Strategies for Maximizing Social Security Benefits

Question 1

Original Intent of the Social Security System

Answer 1

(1) Created in 1935 to protect families from poverty after a worker’s retirement. (2) It was established as a social insurance program, where benefits are earned by contributing to the system through FICA payroll taxes.

Question 2

FICA Tax

Answer 2

(1) Total FICA tax is 15.3%, (2) The employer and employee each pay 6.2% for old-age, survivors, and disability insurance, and 2.9% for hospital insurance.

Question 3

Social Security Wage Base in 2015

Answer 3

$188,500

Question 4

Social Security Retirement Benefits Qualification

Answer 4

(1) Must be aged 62 or older and earned at least 40 Social Security credits over your working lifetime. (2) If you become disabled before 62, you can qualify for benefits with fewer than 40 credits. (3) You can earn 4 credits per year to qualify for Social Security. (4) In 2015, you must earn at least $1,220 to earn one credit, or $4,880 for 4 credits.

Question 5

Fully insured

Answer 5

(1) Fully insured status is determined by having 10 years of Social Security, expressed as “40 quarters of coverage.” (2) Retirement , Disability, and Survivor benefits are available for fully insured. (3) Benefits for Widowers aged 60 years or older, and benefits for a dependent parent, are only payable if the worker is fully insured at death.

Question 6

Currently insured

Answer 6

(1) The individual must have at least 6 quarters of coverage in the 13-quarters preceding the event for which eligibility is sought. (2) Child benefits, mother or father’s benefits, and the lump sum death benefit are available if a worker is only currently insured at death.

Question 7

Social Security Benefit Calculation

Answer 7

(1) Start with earnings record, (2) Then, apply inflation adjustment to bring all years earnings to today’s dollars. (3) Determine lifetime average earnings by taking the highest 35 years of wages, and dividing by 420 months. (4) Social Security then applies a formula to your lifetime average earnings to determine your primary insurance amount.

Question 8

Benefits available to workers who start collecting at FRA

Answer 8

By starting to collect at FRA, you will receive 100% of your primary insurance amount. (PIA)

Question 9

Benefits available to workers who start collecting retirement before they reach FRA

Answer 9

(1) Permanently reduced benefit, (2) Payment reduces 5/9 of 1% for each month filed before FRA, up to 36 months., (3) Payment is reduced 5/12 of 1% for each month filed early in excess of 36 months.

Question 10

Benefits available to workers who start collecting benefits after they reach their FRA

Answer 10

(1) Delaying receipt of benefits until FRA, will result in a payment of benefits in excess of what otherwise would have been received. (2) For those just reaching FRA, the increase results in an 8% increase for each year of delayed filing, up to 70. (3) Referred to as a delayed retirement credit

Question 11

Factors to consider when deciding whether to file for Social Security Benefit

Answer 11

(1) Current resources, (2) Life expectancy, (3) and Breakeven age, whether you are still employed. (earnings test reduction.)

Question 12

Breakeven age

Answer 12

Breakeven age is the age in which the total value of the higher benefits you receive from delaying benefits, starts to exceed the total value of the lower benefits you will receive if you start early.

Question 13

Social Security Earned Income Restriction

Answer 13

(1) In 2015, if you are under your FRA and working, you will lose $1 for every $2 earned above $15,720 (indexed) (2) In the year in which you reach your FRA, this reduction is reduced to $1 for every $3 earned above $41,880.
(3) Once you’ve obtained FRA, you may continue to work and earn money without it impacting your Social Security.

Question 14

Provisional Income

Answer 14

(1) Provisional income is calculated as your total income (essentially your AGI), plus (2) any tax-exempt income and excluded foreign income, plus (3) One-half of Social Security Benefits. (4) As much as 85% of your SS benefits may be subject to taxation should your provision income exceed certain limits.

Question 15

Provisional Income Thresholds

Answer 15

(1) Up to 85% of SS benefits subject to Federal Income Tax. (2) If PI PI > $34,000 ($32k & 44k married) up to 50% may be taxable, (4) If PI > $34,000 ($44k married) up to 85% of your benefits may be taxable.

