

ChumChurum (Apr. 04, 2013 @ 10:32p) |

You do realize that genes are not inevitability, right?

And then, there's that saying about a self-fulfilling prophecy..... (more)

madcowdisease (Apr. 05, 2013 @ 12:07a) |

All Grandparents dead before 62.
Mother with stroke at 55. Multiple strokes since.
Father with 2 forms of cancer by 62.
Bro... (more)

saladdin (Apr. 05, 2013 @ 9:16a) |


Thanks for the reminder to view my statement. They used to mail a statement once per year - but now you have to go on line to view it.
Think I haven't reviewed mine in a few years.

Taking mine the second eligible. Bad DNA. Will be a stretch to hit 70 in any condition to enjoy life.

saladdin said:   Taking mine the second eligible. Bad DNA. Will be a stretch to hit 70 in any condition to enjoy life.That's what I was thinking too as the downside. My mother was planning on retiring at 66 but sadly, she died at 65 so all her benefits were forfeited. Is there anything that can be done to mitigate this other than make sure you live as long as possible?

I'm taking mine the minute I am eligible (2024). I don't expect Social Security to be around much past 2034. I'm getting what I can while there's something to be gotten.

Just by looking at the nominal value (not NPV), unless you are sure you can live pass 75, I would say better to take the SS early.

bury her in the back yard and keep on collecting. You'll eventually go to prison though when they catch onto the scheme.

Maximizing your benefit is not necessarily the only goal. You will never know if you made the right choice until you die.

One other serious consideration is managing your longevity risk. Delaying your SS benefit until 70 is the cheapest way to effectively purchase a COLA fixed annuity.

Your actual retirement can come before, coordinated with, or after the collection of your SS benefits. Retiring early and using some of your other retirement accounts to provide income while delaying collecting SS benefits can also prevent SS benefits from being taxed.

Rather than 62, you might at least consider 63 1/2. This would allow you to use COBRA until you can qualify for Medicare at 65.

It pays to wait if you are modestly healthy and don't desperately need the money...you get 8% annual raises PLUS the cost of living adjustments, so it's really like a 10-11% increase each year you wait.

Also, to point 2, if higher earner is older, spouse can claim spousal benefit early (62) as long as higher earner is at FRA when spousal benefit commences.

Sure, one spouse can claim early, but it's good to let higher earning spouse's benefit run to 70 as the odds of one spouse living to 100 are now over 50% for a 65 year old couple retiring today. This leaves a fat benefit for the surviving spouse (who must choose only 1 benefit for rest of his/her life)
in short, for married couples, if one spouse is healthy, defer the higher benefit as long as possible. when to claim the spousal or lower earner benefit is a function of the health of the less healthy spouse.

Also the alarmist's speaking of SSI disappearing is tiring. a modest reduction in benefits for future retirees, raising the 113k income ceiling, COLA decreases, or even allowing a mass influx of legal working immigrants ensures solvency for every worker alive today to get most if not all of their SSI. With no reforms, you still get 2/3 of your statement's benefits at retirement if you are 25 today.

Good thread!

I have the following question.

Background. For people who immigrated to US at a late age, say 50, obviously the benefits are going to be far lower than their current income might suggest.

E.g., making $30K at age 50, plus inflation adjustments and small raises every year (no income before 50).

Do you know if only income up to age 66 is used to calculate benefits, or if working past 66, the additional income would also be counted?

I think the answer is yes, but not sure. I have tried using the online calculators, but never fully figured out how.

For those staying in school until their late 20s (i.e. Bachelors + pHD/MD), I've learned it is good to have at least some income during your school years because social security is calculated based on work credits, of which you can earn up to 4 each year with just modest income.

"Reality - Every dollar of earned income, up to any age, can result in increases in Social Security benefits. Social Security will automatically recalculate your primary insurance amount (PIA) every year in which you work. If one of your 35 highest indexed-earnings years is attained after you start benefits, then you will be credited with a higher benefit. However, you do not receive any help from annual wage indexing after the calculation made in your 60th year. As long as you keep paying FICA or SE taxes, however, you can potentially keep increasing your benefit. There is no disincentive in the Social Security system to keep working after you start benefits."




investopedia

"PIA definition
The "primary insurance amount" (PIA) is the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

PIA formula bend points
The PIA is the sum of three separate percentages of portions of average indexed monthly earnings. The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.

For 2013 these portions are the first $791, the amount between $791 and $4,768, and the amount over $4,768. These dollar amounts are the "bend points" of the 2013 PIA formula. A table shows bend points, for years beginning with 1979, for both the PIA and maximum family benefit formulas.


PIA formula
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768,
plus
(c) 15 percent of his/her average indexed monthly earnings over $4,768.

We round this amount to the next lower multiple of $.10 if it is not already a multiple of $.10."

SSA

ryeny3 said:   There is no disincentive in the Social Security system to keep working after you start benefits."


Isn't social security taxed if you work and collect SS? If so, that would be a huge incentive to not work once on social security because of the high marginal tax rate.

brettdoyle said:   ryeny3 said:   There is no disincentive in the Social Security system to keep working after you start benefits."


