Understanding Social Security: Three dates to remember.
Social Security is a complicated and dynamic system. There are a great many rules, all subject to legislative change, and there is no certainty that the system will continue to pay out at current levels indefinitely. How are you to decide when to take your benefits? We believe it’s important to make sound decisions within the current system. There are some simple principles to keep in mind when developing a social security benefit strategy, and they depend on three numbers:
Age 62: The earliest age at which you may collect benefits. If you collect at this age, your benefit is reduced by 25% from the full benefit you would receive at Full Retirement Age.
Full Retirement Age, FRA: Age 66 for most current retirees (see below). If you collect at FRA, you receive your full benefit, or “Primary Insurance Amount,” based on your highest-earning 35 years.
Age 70: The latest age at which you might wish to delay receipt of benefits. If you wait until age 70 to receive benefits, the amount will be 32% higher than your full benefit at FRA.
The basic rule is that your benefit increases by about 8% for every year you delay receipt of benefits from age 62 to age 70. However, it’s important to note that Full Retirement Age, or FRA, is a turning point in the Social Security world, where many of the rules change. If you take benefits prior to FRA, it’s considered a reduced benefit (reduced as low as 25% at age 62); after FRA you accumulate “delayed retirement credits,” (up to 32% increase at age 70). The increase works out to approximately 8% per year over the entire range from 62 to 70, but there are other rule changes at FRA, so it’s important to know what that age is for you.
Figuring your Full Retirement Age: If you were born from 1943-54, your full retirement age is 66. If you were born from 1955-60, add two months for each year after 1954. For example, if you were born in 1957, your FRA is 66 years and 6 months. If you were born in 1960 or later, your FRA is 67. Note that the reduction for early receipt of benefits is more than 25% for those born after 1954, with up to a 30% reduction for those born after 1960.
What changes at FRA: If you are working while receiving benefits prior to FRA, you should know that your benefit will be reduced by $1 for every $2 you earn over a certain limit ($15,720 in 2015). In the year you reach FRA, the reduction is $1 for every $3 over a higher limit ($41,880 in 2015). After FRA, there is no reduction due to earnings. Note that earnings includes any wages, bonus and commissions but not pension, annuity, military or government retirement benefits, or investment income.
FRA and “File and suspend” strategies – Note rule changes beginning in 2016: One strategy which has worked for many married couples requires one spouse to “file and suspend,” so they do not receive a current benefit. This allows the other spouse to file an application restricted to spousal benefits only. They receive the spousal benefit, while each spouse can still allow their own primary benefit to grow. Both spouses must be at least full retirement age in order to execute this strategy. This claiming strategy will be phased out beginning in 2016. For details, see “Social Security: Important changes for 2016 and later years .”
The Social Security Administration sends annual statements with your expected benefit amount at age 62, at Full Retirement Age, and at 70. You can get a current statement by going to their website, www.ssa.gov. Once you have the numbers, call us to discuss with us how we can help you optimize your social security strategy over your lifetime.
If you need some help understanding the options in your particular situation, please don’t hesitate to call us at 408-551-6100 or toll free 800-927-8314 and ask to speak with one of our financial advisors or send us an email through the contact section of our website.
Retirement Capital Strategies
A Registered Investment Advisor
1190 Saratoga Ave, Ste. 140
San Jose, CA 95129
Tel (408) 551-6100
Source: This article was written by Margaret (Peggy) Stephan, CFP® – LPL Registered Representative at Retirement Capital Strategies.