While working with clients, I am often asked about social security benefits. To clarify the topic a bit, I've compiled the following list of my most frequently asked questions. This in-depth FAQ addresses common concerns about collecting social security retirement benefits, including the impact of part-time work and other earnings, 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:
|YEAR OF BIRTH||FULL RETIREMENT AGE (FRA)|
|1937 or earlier||65|
|1938||65 and 2 months|
|1939||65 and 4 months|
|1940||65 and 6 months|
|1941||65 and 8 months|
|1942||65 and 10 months|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Q: If I start receiving social security, do I automatically qualify for Medicare?
A. No. You are eligible for Medicare 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 that working during retirement reduced benefits. Is that not the case?
A: Although earned income over a threshold of $17,040 in 2018 (or $45,360 in the FRA year) can result in a reduction of benefits for retirees who are under their 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 a non-pay status). Also, because the earnings will be credited to the worker's history, they may result in an increased benefit at FRA.
Q: If both spouses are receiving social security retirement payments based on their own work record, do a spouse's earnings from work reduce the other spouse's benefits?
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 benefits and a spousal benefit, only the spousal portion is impacted by your spouse's excess earnings.
Q: What if I apply for social security benefits midyear?
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?
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: May 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, however, pay back all of the benefits you 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% 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 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 impact your 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 because of 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: May I apply for spousal benefits if my spouse hasn't 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 own work record, and when your spouse retires, qualify for a spousal benefit, if higher, at that time.
Q: Can a retiree choose which benefit to receive—his or her own benefit, or his or her spouse's?
A: If your spouse has already applied for retirement benefits, you cannot apply for a reduced spousal benefit at age 62 and then step up to an increased benefit based on your own record at FRA. There are, however, two limited exceptions. If you were born in 1953 or earlier and haven't received any benefits before reaching your FRA, you can apply for spousal benefits and delay applying for benefits under your own record up to age 70. This will allow you to take advantage of the delayed retirement credit, which increases your benefit by a certain percentage if you delay your retirement beyond your FRA.
Another exception applies if you claim benefits before your spouse does. In that case, you can start to receive benefits based on your work and elect to add a spousal benefit when eligible. Remember that your combined benefit will be reduced based on your age at application.
Example: Jane qualifies for her own benefit at age 62, when her PIA is $800. Because she is 48 months under her FRA, her benefit is reduced to $640. Two years later, when her husband Jack retires, Jane qualifies for a spousal benefit of $900 at her FRA, based on Jack's PIA of $1,800. She has the option to wait to apply for a spousal benefit at her FRA, but she decides to apply for her increased benefit at age 64. The SSA will first subtract her PIA from one-half of Jack's PIA ($900-$800). It will then reduce her spousal benefit of $100 to $91 based on her current age of 64. Her new combined benefit is $731 ($640 + $91).
Q: How can a couple maximize their social security benefits?
A: If current cash flow is not an issue, the spouse with the lower earning history could apply for benefits as early as possible, while the higher-earning spouse would delay benefits as long as possible.
Example: Let's say Sally and Jim are age 62 and 65, respectively. Sally retires at age 62 and applies for reduced social security benefits. Her husband Jim also retires, but does not apply for benefits. He will continue to accrue delayed retirement credits on his record—equivalent to an 8% increase per year—until age 70, when he applies for his own maximized worker benefit.
Q: How does divorce impact benefits?
A: A divorced spouse can get benefits based on a former spouse's social security record, provided that the marriage lasted for at least 10 years, and the divorced spouse is 62 years old or older and unmarried. You do not have to wait until your former spouse retires to receive benefits, and you can receive benefits even if your former spouse remarries.
Q: What happens when my spouse, or divorced spouse, dies?
A: You can receive widow or widower benefits at age 60 (age 50 if you have a disability). You will get a survivor's benefit equal to 100% of your spouse's benefits. You will not, however, receive both your spouse's and your own benefits. The amount you receive will depend on your age at application for widow(er) benefits, and whether your deceased spouse was receiving reduced benefits.
Please note: A widow or widower has the option of taking a survivor benefit now, and then switching to an unreduced benefit based on his or her own work record any time after FRA, or vice versa.
Q: What happens if I remarry?
A: If you are a widow(er) or divorced widow(er) and you remarry before age 60 (age 50 if you have a disability), you are not eligible for your deceased spouse's benefits. You can, however, apply for spousal benefits under your new spouse. If you remarry after age 60 (age 50 if you have a disability), you can choose between your deceased spouse's survivor benefits, or your new spouse's spousal benefits.
Q: What is the windfall elimination provision?
A: This relates to a job, such as a public school teacher or government worker, where no contributions were made to social security because a public pension was available. If you also worked at jobs covered by social security, your social security benefits may be reduced by an amount equal to 50% of your public pension. There is a maximum monthly adjustment that is indexed annually.
Please note: This provision will not reduce your survivor's social security benefits. This benefit may be reduced under the government pension offset rule.
Q: What does government pension offset mean?
A: This term relates to a job during which one spouse did not contribute to social security—usually because he or she was employed in a federal, state, or local government job. If you receive a public pension, you may also be eligible to receive spousal or widow(er) benefits from your spouse who worked in a private industry. Your spousal or survivor benefits may be reduced by an amount equal to two-thirds of your public pension.
Q: How reliable is the estimate on my social security statement?
A: The social security statement assumes that you will continue to work at the same level of earnings until retirement. If you stop working but decide to delay benefits, your benefits may be less. Use the Retirement Estimator on the SSA website to see how not working could impact your monthly benefit.
I hope these FAQs helped to answer any questions you may have about social security retirement benefits. As a guest blogger, I'm unable to respond to comments posted below, but if you have any questions please feel free to contact me directly and I will be happy to help!
*Kristen Zavaski is a guest blogger, representing Axial Financial Group in Burlington, MA. She offers securities as a Registered Representative of Commonwealth Financial Network, Member FINRA/SIPC. CRR, LLP (also represented as CRR, CRR CPA), Axial Financial Group, and Commonwealth Financial Network are separate and unrelated entities. Kristen can be reached at 781-273-1400 or firstname.lastname@example.org.
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 that you consult a tax preparer, professional tax advisor, or lawyer.