Social Security was created in 1935 to help Americans supplement their retirement income. The idea of Social Security is universal for Americans, but it is a complex system and can often cause confusion.
Full retirement age is the age at which you can begin to collect full Social Security retirement benefits without any reductions. You can collect Social Security while you are still working. If you are at or above full retirement age, working will not reduce your Social Security benefit. If you are under your full retirement age, $1 of your benefit is reduced for every $2 of earned income you earn above $15,720 in 2015. In the year in which you reach full retirement age, from January 1st until the last day of the month prior to the month of your birthday, $1 of your benefit is reduced for every $3 you earn above or test level of $41,880 in 2015. This age is determined based on the year you were born.
Year of Birth Year Age 62 Full Retirement Age
1937 or earlier 1999 or earlier 65
1938 2000 65 and 2 months
1939 2001 65 and 4 months
1940 2002 65 and 6 months
1941 2003 65 and 8 months
1942 2004 65 and 10 months
1943-54 2005-16 66
1955 2017 66 and 2 months
1956 2018 66 and 4 months
1957 2019 66 and 6 months
1958 2020 66 and 8 months
1959 2021 66 and 10 months
1960 or later 2022 or later 67
You can collect a reduced Social Security amount at age 62. If you do elect to collect benefits at age 62, the benefit will be permanently reduced. The amount of the reduction depends on the age when you begin receiving benefits versus your full retirement age. The amount you receive, when you first take benefits sets the base amount you will receive for the rest of your life. You may receive an annual cost of living adjustment. Depending on your work history, you may receive higher benefits if you continued to work past your full retirement age up to age 70.
The reduction of the retirement benefit is based on your earned income (i.e. wages, self-employment income, etc.) – it does not include your spouse’s earned income. If your spouse is under full retirement age and working, any benefits he or she is receiving will be reduced.
If you delay taking Social Security from your full retirement age until age 70, for every year you delay, your benefit will increase by 8%. After age 70, the 8% does not continue. As a result, there is no benefit to delaying taking benefits after age 70.
When your spouse applies for Social Security benefits, he or she will be eligible for the higher of two different amounts. They would be eligible for the higher of their own benefits or up to 50% of your benefit, assuming you have applied for Social Security benefits. If your spouse is under full retirement age and their Social Security benefit, based on their own work history, is more than the spousal benefit, your spouse will not be eligible for a spousal benefit. For your spouse to be eligible for Social Security spousal benefits, you must have applied for Social Security benefits and your spouse must be at least 62. If your spouse begins to collect spousal benefits before he or she reached full retirement age, he or she will only be eligible for a reduced spousal benefit depending on their age.
Upon your death, your spouse receives your benefit if it is higher then what your surviving spouse would be entitled to.
If you are divorced, you may be eligible to collect Social Security based on your ex-spouse’s Social Security amount. In order to collect benefits from a divorced spouse you and your ex-spouse must both be over the age of 62, your marriage must have lasted 10 years or more and you must have not remarried.
If your divorced spouse has passed away, you may be eligible to collect survivor benefits or a widow/widower if you are over 60 years old, the marriage lasted more than 10 years, and you are not remarried. You may also be eligible to collect survivor benefits if you are over the age of 60, the previous marriage lasted 10 years or more and you have remarried but after the age of 60. If you remarried before the age of 60 but that marriage has now ended, you may collect survivor benefits from a deceased ex-spouse.
You only have until May 1, 2016, to take advantage of this strategy! For a married couple who decided to delay collecting Social Security to after eligibility for full benefits, the strategy known as “file and suspend” is very beneficial. Here is how it works. A person files for Social Security retirement benefits at full retirement age but then suspends payment of them. Under current law, a spouse cannot claim a spousal benefit unless the main beneficiary claims benefits first. By filing for benefits, that person’s spouse is eligible for retirement benefits at the time of the filing. By suspending the benefits, the person can still earn delayed retirement credits that increase the future retirement benefit of 8% per year until age 70. Major point – you must be age 66 or older before May 1, 2016. Workers and spouses who are currently using this strategy are grandfathered in under the new legislation and will not be affected.
There are other benefits that apply to Social Security that I have not discussed. Examples of those are spousal and survivor benefits, and dependent disability benefits.
I have given you a basic understanding of Social Security. By understanding the details of Social Security retirement benefits, you can make a uniformed decision for your future. Call a partner of our firm to help you through the Social Security maze.