The amount of your Social Security retirement benefit is based on your year of birth, your age when your benefits begin, and the earnings on which you paid Social Security payroll taxes—not on the amount of taxes you paid. I will claim my social security benefit at 70 years old while my wife, Mrs. PFN, will claim at 68 years old. Here is how I deride our plan to claim social security benefits.
Background of Social Security Benefits
Retirement income from Social Security has the extra benefit of an automatic cost-of-living adjustment (COLA) that increases your payments annually to keep pace with inflation. You should apply for benefits about three months before you want them to begin. You may apply for your benefits to begin between the ages of 62 and 70 if you have at least 10 years of coverage. Benefits are permanently reduced if they begin before full retirement age. A retired worker’s spouse can apply for benefits at age 62 or later.
A surviving spouse of a worker or retired worker can apply at age 60 or later. Since both Mrs. PFN and I were born after 1960, our full retirement age is 67. At first we plan to use the file-and-suspend strategy to maximize our benefits: I will file and suspend my benefit at the age of 67 while my wife claim the spousal benefits. However, Congress passed the new law that close the file-and-suspend strategy. May 1, 2016 is when the laws grace period ends, eliminating people’s ability to file-and-suspend in order to trigger benefits for a spouse. So we have to come up with a new plan.
My Plan to Claim Social Security Benefits
In any case, I will start to claim Social Security at 70, instead of 62, to raises the monthly benefit by more than 75 percent. That way I can also save on income taxes by increasing your Social Security benefits that receive favorable tax treatment while spending down some of my taxable retirement savings. Of course, the disadvantage of waiting until age 70 is that I have a shorter life expectancy at that age and will collect fewer payments over your lifetime.
If you were born after 1942, the basic benefit increases by a delayed retirement credit of 8 percent for each year that you wait past full retirement age, up to age 70. Benefits to a spouse or surviving spouse are computed from the basic benefit earned by the worker married to that spouse, including any credit, for delayed retirement. So a married couple can both gain when one of them waits until 70 to build up a larger benefit. Each month you wait between 62 and 70 increases your monthly benefit. For those retiring now, waiting until age 70 to start taking Social Security can result in monthly checks that are 32% larger than you would get at age 66. The amount paid at age 62 to a worker or spouse born after 1959 is 30 percent less than the full benefit.
How to Qualify for Social Security
To qualify for Social Security on your own work history, you generally need to have accumulated at least 40 Social Security credits, which takes a minimum of 10 years of work. Every month I have to pay into OASDI. Social Security’s formal name is Old-Age, Survivors, and Disability Insurance (OASDI). That money will put into a pool with other workers so when we retire we can draw out of it. Yet there’s no work requirement to receive Social Security spousal benefits based on your spouse’s work history. Since Mrs. PFN is a stay-at-home mom, she will not have enough credits so she will have to rely on my work history to claim the spousal benefit. If Mrs. PFN applies for two benefits, for example, as a worker and a spouse, she get only the larger one. So even if Mrs. PFN later starts to earn enough credits she will still take the spousal benefit.
For spousal benefits, there are no delayed retirement credits available. Therefore, it doesn’t pay to wait until age 70 before taking spousal benefits. Once you reach full retirement age, which is currently age 67, there’s no reason to keep waiting. So go ahead and claim your spousal benefits rather than simply losing them.
Spousal benefits aren’t affected by when the primary worker takes benefits. Its amount is based on the full primary insurance amount for the worker, even if the worker didn’t take benefits exactly at full retirement age. Then, the spouse’s age gets taken into consideration, with early claiming spouses taking a haircut on their monthly benefit check in a similar way to a workers benefits.
Here is how to determine Social Security benefits
Compiling a history of your earnings for each year you worked under Social Security. Indexing each year’s earnings to make them reflect historical levels of average national wages. This generally raises the amounts of your prior years’ earnings to be used in the benefit calculation. Averaging the indexed earnings for the 35 highest years, which may include years with zero earnings. Applying a graded set of percentages to the average indexed earnings. The percentages decreases as your earnings go up, so that higher-paid workers get proportionately lower benefits as a percentage of their earnings.
For a worker’s spouse, the basis benefit is half of the worker’s benefit while both spouses are alive. For a surviving spouse, the basic benefit is equal to the deceased worker’s benefit. The basic benefit for a worker, spouse, or surviving spouse is reduced if it begins before the individual’s full retirement age.
Taken all together, Mrs. PFN will claim spousal benefit when she turns 68 years old when I will claim my Social Security benefit at 70 years old. So do you have your own strategy to claim Social Security benefit?