How much do you know about Social Security? You are not alone if you don’t have a full understanding of Social Security benefits. A recent Mass Mutual survey revealed that nearly 72 percent of those surveyed did not receive a passing grade. The findings also indicated that there are many misperceptions about Social Security benefits and a general lack of knowledge regarding Social Security eligibility.
Given this unfamiliarity with Social Security, retirees may suffer by not taking full advantage of their retirement benefits and missing opportunities to optimize their financial circumstances. Here are a few of the basics that you should know about the Social Security program.
Age matters
Your age when you collect Social Security has a big impact on the amount of money you eventually get from the program. While you can collect Social Security as soon as you turn 62, taking benefits before full retirement age results in a permanent reduction of as much as 25% of your benefit. Also, your full retirement age is no longer 65, but depends on the year you were born: between 1943 to1954, it’s 66; between 1955 to1959, it climbs over time to 67; and, for 1960 or later, the age is 67.
Delaying adds up
Waiting to start your retirement benefit until 70 can result in your benefit being 76 percent higher than starting at age 62. It can also be higher if you continue to earn money after age 62, due to the program’s Re-computation of Benefits provision. Delaying can also ensure that the lower-earning spouse will receive a higher benefit in the event that the higher earner dies first. Since you will forego benefits upfront, always consider your family history for life expectancy and other factors to determine if this strategy is right for you.
The advantage of marriage
Being married is a plus in terms of Social Security. One spouse has the option of taking a spousal benefit, worth up to 50% of the other spouse’s benefit. As an example, if your benefit is worth $2,200 but your spouse’s is $600, your spouse can switch to a spousal benefit of $1,100. If you claim before full retirement age, then you won’t get the full 50%. Plus, you must wait to request a spousal benefit until your spouse has applied.
File and suspend strategy
This strategy is sound and can make financial sense for some retirees. The high-earning spouse delays taking benefits until age 70 to maximize the monthly check, but the other spouse takes a spousal benefit because it is a higher benefit. To do this, the high earner, at full retirement age, files for benefits and then immediately suspends them. Since the high earner applied for benefits, the other spouse takes a spousal benefit based on the high earner’s record. The higher-earning spouse has suspended benefits, but will earn delayed retirement credits for each year until age 70.
Survivor benefits
If your spouse dies before you, you can take a survivor benefit. If you are at full retirement age, you receive the full benefit at 100% of what your spouse was receiving at the time of his or her death. A widow or widower can begin a survivor benefit at age 60, but the benefit will be reduced since it’s taken before the full retirement age.
To determine your Social Security strategy, consult with us to evaluate your income, life expectancy, and determine how Social Security fits into your overall financial plan.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Past performance is not indicative of future results. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.