Collecting Social Security Benefits: What You Should Know
If you are one of the 8,000 per day retiring baby boomers, there are some things you should know
about collecting Social Security Benefits.
There are choices.
Studies have shown that the majority of workers elect to start their benefits at the earliest
possible age (age 62), rather than waiting until Full Retirement Age (FRA). That age is 66, if you
were born between 1943 and 1954.
Before you make your decision, consider your options:
Benefit Reduction:
Your retirement benefits are calculated using your "Primary Insurance Amount" (PIA). This amount
is based on your earnings and payments of Social Security taxes throughout your working years. To view
your personal Social Security Estimate of benefits, visit www.SSA.gov/mystatement.
The maximum individual benefit at Full Retirement Age is $2,513 per month for 2012.
Your Primary Insurance Amount is only a projection of your retirement benefit. If you choose to
begin collecting at age 62, there is a 25% reduction in the benefit.
For example: Suppose your accumulated earnings projection shows a $2,000 per month benefit
and you begin collecting at age 62. You will receive $1,500 per month because of the 25% reduction.
If you wait until age 66, however, you will receive the full $2,000 per month. You will also receive cost-ofliving increases on the entire amount for the balance of your life. The difference could be substantial,
especially if you think you will live a long life.
Earnings Limit:
If you choose to collect benefits at age 62 but are still working, you are subject to an earnings
limit. At the time of this writing the limit is $14,640/year. If you earn more than that you may be required
to pay back some of your benefits. For every $2 earned over the limit, retirement benefits are reduced by
$1.
The earnings limit does not apply if you wait until your Full Retirement Age to take the benefits.
Deferred Retirement Credits Become Available at Age 70
If you choose to wait until age 70 to collect, you will be entitled to an additional 8% each year until
age 70.
Let’s look again at the previous example. By waiting an additional 4 years to age 70, the monthly
benefit would increase to $2,640. Also, cost-of-living adjustments will be based on this new amount for
the balance of your life.
Of course, collecting at 62 may make sense in certain cases. You may need the money for daily living
expenses, you may be concerned that Social Security may not be around in the future, or perhaps there
are medical reasons to collect at age 62.
We recommend doing an analysis prior to making a decision.
Married? There are more considerations.
Married couples may elect to choose a spousal benefit. The spousal benefit option says that when
one spouse is eligible to receive benefits, the other spouse is eligible to receive a benefit that equals 50%
of that amount.
Example 1: Mr. Smith, age 66, is eligible for $2,000 and Mrs. Smith, age 66, is eligible for $900 per
month. By electing the spousal benefit, Mrs. Smith is entitled to receive $1,000 per month and may
collect when Mr. Smith begins collecting his personal benefit.
Mr. Smith may, however, "File and Suspend". This means that he can apply for his personal benefit,
to be paid at a later date. By doing this Mrs. Smith has the opportunity to collect her spousal benefit now.
This also means that Mrs. Smith's personal benefit will not be eligible for the 8% per year growth.
If Mr. Smith has elected to wait until age 70 to receive his personal benefit, then he is entitled to an
additional 8% per year credit
Example 2: Mr. Smith is eligible for $2,000 and Mrs. Smith is eligible for $1,200 per month. Since
Mrs. Smith’s personal benefit is greater than her spousal benefit, no spousal benefit will be paid. If she
elects to collect her personal benefit at age 66, there will be no 8% credit added to her benefit.
The Spousal Only Option May be the Right Choice
While utilizing the example above, when the Spousal Only Option is chosen, Mrs. Smith elects to
receive her spousal benefit of $1,000 at age 66.
Since Mr. Smith has chosen to "File and Suspend” and he is not collecting his personal benefit
until age 70, his personal benefit is eligible for the 8% per year credit.
When Mrs. Smith chooses the Spousal Only option, then she is also not collecting her personal
benefit. Therefore, her personal benefit is eligible for the 8% per year credit.
At age 70, both Mr. and Mrs. Smith may begin collecting their personal benefits which would have
increased over the 4 years to $2,640 and $1,584 respectively. In this example, Mrs. Smith has given
up $200 per month for 4 years in return for collecting an additional $384 per month for the remainder of
her life (plus cost-of-living increases). She needs to collect her increased personal benefit for 25 months
in order to breakeven.
Making the Complex Decisions Simple
There are several ways to coordinate spousal benefits, and it can be very complex. Before
choosing, we suggest evaluating all your options with assistance from your financial/tax advisor.
Some information obtained from The Kugler Company, LLC
© Terrance J. O’Brien 2012