Isn't social security taxed if you work and collect SS? If so, that would be a huge incentive to not work once on social security because of the high marginal tax rate.
Paying Income Tax on SS Benefits
You will have to pay federal taxes on your Social Security benefits if you file a federal tax return as an individual and your total income is more than $25,000. If you file a joint return, you will have to pay taxes if you and your spouse have a total income of more than $32,000.

There is more than just the SS benefit amount to calculating which is the best option for when to start collecting benefits. For the most part, inflation and tax rate but also rate of return on investments. And of course your current health starting from age 62.

This article goes into more detail than any of the SSA ones about what other things to take into account.

btuttle said: Rather than 62, you might at least] consider 63 1/2. This would allow you to use COBRA until you can qualify for Medicare at 65.
You will not be able to use COBRA. The moderators will not allow me to explain why not.

Apparently the SSA web developers programmed in a laziness function that shuts down the site every night. If the employees don't have to work holidays, why should the website?


Please try again during our regular service hours (Eastern Time):

Day
Service Hours
Monday-Friday 5:00 a.m. - 1:00 a.m.
Saturday 5:00 a.m. - 11:00 p.m.
Sunday 8:00 a.m. - 11:30 p.m.
Federal Holidays
Same hours as the day the holiday occurs.

The SS statement will tell you estimates based on if your current income continues, but if you're in a job that exceeds the ~$110K income limit the other two interesting datapoints they don't give is at what point continuing to work gives much fewer benefits (because of the way that SS favors lower income workers) and after what point you basically stop getting more at all. They do mention that at the time of trust fund exhaustion they'll pull in ~75 cents for every dollar of scheduled benefits but don't mention if it'll get better or worse after that point (or by how much).

The earlier comment about working during college to get credits is only helpful if you intend to work less than 10 years. Credits basically make sure that you've worked at least 10 years, but otherwise the benefit level is determined by income. While the college income will help a little, it's likely to be miniscule compared to post college years (if not reconsider whether you should still be in college).

armus said:   The SS statement will tell you estimates based on if your current income continues, but if you're in a job that exceeds the ~$110K income limit the other two interesting datapoints they don't give is at what point continuing to work gives much fewer benefits (because of the way that SS favors lower income workers) and after what point you basically stop getting more at all. They do mention that at the time of trust fund exhaustion they'll pull in ~75 cents for every dollar of scheduled benefits but don't mention if it'll get better or worse after that point (or by how much).

The earlier comment about working during college to get credits is only helpful if you intend to work less than 10 years. Credits basically make sure that you've worked at least 10 years, but otherwise the benefit level is determined by income. While the college income will help a little, it's likely to be miniscule compared to post college years (if not reconsider whether you should still be in college).
Least benefit per dollar contributed starts at @ $57K per year.

From my earlier post:

"For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768,
plus
(c) 15 percent of his/her average indexed monthly earnings over $4,768."

I think the biggest question for most when deciding when to take SS benefits is what is your goal ? Get the most $$ out of SS that you paid in, or be able to live decent in old age regardless of how old you are when you die. If you have no other retirement funds to speak of, you better consider waiting until 66-70 to claim benefits. Sure you may not end up max $$ if you die at 72, but at least you had sufficient amount of money to live on while you were alive.

Hi,
I Think that your Goal is just to take SS Benefits.
But there is more options than SS, from you can get mere benefits.

Thanks.

armus said:   

The earlier comment about working during college to get credits is only helpful if you intend to work less than 10 years. Credits basically make sure that you've worked at least 10 years, but otherwise the benefit level is determined by income. While the college income will help a little, it's likely to be miniscule compared to post college years (if not reconsider whether you should still be in college).


What if you plan on working less than 35 years? I thought benefits were calculated based on 35 years of earnings so while the dollar value may be minimal you would have years with some income instead of no income.

RedCelicaGT said:   Apparently the SSA web developers programmed in a laziness function that shuts down the site every night. If the employees don't have to work holidays, why should the website?


Please try again during our regular service hours (Eastern Time):

Day
Service Hours
Monday-Friday 5:00 a.m. - 1:00 a.m.
Saturday 5:00 a.m. - 11:00 p.m.
Sunday 8:00 a.m. - 11:30 p.m.
Federal Holidays
Same hours as the day the holiday occurs.


SSA's computer systems perform updates during the hours that it's not available. And only certain functions, like the statement, online accounts, and benefits applications are unavailable during those hours. The site itself is not shut down.

ryeny3 said:   
“Let’s say your full retirement age is 66 and your monthly benefit starting at that age is $1,000. If you choose to start getting benefits at age 62, your monthly benefit will be reduced by 25 percent to $750 to account for the longer period of time you receive benefits. This is generally a permanent reduction in your monthly benefit. If you choose to not receive benefits until age 70, you would increase your monthly benefit amount to $1,320. This increase is from delayed retirement credits you get for your decision to postpone receiving benefits past your full retirement age. The benefit amount at age 70 in this example is 32 percent more than you would receive per month if you chose to start getting benefits at full retirement age.“


