For a large number of people, Social Security benefits make up a large chunk of their retirement income. It’s important to understand all the benefits you, your spouse and children are entitled to. The following facts should be taken into serious consideration as a part of your retirement plan.
Creating a strategy to help maximize Social Security should be part of everyone’s retirement plan. If you would like to discuss how these facts can relate to your specific situation please schedule an appointment with one of our advisors or . . .
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1. Your spouse may be entitled to benefits even if they have not retired.
If you file for Social Security benefits (retirement or disability) your spouse may also be eligible to receive payments. Note that we said if you file for, rather than if you are receiving, as this can be a great planning strategy for you and your spouse: We’ll dive deeper into different Social Security strategies with a dedicated series of blog posts in the near future. For now, you really only need to know that under the following circumstances your spouse can also receive benefits even if they have not yet retired:
If you have filed for Social Security benefits and . . .
- Your spouse is age 62 or older.
- Or your spouse is any age and caring for your child that is younger than 16 (or disabled) and entitled to Social Security benefits on your work history.
2. Your children may be able to receive Social Security benefits.
Do you have a child under the age of 18?
If so, they are eligible for their own benefits, as long as they are unmarried and assuming you’ve filed for your own benefits.
Are any of your children over the age of 18 and still a full-time student in an elementary or secondary school?
Well, if you’ve filed then they are eligible to receive their own benefits until they reach 19 years old.
Do you have any severely disabled children?
If your child became disabled before the age of 22 they are entitled to receive benefits of their own (even after the age of 18).
3. Your Social Security benefits may be taxable.
According to the Social Security Administration approximately 40% of Social Security benefit recipients must pay taxes on their benefits. You might be wondering “How do I know if my Social Security benefits are taxable?” We will get into the whole calculation in a future post—How to Calculate the Taxability of your Social Security Benefits—but to keep it simple we will focus on the limits that determine whether or not you must pay taxes on your benefits. Your specific limit is in terms of your Total Income and depends on how you file your federal tax return.
The total income limits for 2014 are:
- $25,000 for an Individual
- $32,000 for a Married couple Filing Jointly
Unfortunately, if your total income is greater than the above limit you will have to pay taxes on your Social Security benefits, however, you will never pay federal income tax on more than 85 percent of the benefits you receive. If you look at it from a different angle, you will always receive at least 15% of your Social Security benefits free of tax.
Use the following formula to calculate your Total Income:
Adjusted Gross Income (AGI) + Non-Taxable Interest + 50% of Social Security benefits = Total Income
4. Social Security Benefits are calculated using your highest 35 years of earnings.
For anyone who has ever been told your Social Security Benefits are based off your highest ten-years, or last five-years, or any other number-of-years of earnings, don’t be fooled! Your benefit payment is calculated using your highest 35 years of earnings, adjusted for inflation. What if I haven’t worked for 35 years, you ask? The Social Security Administration (SSA) will use $0 in it’s calculation for any number of years you worked less than 35. That means if you worked for just 25 years, the SSA will input ten-years of $0 in earnings into it’s calculation; If you worked for 30 years then they will use just 5 years of $0 in earnings; and if you worked 34 years then only one year will be represented by $0 in earnings. The easiest way to increase your Social Security benefit if you haven’t worked for 35 years is to continue working. This is because for any additional year you work you will be replacing a $0—in the SSA’s calculation—with that years earnings.
5. Waiting to collect can increase your Social Security Benefit by up to 8%.
If you were born in 1943 or later, and you have reached your full retirement age, your benefit will increase by 8% each year you wait to collect. Depending on your Full Retirement Age, your benefit can equal up to 132% of your Full Retirement Age benefit.
Take for example an individual with a full retirement age of 66 and an estimated monthly benefit of $2,000: If they wait to collect until age 70 then they will increase their benefit by $640 a month. That is a total of $7,680 per year!
If you’re interested in learning more about Social Security benefit strategies or want to discuss how we can Maximize your Social Security benefits schedule an appointment or use the form below to have one of our advisors get in touch with you.