Qualifying individuals can begin collecting retirement benefits as early as age 62. However, the Social Security program establishes a Full Retirement Age (FRA), which is the age at which you become entitled to a full or unreduced retirement benefit – also known as your Primary Insurance Amount or PIA. If you begin taking your retirement benefits earlier than your FRA, you will receive a reduced benefit amount. If, on the other hand, you choose to delay taking benefits until after your FRA, you receive an increased benefit the longer you delay until you reach age 70.

Under the current Social Security program, your specific full retirement age is based on your birth year. For example, individuals born from 1943 to 1954 reach FRA at age 66. For each birth year from 1955 to 1959 the FRA is increased by 2 months (1955 = age 66 and 2 months, 1956 = age 66 and 4 months, etc.). Those born in 1960 or later reach FRA at age 67.

Your Delayed Retirement Credits (DRC), the percentage that your retirement benefits increase the longer you delay taking them after full retirement age, depends on your birth year and the number of months that you delay. Individuals born in 1943 or later receive an increase of 2/3 of 1% per month. This equates to an annual (12-month) rate of increase of 8%.

Social Security retirement, survivor, and disability benefits may be taxable to you if your income, including one-half of your Social Security income, exceeds certain thresholds.  For example:

• An individual filing a tax return as single that has this “combined income” between $25,000 and $34,000 may have up to 50% of his or her Social Security income as taxable 

  If the individual’s “combined income” is more than $34,000, then up to 85% of his or her Social Security income may be taxable.

• A married couple filing a tax return jointly that has “combined income” between $32,000 and $44,000 may have up to 50% of their Social Security income as taxable.
  If the individual’s “combined income” is more than $44,000, then up to 85% of their Social Security income may be taxable.

The combined income is generally equal to

• Your adjusted gross income (AGI)

• Tax-exempt interest (typically generated from municipal bonds)

• One-half of your Social Security benefits

It is also important to note that the state of Michigan is 1 of 37 states in the United States that do NOT tax Social Security benefits.

If you qualify for your own benefits and for spousal benefits, you will be eligible for the higher of the two benefits. Social Security will pay your benefits first, and if your spousal benefit is higher than your own benefit, you receive a benefit equal to the higher spouse benefit.

If you are divorced, you can collect benefits based on your ex-spouse’s record if you meet the following criteria:

• You were married at least 10 years and have been divorced for at least 2 years

• You are unmarried

• You are age 62 or older

• The benefit you are entitled to receive under your own earnings record is less than the benefit you would receive based on your ex-spouse’s record

Believe it or not, your ex-spouse does not have to be 62, nor do they have to have filed for Social Security benefits on their own record for you to receive ex-spousal benefits.

Social Security benefits have an automatic annual cost of living adjustment (COLA) as measured by increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For example, in 2018, Social Security benefits rose by 2%. In 2017, benefits rose by 0.3% and in 2016, there was no adjustment at all. Click here to see historical COLA adjustments dating back to 1975.

Survivor benefits may be available if the deceased worker earned enough qualifying credits.  The widow or widower can receive benefits:

• If married for at least 9 months

• At age 60 or older,

• At age 50 or older if disabled, or

• At any age if she or he cares for a child of the deceased who is younger than age 16 of is disabled

Children may also receive benefits if they are unmarried and are:

• Younger than age 18 or up to age 19 if they are full-time students at an elementary or secondary school, or

• Any age and were disabled before age 22 and continue to be disabled

To notify the Social Security Administration of a death or apply for survivor benefits you must contact a representative by telephone at (800) 772-1213 or visit your local Social Security office. As of 2018 you cannot complete these online.

You can apply for retirement benefits online at https://secure.ssa.gov/iClaim/rib. You can also apply by contacting a Social Security representative by telephone or by visiting your local Social Security office. In general, it’s recommended that you apply for benefits 2-3 months prior to when you actually want them to begin.

Over the last several years, there has been lots of discussion (and some valid concern) about the state of the Social Security system.  In its 2017 annual report the Social Security Board of Trustees projected that by 2022 the benefit costs (outflows) will exceed the income (revenues paid in) by increasing amounts each year and that the trust fund reserves will be depleted by 2034. A major factor in this is the aging American population who will be drawing benefits relative to the workforce that will be contributing through payroll taxes. Click here for additional discussion.

While that report seems dire, it does not suggest that Social Security will no longer pay benefits.  The projections estimate that incoming revenues would be able to pay about 75% of scheduled retirement benefits.  Clearly, challenges lay ahead in the coming decades to address these imbalances and allow for a sustainable system.  The reality is that Social Security is still an important source of income for many retirees, not only today but in the future as well. For some for some additional insight click here  Some of the more common changes or adjustments to Social Security to help solve the funding issue include:

• Removing the income cap on payroll tax for Social Security ($128,400 wage base for 2018)

• Removing COLA adjustments on benefits

• Pushing out full retirement age for those currently under age 35 by one year (would go from 67 to 68)

Deciding when to begin collecting benefits depends on many factors unique to your own situation and financial circumstances.  Some of these factors may include your other sources of income, your required lifestyle and spending needs, the amount of your investment assets, whether or not you will continue to work, and your health and family medical history, just to name a few.

While there are often advantages in delaying the start of Social Security to increase your benefits each year you wait, doing some careful retirement income planning and evaluating of your options can help lead you to your own confident decision.  If we can be a resource for you, please reach out to us!