Get familiar with Social Security quirks
Four rules can affect how and when benefits accrue
It’s always what you don’t know that can trip you up when planning for retirement. And there’s a lot about Social Security you probably don’t know – but should.
Or at least you should if you want the largest possible benefit for you and your household. So, what then, are some the quirkiest rules to know?
Spouses and delayed benefits: Married couples are told by Social Security to plan for two lives. So, how might they go about that? Well, let’s say you’re the higher wage earner and you delay starting Social Security until age 70. That will result in you getting the highest monthly benefit for the rest of your life.
Why is this? It’s because Social Security retirement benefits are increased by a certain percentage (depending on date of birth) if you delay your retirement beyond what’s called full retirement age or FRA. FRA is the age at which you could receive an unreduced benefit. But note that the benefit increase no longer applies when you reach age 70, even if you continue to delay taking benefits.
Now, if you wait to apply for Social Security until age 70 you might think your spouse, given the way spousal benefits work, would receive one-half of your age-70 benefit (or more depending on his or her work record and when they file for benefits). But that’s not the case. The benefit for the lower-earning spouse is always a percentage of the higher wage earner’s FRA payment, even if the higher wage earner delayed payments to 70, says Andy Landis, author of “Inside Social Security.”
However, if the higher wage earner should die, the surviving spouse gets the deceased’s age-70 benefit – assuming the survivor is at least FRA, says Landis.
Survivors benefits? For anyone born between 1955 and 1961, there is a difference in FRA for retirement benefits and survivor benefits, says Kurt Czarnowski, a Social Security expert with Czarnowski Consulting.
“For example, if you were born in
1957, your FRA for retirement benefits is 66 years and six months, while for survivor benefits, it is 66 years and two months,” he says. “If you were born in 1960, FRA is age 67 for retirement benefits and 66 years and eight months for survivor benefits.”
The other quirky rule, says Czarnowski, is that no matter what your FRA is for survivor benefits, if you start to collect right at age 60, you will always receive 71.5% of what you would receive if you waited until FRA to collect.
“In other words, survivors benefits that start at age 60 are always reduced by 28.5%, regardless of the person’s FRA,” he says.
You must enroll in Medicare Part A: If you apply for Social Security benefits, you are required to enroll in Medicare Part A, retroactive six months or back to age 65, according to Elaine Floyd, director of retirement and life planning at Horsesmouth, a financial education company. “You do not have a choice about this,” she says.
And, if you’re contributing to a health savings account (HSA), those contributions would have to stop and be withdrawn for any period of retroactivity. “Otherwise, the contributions will be taxable and an annual 6% penalty will be applied to those contributions and the earnings thereon,” says Floyd.
Qualify for both retirement and survivors benefits? If you qualify for both a retirement benefit and a survivor benefit, Floyd says you can sequence those benefits for maximum advantage. “For example, you can start the survivor benefit at age 60 and switch to your own maximum retirement benefit at 70,” she says. “Or you can start your retirement benefit at 62 and switch to your full survivor benefit at FRA. Conditions, such as the earnings test, which applies to all benefits received before FRA for people who work, do apply.