Planning for Social Security benefits
This week it is time for our monthly look at Social Security issues.
We are going to study this from the woman's perspective. When Social Security was first started in 1935, most women did not work outside of the home. Since they did not have work records on their own, the government created spousal benefits so a woman could take advantage of her husband's earnings record. Today, that trend is reversed with many families having two income earners. Since the laws have not changed, that leaves some planning options to receive more money from Social Security.
These options are often lost, however, if you take Social Security at age 62.
Spousal planning is still important today because studies show that women earn 77 cents for every dollar that a man does. Some of this is because of glass ceilings, some by the different types of jobs many women and men do and also because women sometimes take time out of the workforce to raise children or care for an elderly parent.
Half of all people elect to start taking Social Security at age 62. They look at only a break-even chart and think that they will not live long enough to make up deferred payments.
This could be a major mistake, especially for women. If both spouses are in good health, it is extremely likely that one of them will live longer than the break-even point. There is a strong likelihood that both of them will. Break-even analysis does not consider several things, including cost-of-living indexing.
Let's look at an example.
If a worker's PIA (primary insurance amount) is $2,000 and he waits until age 70 to collect, he receives $2,640 per month. PIA is the amount you will receive at full retirement age. This is 66 for Baby Boomers born before 1954 and it slowly goes up to age 67. This is especially important to a woman if her husband was the higher wage earner. This is because upon his death, she will no longer receive her own Social Security but will switch to his as a survivor benefit. Since other income such as a pension may be eliminated, this money could be very important.
We also know that many women marry older males and women live an average of three years longer. This is shown by the fact that women represent 57 percent of all Social Security recipients 62 and older, but 68 percent of those age 85 or older.
Now let's look at the cost-of-living adjustment. Our hypothetical recipient who had a PIA of $2,000 will be used. Your monthly income at age 85 will be $2,831 if you started receiving benefits at age 62 and there was a 2.8 percent cost-of-living increases. That is a reasonable projection. If this same person started benefits at age 70, his check would be for $4,982 per month. That is a major difference. The wife could possibly receive this as a survivor's benefit. It could be possible to get this and possibly an extra $40,000 with proper planning. These options are lost by taking benefits at age 62.
It is possible to get benefits based on a divorced spouse's work record if you were married for at least 10 years and you are either not re-married or did not re-marry until after you turn age 60. The ex-spouse cannot stop this and will not be notified of this action.
For Social Security purposes, a person must have 10 years of work earning to be fully insured. In calculating your PIA, they use your 35 highest earning years. This means that you will not hurt your earnings record if you continue to work extra years even part-time. You will either replace some of the 35 years that may have had zero earnings or they may be lower than enough other years and not hurt you. If someone has his or her own work record and applies for Social Security at age 62, that person will receive benefits from their own record first. They may get some spousal benefits added on. Most people expect to get half of their spouse's benefit in retirement. If you start at age 62, you could get only 35 percent. Remember, this affects future cost-of-living increases.
Social Security income is a valuable retirement asset.
No Boomer should start taking Social Security early because they think that the program will run out of money. While Washington needs to get its act together and strengthen Social Security for our children, no one under age 40 is not going to get his or her benefits.
Work with someone knowledgeable about the subject and your retirement will be more fulfilling.
Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Police seek details in pedestrian fatal crash
- Ringgold’s picture coming into focus
- Deteriorating Monessen building under renewed scrutiny
- Accounting career adds up for Fallowfield native
- Mon Valley Leathernecks tackle Toys for Tots drive
- Holiday movie gives Cal U students get 2 seconds of fame
- Recalling ‘White Friday’ storm that paralyzed Mid-Mon Valley in 1950
- Holiday spirit alive & well in Mon Valley
- Rostraver woman collecting blankets for homeless vets
- Small Business Saturday events grow
- Local homes tour will benefit Belle Vernon Area’s anti-drug program