Social Security benefits are always a hot topic, even though there haven’t been many changes since 2015, when congress eliminated the file-and-suspend and restricted application claiming strategies. Nevertheless, here is an updated version of Frequently Asked Questions about Social Security benefits from our book: A Good Financial Advisor Will Tell You…
1) Can I collect benefits even if I continue working?
You can earn as much as you want without affecting your Social Security benefits once you reach your full retirement age. However, between age 62 and the year you reach your full retirement age, you can only earn up to the “Earnings Threshold,” which is currently $18,240 (as of 2020). The threshold jumps to $48,600 for the partial year just before you reach your full retirement age. For every $2 you earn above the threshold, your benefits will be reduced by $1. Keep in mind that these thresholds only refer to “earned income”, which does not include investment income, pensions, rental income or any other type of income that is not derived from current work.
Also, there is no need to despair. If Social Security withholds some of your benefits because you continue to work, it will pay you a higher monthly benefit amount when you reach your full retirement age. In other words, if you would like to work and earn more than the exempt amount, you should know that it will not, on average, reduce the total value of your lifetime benefits. In fact, working after you begin collecting Social Security may actually increase your lifetime benefits.
2) How much will my payments be reduced for claiming retirement benefits early?
Your benefits will be reduced by approximately 0.555% for each of of the 36 months you collect prior to your full retirement age. Benefits are reduced by .416% for months that are more than 36 months before your full retirement age. If your monthly benefit would be $1,000 a month at your full retirement age of 66, you will collect only $750 per month if you claim benefits at age 62 (a 25% reduction).
3) Are spousal benefits also reduced by the same amount for claiming early?
No. Claiming your own Social Security benefit at age 62 reduces your monthly benefit by 25%. However, claiming spousal benefits (at age 62) results in a 30% reduction. This equates to approximately .625% for each month prior to your full retirement age. However the reduction is not even. There is a .694% reduction for each of the 36 months prior to your full retirement age, and a .416% reduction for months that are more than 36 months before your full retirement age.
4) How much are benefits increased if I delay retirement benefits to age 70?
You accrue “Delayed Retirement Credits,” which increase your social security benefits at a rate of 2/3rds of 1% for every month (8% per year, simple interest, not compounded) you wait beyond your full retirement age.
5) If I get married, am I immediately entitled to spousal benefits?
You have to be married for one year before you are entitled to spousal benefits.
6) What if my spouse died prior to collecting benefits?
You have to have been married for nine months in order to collect spousal survivor benefits, and you have to wait until you are at least 60 years old to begin collecting (unless accidental death). There are also family benefits that are available if a parent dies while his or her kids are under 18 years of age and spouses are also eligible for family benefits prior to age 60 if they are taking care of a child under the age of 16.
7) What happens to spousal benefits in the case of divorce?
You can claim benefits on your prior spouse’s record if you were married for 10 years and are not currently remarried. It is not uncommon for two or more people to be claiming spousal benefits on one person’s work record.
8) Can I pay back the benefits I collected between ages 62-70 and then get a higher payment as if I had never collected?
No. You used to be able to do so. Lots of financial advisors talked about this possibility, but few people actually did it. In any case, this option was eliminated in 2010.
9) Are the ages at which you qualify for Social Security benefits the same for widows and divorcees?
Widows (or surviving divorced spouses) can claim survivor benefits at age 60. Divorcees can qualify for benefits at age 62 even if the ex-spouse (age 62 or older) has not filed yet for benefits. Note: you have to have been divorced for at least two years prior to filing for spousal benefits on an ex-spouse’s record.
10) What is the Full Retirement Age for people born after 1954?
Year of Birth – Full Retirement Age
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 & later 67
If you want to really get into the weeds, check out IRS publication 915 for more detailed technical information on Social Security benefits.