Born in the period between 1946 and 1964, a new wave of baby boomers retires every day. And for those boomers turning 62 this year, this will be the first opportunity to claim Social Security benefits. Unfortunately, they’ll suffer penalties if they do so before full retirement age. That’s why it’s so important to know all your claiming options—and the consequences of those options—before you start receiving your benefits.
When Should You Apply For Social Security Benefits?
So, when should you apply for benefits? The answer is… it depends. It depends upon the unique characteristics of your personal situation. These include your health status, your life expectancy, your need for income, whether or not you plan to work, survivor needs, and (if you are married) coordination with your spouse’s benefits.
The decision as to when you should claim your Social Security benefits is very important. Your Wealth Manager has specialized training in Social Security planning and enjoys access to software tools that will help analyze your unique circumstance to help you maximize your benefits.
Let’s take a quick look at the rules that will impact what you receive.
A Lifetime Annuity
Social Security is one of the few sources of income that you can’t outlive; it’s a lifetime annuity. And of course, the longer you live, the more you will extract from the system. If your benefit starts out at $2,000 per month, and you live 10 more years, you will receive over $300,000 in lifetime benefits. If you live 20 more years, you’ll receive over $600,000 in lifetime benefits. And if you live 30 more years, you’ll receive more than $1 million over your lifetime. (This example assumes an annual cost of living increase of 2.8%.)
Social Security also offers annual inflation adjustments. So if your benefit starts out at $2,000 per month, and if annual increases are 2.8%, in 10 years you will be receiving $2,636 per month. In 20 years your monthly benefit will be $3,474, and in 30 years your check will be $4,580.
How Are Social Security Benefits Calculated?
In order to calculate your benefits, Social Security looks at your annual earnings over your lifetime, indexes them for inflation, and picks the 35 highest years’ earnings to include in the formula. The indexed earnings are totaled and divided by 35 to come up with an average. If you don’t have 35 years of earnings, the missing years will be filled with zeroes. This has the effect of lowering benefits for men or women who have taken time out of the workforce to raise children or take care of elderly parents.
Next, a formula is applied to your average indexed monthly earnings to determine your primary insurance amount (PIA). This is the amount you will receive at full retirement age.
Benefits At Full Retirement Age
Full retirement age (FRA) is the age at which you can claim full, unreduced benefits. For everyone born between 1943 and 1954, full retirement age is 66. For everyone born in 1960 and later, full retirement age is 67. For those born in 1955 through 1959, full retirement age is 66 plus some number of months. If you apply for Social Security after full retirement age, your benefit will increase by 8% for every year that you delay. After age 70, you do not earn delayed credits, so everyone should claim their benefits by age 70.
Social Security offers spousal benefits for men and women. The spousal benefit is 50% of the primary worker’s PIA at full retirement age (the primary worker must have filed for benefits). The low earning spouse must be at least 62 for a reduced benefit or full retirement age for a full spousal benefit. Spousal benefits do not earn delayed credits after FRA.
Benefits For A Divorced Spouse
A spouse can receive Social Security based on the ex’s work record, providing the marriage lasted at least 10 years, they are currently unmarried, and the ex-spouse is at least 62 years old. The ex-spouse will not be notified that a claim has been made on their work record, and you do not need to know the location of your ex. However, you will have to provide proof showing the dates of your marriage and divorce. If you are receiving divorced-spouse benefits and you remarry, your benefits will stop. Of course, you may then qualify for spousal benefits based on your new spouse’s work record.
Widow And Widower Benefits
Survivor benefits are available for those who have been married for at least 9 months (except in case of an accident). To start benefits, the survivor must be at least 60 years old, or 50 if disabled. However, if the widow or widower applies before full retirement age, the benefit will be reduced, just as it is for regular benefits.
If you remarry before age 60, you will not be able to receive a survivor benefit based on your previous spouse’s record, unless your remarriage ends. If you are a divorced spouse, you are entitled to divorced spouse survivor benefits as long as your marriage lasted 10 years.
