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Reviewing your Social Security Benefits
Almost everyone will receive Social Security benefits during their lifetimes.
Social Security does more than provide a supplemental retirement income. Social Security acts as a safety net for millions of Americans through disability and survivor benefits.
According to the Social Security website, today, about 164 million people work and pay Social Security taxes and about 50 million people receive monthly Social Security benefits.
Beyond whether to file for Social Security benefits early, at normal retirement age or late, some other considerations include:
• Will my government pension
affect my Social Security benefits?
• How are Social Security benefits
calculated when you are married,
and what are spousal benefits?
• I have heard you can pay back your
Social Security payments and
increase your payment; is that true?
If you have questions on how to maximize Social Security benefits, contact us for a complimentary consultation.
Take Benefits Early or Late
Social Security calculations are based upon your lifetime earnings. After indexing for inflation and applying a calculation formula, retirees are given a Normal Retirement Age (NRA) benefit. If you elect to retire early at age 62, the original benefit is reduced based upon how many months before normal retirement age a participant is. The same is true when considering retiring at age 70. If benefits are deferred beyond the NRA, the monthly benefit is permanently increased for each month of deferral. Once a retiree elects Social Security benefits, the amount of the benefit does not increase beyond normal cost of living increases.
Additionally, for retirees who continue to work while collecting benefits, there are further rules affecting the collection of Social Security benefits. Income limits may actually reduce (and potentially eliminate) the payments a retiree collects from Social Security while earning income before they reach NRA. Once a retiree reaches NRA then Social Security benefits are not reduced by income, but may become taxable if the retiree has certain earned income levels.
Choosing when to take Social Security benefits is not an easy decision, and there are many other factors besides taxation to consider. Does longevity run in the family? At what age will you make back the payments you missed by deferring benefits and qualifying for a higher benefit?
Government Pension Offset (GPO) & Windfall Elimination Provision (WEP)
Individuals and their spouses may have a reduction or elimination of Social Security benefits if they are receiving a Government pension. The reason Congress enacted these laws was to try to reduce the advantage some Governmental employees had of not paying Social Security taxes. Below is the basic outline of how these special rules work.
Government Pension Offset
The GPO is designed to prevent a spouse who did not pay into Social Security from collecting spousal benefits when they are receiving a Government pension of their own. It offsets two thirds (2/3) of the Government pension against spousal Social Security benefits.
Windfall Elimination Provision
The WEP is designed to reduce Social Security benefits for workers who did not pay into Social Security enough years of significant earnings over their working career and are receiving a Government pension. This can reduce Social Security benefits by over 50%.
Spousal Benefits
Spousal benefits were designed with the traditional “Homemaker” in mind. Therefore, when someone is married to a Social Security participant, they qualify for one half (1/2) of their working spouse’s benefit. Sometimes special rules which apply to a covered worker also apply to spousal benefits received, other times they do not. Examples of special rules which may apply are the GPO and WEP. Spousal benefits also may apply to a former spouse depending on how long the marriage lasted and age.
Payback Social Security Benefits
A little known Social Security provision that allows for retirees to “do over” their Social Security if they repay all of their benefits. This could greatly increase a benefit payment by changing the beginning date to a much later age. In some cases raising the Social Security benefit payment over 75%.
This information is general in nature, and over-simplifies concepts for explanation purposes. Each person’s situation is different and Social Security rules can be confusing. For more information on your specific situation contact us or go to the Social Security website.
This firm is not a CPA firm.
Financial Life Advisors (FLA), a Registered Investment Adviser, and Jim Oliver & Associates, P.C. (JOA) are under common ownership and control. Team Oliver is used to describe collaborative services of both firms. Professional tax services are provided by JOA and investment advisory services are provided by FLA, each under separate agreements.
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