Question 16

COLA

Answer 16

(1) Retirement, Survivors, and disability related benefits receive a cost of living increasing in December (reflected on their January check)

Question 17

Social Security Maximization Strategies

Answer 17

(1) Delay Receipt, (2) File and Suspend, (3) Restricted Application

Question 18

Delaying Receipt

Answer 18

(1) Delaying Social Security benefits as long as possible will lead to a larger total lifetime benefit for those who live an average or longer life expectancy (78-80) (2) The decision comes down to life expectancy and the financial wherewithal to forgo social security income.

Question 19

File and Suspend for Individuals

Answer 19

(1) File and suspend for singles creates a contingency fund, and individuals can retroactively collect suspended benefits. (2) Essentially it’s like an insurance policy that accumulates value, which you can use in case of emergency. (3) For spousal and survivor’s, this strategy only works until full retirement age.

Question 20

File and Suspend for Spouses

Answer 20

(1) The higher earner files and suspends. (2) Filing unlocks the spousal benefits. (3) The higher earner can then wait until 70 to start earning money.

Question 21

Restricted Application for Spouses

Answer 21

(1)The higher earning spouse files a restricted application for spousal benefits at FRA based on the lower income earner’s record. (2) The lower earner would need to file to trigger the spousal benefit. (3) The higher earner can then file for their benefit at 70. (4) The lower income earner can then file for spousal benefits if higher than her own.

Question 22

Windfall Elimination Provision

Answer 22

(1) Any pension received from a noncovered position may reduce social security benefits. (2) For 2015, the maximum reduction is $413, or 1/2 of pension benefit, whichever less. (3) WEP impact reduced each year over 20 and phased out over 30.

Question 23

Government Offset for spouses

Answer 23

(1) The GPO applies when an individual files for pension based on their own non-SS employment and a spousal benefit based on their spouses SS covered employment. (2) The GOP provision reduced the spousal or survivor benefit by 2/3 the amount.

Question 24

Ex-Spouse Benefits

Answer 24

(1) If you were married 10+ years, are currently unmarried, and are 62 or older, you will qualify for benefits based on your ex spouse. (2) The divorced spouse’s benefit is equal to 1/2 of the worker’s PIA, but reduced if taken prior to FRA. (3) benefit will end if you remarry, die, or become entitled to retirement or disability benefits that meet or exceed 1/2 of the worker’s PIA.

Question 25

Spousal benefits when filing at different ages

Answer 25

(1) Say the first spouse received benefits before FRA, (2) but the spousal benefits on that amount is filed at FRA, the spouse will receive benefits equal to half of the PIA of the 1st spouses FRA benefit.

Question 26

Working before FRA, but receiving SS

Answer 26

(1) Your income will reduce your benefit up to .50 for every dollar earned (or $1 for every $2), but (2) the loss of benefits are credited back to you at FRA.

Question 27

Survivor benefits

Answer 27

(1) Survivors can collect benefits on their deceased spouse’s work history at 60, even without children. (2) With qualifying children, they can receive before 60. (3) The amount you receives varies depending on when you file. (4) Survivor benefits to spouse’s caring for a child under 16 or disabled.

Question 28

Remarriage

Answer 28

(1) If you remarry before 60, spousal benefits terminated. (2) If you are over 60, your marriage will not affect your widower’s benefit. (3) Once you are 62, you can get benefits on your new spouse’s record if they are higher.

Question 29

Spousal benefit maximum

Answer 29

50% of the higher earner’s primary insurance amount, and not primary earner’s benefit.

Question 30

Family Maximum

Answer 30

Typically 150% to 180% of the worker’s benefit

Question 31

FRA

Answer 31

(1) Born before 1943 (so max 1942) then 65, (2) before between 1943 and 1959 then 66, (3) Born after 1959 (so 1960) then 67

Question 32

Combination strategy

Answer 32

(1)Must both be FRA, the higher earner files and suspends, and the lower earner files a restricted application.

Question 33

Income of the elderly

Answer 33

On average, Social Security represents 38% of the income of the elderly.