Get more income from Social Security
Many people do not treat Social Security like the important retirement asset that it is.
Social Security is one of the few retirement assets that have a cost-of-living adjustment. This is very important when you consider that you may live 30 years in retirement. There is an ad running on television in which people are asked to put a circle on a chart of the oldest person's age they ever knew. Today, there are more than 60,000 people over the age of 100 in this country.
Half of all people elect to start Social Security when they turn 62 instead of waiting to full retirement age, which is 66 for most Baby Boomers. They give up 25 percent of their monthly income when they do this.
Once each month, we will look at special ways to get more income from Social Security.
People who elect to start SS before full retirement age (FRA) are subject to an earnings test. Only earned income, not investment income counts in this test. Earned income is generally what you receive when SS taxes are deducted from your check. After you reach FRA, you can have any amount of earned income and not be penalized. The penalty before full retirement age is you lose one dollar for every two over the amount of about $14,400. If you wait to start SS once you turn 70, your benefit will increase 8 percent each year. There is no reason to wait after age 70 since your benefit will not continue to increase.
Besides the cost of living increases, Social Security provides important spousal and survivor benefits. A spouse with no work record of his or her own can receive benefits from their spouse. Even divorced people can do this as long as they were married at least 10 years and did not re-marry before age 60. If a spouse has reached full retirement age, he or she can usually get half of their spouse's benefit if it is higher than theirs. If they begin income at an early age, there is usually a reduction in benefits. Delaying your benefits past full retirement age will not increase spousal benefits, but it will increase survivor benefits. So the spouse could very well benefit in this area which often accompanies a reduction in other income.
If you have already started receiving Social Security and you wish to change your mind, there are two options. Within the first 12 months, you can withdrawal your application for benefits. You have to repay what you have already received. You can then file again later for higher benefits. The other start-over option is to wait until you reach your full retirement age and then suspend benefits so that they go up 8 percent per year. At that time, you would restart them. You may do this to boost overall payout. You need to have good income planning and be working with a professional to help you maximize income. The Social Security Office does not provide this service.
Sometimes, people have an unplanned early retirement. If this is because of health reasons, you may be able to increase your benefits. Someone who has physical or cognitive impairments that prevent them from working may be able to qualify for SS disability benefits. Disabilities are based on average lifetime earnings. Someone approaching retirement may be equal to or higher than benefits at full retirement age. If you are age 62 and disabled, you may want to file for early benefits and regular SS at the same time. If the disability is granted, you will convert to regular SS at full retirement age and you will not lose anything for early withdrawals. You may also qualify for Medicare early. A spouse may qualify for benefits when you are receiving disability income if he or she is 62 or older or caring for your child under 16 or is disabled.
Work with a professional to try and maximize your SS benefits. As part of a comprehensive financial plan, Social Security is an important element in retirement security.
Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.