I just ran those numbers and it doesn't make sense to delay from 66 to 70. You'd have to live to over 90 for it to even have a chance of paying off. The only reason you'd consider the delay is if you didn't need the money between 66 and 70, so to compare the two we have to assume we are taking the money received between 66 and 70 and investing it. Then using it over the next 20 years to make up the $300/month difference. The good thing about the 66 option is that if you die earlier, the money you had sitting in an investment account will go to your heirs).

marabout said:   ryeny3 said:   
“Let’s say your full retirement age is 66 and your monthly benefit starting at that age is $1,000. If you choose to start getting benefits at age 62, your monthly benefit will be reduced by 25 percent to $750 to account for the longer period of time you receive benefits. This is generally a permanent reduction in your monthly benefit. If you choose to not receive benefits until age 70, you would increase your monthly benefit amount to $1,320. This increase is from delayed retirement credits you get for your decision to postpone receiving benefits past your full retirement age. The benefit amount at age 70 in this example is 32 percent more than you would receive per month if you chose to start getting benefits at full retirement age.“


I just ran those numbers and it doesn't make sense to delay from 66 to 70. You'd have to live to over 90 for it to even have a chance of paying off. The only reason you'd consider the delay is if you didn't need the money between 66 and 70, so to compare the two we have to assume we are taking the money received between 66 and 70 and investing it. Then using it over the next 20 years to make up the $300/month difference. The good thing about the 66 option is that if you die earlier, the money you had sitting in an investment account will go to your heirs).
What discount rate did you use? Did your calculation take into account that Social Security payments are indexed? Assuming inflation is a positive number, the payment differential will increase over time year due to cost-of-living adjustments.

For example:

Assuming that your reinvestment rate matched the cost-of-living adjustments made by Social Security, you B/E age is 82.5 (B/E= 70 + 4/0.32 = 82.5). The Social Security Administration estimates that the average man aged 66 will live to 84.2 and the average woman aged 66 will live to 86.1. "IF" you were in average health and "IF" your reinvestment rate was equal to the rate used by Social Security, then it might make sense to delay receiving payments until 70. This calculation ignores taxes and marital status.

Whether or not it make sense to start payments later will depend on a person's health and the expected rate of return on investments relative to the cost-of-living increases in Social Security payments. Obviously, the decision will change based on what assumptions you use. In any case, it makes sense to spend a few minutes considering the options before deciding what works best for you.

SSA laws LIKELY will change in the next 10 years. Anyone under 50 needn't bother to consider options now.

That said. Those near min age to receive benefits for which current rules apply should consider the following. 1) Get $ ASAP. 2) Use a portion to purchase life insurance, do not spend any. 3) Invest in S&P index fund. 4) At 70, if alive and in good health, pay back the amount received and re-qualify for max SS (likely with remainder funds in the index fund. If dead before 70; $ from SS and $ from life insurance policy go to heirs. If sick at 70, continue to draw benefits and do not repay.

Silly repayment rule will go away when (after) millions of baby boomers take advantage of the inter- generational gift.

imsparty said:   At 70, if alive and in good health, pay back the amount received and re-qualify for max SS
Unfortunately, that option is no longer available. You now only have 12 months to rescind your decision, pay back any benefits received, and then re-file at a later date.

marabout said:   ryeny3 said:   
“Let’s say your full retirement age is 66 and your monthly benefit starting at that age is $1,000. If you choose to start getting benefits at age 62, your monthly benefit will be reduced by 25 percent to $750 to account for the longer period of time you receive benefits. This is generally a permanent reduction in your monthly benefit. If you choose to not receive benefits until age 70, you would increase your monthly benefit amount to $1,320. This increase is from delayed retirement credits you get for your decision to postpone receiving benefits past your full retirement age. The benefit amount at age 70 in this example is 32 percent more than you would receive per month if you chose to start getting benefits at full retirement age.“


I just ran those numbers and it doesn't make sense to delay from 66 to 70. You'd have to live to over 90 for it to even have a chance of paying off. The only reason you'd consider the delay is if you didn't need the money between 66 and 70, so to compare the two we have to assume we are taking the money received between 66 and 70 and investing it. Then using it over the next 20 years to make up the $300/month difference. The good thing about the 66 option is that if you die earlier, the money you had sitting in an investment account will go to your heirs).


Do you have a spreadsheet or calculation you care to show?

I did a basic thing in excel without inflation indexing, and the breakeven age is roughly 81-82.

saladdin said:   Taking mine the second eligible. Bad DNA. Will be a stretch to hit 70 in any condition to enjoy life.

You do realize that genes are not inevitability, right?

And then, there's that saying about a self-fulfilling prophecy...

madcowdisease said:   saladdin said:   Taking mine the second eligible. Bad DNA. Will be a stretch to hit 70 in any condition to enjoy life.

You do realize that genes are not inevitability, right?

And then, there's that saying about a self-fulfilling prophecy...


All Grandparents dead before 62.
Mother with stroke at 55. Multiple strokes since.
Father with 2 forms of cancer by 62.
Brother with hemorroids.
Sister with multiple cancer scares by 45.

DNA matters.



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