Maximizing your Social Security Benefits
People are living much longer today and collecting social security longer than in previous generations. And in many cases, women outlive men. Those who are in their 60s can elect to receive their retirement benefits earlier or later. Each month, 10,000 Baby boomers are turning 65. For those who have diseases that are known to cause early death, electing early pay out on social security is likely a good choice. However, those who can wait longer can experience large increases in their benefits under their own work record, their spouse’s work record, or in some cases, both work records.
When to begin collecting?
When making the decision of when to collect, the choice can be weighed on these three elements: mortality; election and taxation. Despite the fact that Americans are generally living longer, about 74 percent of them are electing to receive social security early, at age 62 or 65. Those benefits may need to offer subsistence for up to 30 years or more. It could be a huge mistake to do this. Naturally, it depends on the remaining assets of the person making the choice.
Electing is the choice of when to begin collecting social security. There are many facts to consider such as what your Primary Insurance Amount or (PIA) is. This is based on a government calculation of earnings and years of work. To eligible for social security benefits, a worker must have at least 40 credits or 40 quarter years for which Social Security withholding was withheld. Retiring at Full Retirement Age (FRA) means retiring at a designated age defined by the government. It depends on when you were born. Those born before 1937, the age is 65; between 1938 and 1942, the age is 65 and two months; between 1943 and 1954, the age is 66; between 1955 and 1959, the age is 66 and two months; and for those born after 1960, FRA is 67.
Some rules about this election are:
- Early retirement reduces benefits for BOTH spouses
- A worker’s spouse’s benefits reach maximum amount at the worker’s FRA. Delayed retirement credits do not increase the worker’s social security benefits.
- Receiving benefits early causes “deeming” or the worker is deemed to have made all allowable elections as of that date.
- Deeming does not occur if the worker elects to receive benefits based on their own work record or after their FRA.
- Prior to FRA, the worker has an earnings test that may cause repayment of Social Security benefits.
- The Senior Right To Work Act of 2001 eliminates the earnings test at or after the FRA.
Because social security is a tax-preferred form of income, social security recipients blending their benefits with other income can make a big difference in net benefits with regards to taxes. When receipt of social security income is delayed, benefits are higher so when combined with a lowered form of other income, tax liability is reduced.
To learn more about structuring your assets in a guaranteed estate plan, contact our office today at 480-418-8448.