Some of the most common questions we receive are related to social security strategies. A lot of people rely on social security to help secure their retirement because it is a source of income that can help you pay for your day-to-day expenses.
But it’s still a confusing topic when beginning with retirement planning because you’ll find a lot of different opinions.
If you’re wondering when you should take your retirement, grab a cup of coffee and continue reading.
When Should You Retire and Take Social Security?
One of the first questions we receive from clients is when to take social security. A lot of people try waiting until they’re 70 to retire so that they can receive the maximum benefits social security has to offer.
The problem is that this advice is based purely on the financial aspects of retirement and not your current situation.
You have a lot to consider, especially if you have a spouse, such as:
- Age disparity between spouses
- Health
- Ability to work
- Sources of income
For a lot of people, over 50% of their income in retirement is going to be social security, so it may make more sense to retire at 70 to maximize those benefits. The problem is that it’s not always that simple.
If one spouse is a lot younger and is still working and plans to continue working, retiring early may be the best option.
What to Think About If You Take Social Security Before Full Retirement
If you’re planning on taking social security before your full retirement, there is quite a bit to think about. You should be thinking about the following:
Is someone still working?
If the person is still working, there is a limit to how much they can earn while on social security. For example, in 2021, if you make more than $18,960 during the year, the amount over the limit will result in 50% of the overage being deducted from social security.
This can be confusing to understand, but what it’s essentially saying is that:
- You earn $28,960 ($10,000 over the limit),
- $5,000 (50% of the overage) will be withheld
When trying to plan for income, it can be difficult because the withheld amount may mean a three-month gap between benefits being paid.
Spouse earnings will not impact you in this situation.
Is there an issue with permanent reduction?
Your benefits will be reduced permanently once you opt into social security early. It’s important to realize that when you hit full retirement age or 70, your benefits will not go up. Your choice to take social security is final.
Taxes
If a spouse is working and you’re taking social security, it’s important to consider taxation. You must plan for taxes because they will be a financial burden that is difficult to overcome.
Restricted Application and the Potential Benefit It Offers
If you were born before January 1, 1954, you are eligible to use a restricted application. This is a strategy that allows you to file for spousal benefits first and restrict the application to the spousal benefits only.
What this means is that the person isn’t choosing to use their own social security benefits at this time, so they can effectively wait until they are 70 to maximize their benefits.
If you plan to wait until age 70 and meet the birth requirements, this can really be a beneficial option for you. It’s important to note that your spouse will need to already be on social security or plan to retire before your restricted application is filed.
Let’s take a look at an example:
- One spouse is on social security that is $2,000 a month.
- You file a restricted application and receive 50% of your spouse’s benefits, or $1,000.
You can continue taking the $1,000 while your own social security will continue to grow. And you can also, in some cases, claim six months of retroactive benefits.
How Spousal Benefits Work
While spousal benefits are 50%, it’s based on the primary person’s insurance amount. Let’s assume that the person is earning $3,000 on social security, this doesn’t mean that the spousal benefit will be $1,500.
The insurance amount may be $2,400, and the spouse would then receive $1,200.
If the dependent spouse, or the one taking spousal benefits, will also factor into how much the person receives. Why? The dependent spouse’s filing age will be the deciding factor in whether they receive the $1,200 or not.
For example, if the dependent filed at 60, the $1,200 may be reduced by 30%.
Reductions can be as high as 35%.
It’s very challenging when trying to secure your retirement because the social security office will not help you. Why? They’re prohibited from providing advice to you. You will need to work with someone who can help you navigate social security.
Note: You need to be married for 10+ years to receive these benefits.
What Happens If the Higher Earning Spouse Passes Away?
When one spouse passes on, the remaining spouse will receive 100% of the highest benefit amount between both spouses. You won’t be able to receive your benefits and survivor benefits.
Instead, let’s assume, using the scenario above, that the one spouse passes away and leaves the dependent spouse behind.
In this scenario, the dependent spouse can claim the $3,000 in benefits.
But as with everything related to social security, the age at which you start collecting benefits will matter, too.
You will also receive the delayed retirement credits from the deceased spouse.
Note: You can also collect 50% of an ex-spousal benefit if you were to divorce rather than the one spouse passing on. If you remarry, the benefits will stop. But if the person dies and you don’t remarry until 60 or older, you can still take survivor benefits.
When to File for Social Security If You Know What Age You Want to File
You know what age you want to start taking your social security benefits, but now you need to know when to actually file. Filing should be done 3 to 4 months before you want to receive your first benefit check.
The easiest way to do filings is to use the online portal to apply.
When filing online, be sure to reiterate your plan in the remarks section to ensure that errors do not occur. This is especially important when filing for a restricted application to avoid any processing errors on the side of the Social Security Administration.
There’s a lot to think about figuring out social security strategies for your situation. Sit down with someone and really discuss your options because you may be missing out on key benefits that you can claim.Have you heard our latest podcasts? If not, we encourage you to join our podcast today for access to more than 90+ financial and retirement-related talks.