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Saturday, July 25, 2015

Social Security Income

Written by  Woody Derricks, CFP®

When considering Social Security income (SSI), most people think it best to take the income as soon as they are able. In most cases, this would be starting their income at age 62. While this strategy works for some, there are some other options to consider.

You can begin receiving individual Social Security benefits anytime between ages 62 and 70. Your benefit amount will differ, however, based on your full-retirement age. This is based on your year of birth and ranges from age 66 for those born in 1948 to age 67 for those born in 1960 or later.

The maximum benefit depends on the age you retire. According to the Social Security Administration’s website (Ssa.gov), if you retire at full-retirement age in 2015, your maximum benefit would be $31,956 per year. However, if you retire at age 62 in 2015, your maximum benefit would be $24,300. If you retire at age 70 in 2015, your maximum benefit would be $42,012.

Taking SSI at 62 – If you are eligible for Social Security retirement benefits, you might be able to take income at the earliest age of 62. This will, however, permanently reduce the amount of income you could receive. Those who have family history of shorter life spans and those who need the money as soon as possible may want to elect this option.

Starting your benefits early means any time between age 62 and your full-retirement age. The early retirement reduction at age 62 ranges from 20% to 30% and is based on your birth year. For example, let’s say you were born in 1950, qualify for a monthly benefit of $1,000 at age 66 (your full-retirement age), and chose to begin receiving benefits at age 62. You would receive only $750, due to a 25% reduction.

Be careful. If you choose to work while receiving Social Security benefits before your normal retirement age, your benefits could be reduced $1 for every $2 you earn over the annual limit ($15,720 in 2015). In the year you reach full-retirement age, the benefit is reduced $1 for every $3 you earn over a higher limit ($41,880 in 2015). However, after you reach full-retirement age, the benefits will continue in full regardless of how much income you earn. Those SSI benefits, however, may be taxable to you based on your total level of income.

Waiting to normal retirement age or later – Depending on your birth year, your normal retirement age will likely be between 66 and 67. The longer you wait, the greater the increase you will see in your SSI. Someone born in 1943 or later will see his/her benefit increased by 8% for each full year benefits are delayed after reaching full-retirement age. That increase will continue until you reach age 70.

For those who have family history of longer life spans and those who are more financially sound, waiting to your normal retirement age or until age 70 may make the most sense.

File and Suspend – There’s another option called file and suspend. With this strategy, you would wait until full-retirement age and notify the Social Security Administration that you would like to delay receiving your benefit. Doing so provides you with a few options:

• Start receiving your benefits at a later date at the amount payable based on your age and credited earnings.

• You may elect to receive a payment at a later date of all income that you would have received at your full-retirement age. For example, if you were due $35,000 per year based on your full-retirement age, but opted to file and suspend your benefits, you could opt for a payment of $105,000 in three years plus you’d be able to start your SSI at the full-retirement level of $35,000 per year. This would be helpful if you had an unexpected need for those past payments.

• By filing and suspending your benefit, your spouse can begin receiving spousal benefits assuming s/he is age 62 or older. Those benefits are normally about half of your full-retirement benefits and are paid at a reduced level between your spouse’s age 62 and his/her full-retirement age. This allows you and your spouse to begin receiving some SSI while you defer your payments, allowing them to grow.

Doing nothing at your full-retirement age only delays receipt of your SSI benefit; it doesn’t not provide you with the same options as the file and suspend option described above.

Marriage – For those contemplating marriage, you should know that there are a few benefits available within Social Security for married couples. First, as described above, a spouse may receive up to 50% of the SSI of his/her spouse. That works great when there is a five-year age difference between spouses as one can elect to receive the spousal benefit at age 62 and upon reaching full-retirement age switch to their own full benefit.

Second, there is a survivorship benefit that pays a portion of the deceased spouse’s benefit to the survivor for the balance is his/her life. The survivor normally needs to be age 62 or older to begin receiving the survivorship benefit. Third, Social Security may provide a spousal benefit in the event of a divorce.

Woody Derricks, CFP®

Woody Derricks, CFP®

This article is for informational purposes only and is not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation. Securities offered through LPL Financial, Member FINRA/SIPC.

Website: partnershipwealthmanagement.com
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