Are you married to
someone receiving benefits? Do you have young children? Have you lost your
spouse? Are you thinking about going back to work after retiring early but are
afraid your Social Security check will take a big hit? You may be in for some
good news.
By Bud Boland,
CFP® | Brightworth LLC September
18, 2019
Social Security is one of
the most common topics among my clients approaching their retirement years.
With more than 2,700 separate rules governing Social Security, it’s no surprise
that many people nearing retirement are often confused and overwhelmed by the
decision of when to take the leap and claim their benefits.
I recently built a
financial plan for a successful executive who is considering retirement when he
turns 62. Even though he has saved and invested plenty of money on his own,
much of our plan focused on the right time to file for Social Security.
In addition to planning
for his own future, this person wants to build a lasting plan for his wife, who
is in her mid-40s, and stays at home with their young son. As I began to
research how Social Security would impact his plan, I uncovered some facts
about Social Security’s least known and misunderstood rules.
Here are three facts about
Social Security benefits that could have an impact on your retirement
decisions:
Benefits
Withheld Due to Working While Receiving Benefits Early Aren’t Lost Forever.
Many people know that
claiming their Social Security retirement benefits prior to reaching full
retirement age — 66 for most Baby Boomers — results in a permanent reduction of
their benefits.
In addition, claiming
Social Security before age 66 and continuing to work can reduce them further.
But most people don’t realize that any benefits withheld because they work
aren’t lost forever. Rather, they are paid back over a number of years after a
person reaches full retirement age.
Right now, a person
choosing to take Social Security at age 62 can also keep working. But they will
have $1 in Social Security benefits withheld for every $2 they earn once they
make more than $17,640 in a year.
The good news here is that
once they reach full retirement age, a person’s monthly benefits are
recalculated to repay the amount withheld during those working years. In
effect, your monthly Social Security check will get bigger.
Here’s how my client can
claim early benefits and get them back later:
If he claims retirement
benefits at 62, there will be a 25% reduction to his benefits — he’ll receive
$1,000 each month instead of $1,333, his full retirement age 66 benefit.
However, if he comes out of retirement and works for a few months on a consulting
project before turning 66, we expect he will have six months of benefits
withheld because his earnings will exceed the annual threshold of $17,640.
But at age 66 — his full
retirement age — his Social Security benefits will be recomputed as if he
claimed his benefits at age 62 and 6 months. The lost amount will be paid back
over roughly 15 years, but it will be recouped.
If
You are Receiving Social Security, Young Children and Your Spouse Can Also
Collect.
It’s well known that
children can receive money from Social Security in the event that a family
breadwinner dies or becomes disabled. But what you may not know is that once a
person files for Social Security, a spouse younger than 62 and the couple’s young
child can receive Social Security benefits, too.
The benefits for the
spouse and the young boy are based on the full retirement age benefit of the
retired worker. If my client’s age 66 benefit is $1,333 monthly, his spouse and
child are eligible to receive up to $667 each.
However, in yet another
twist in the law, there is a maximum amount each family can receive that
typically runs between 150% to 180% of the husband’s monthly benefit. If the
father receives $1,333 each month, the spouse and child would receive less than
$667 each. But they are still eligible for some benefits.
In our example, the young
boy can receive Social Security benefits as long as he is under the age of 18,
not married and is the dependent child of a parent receiving Social Security
retirement benefits.
But these benefits don’t
go on forever. The mother’s benefits stop when the boy turns 16. The boy’s
benefits will stop when he reaches age 18 or, if still in high school, upon
graduation or two months after turning age 19, whichever comes sooner.
Even
After Remarriage, Widows and Widowers Can Continue to Receive Payments.
Because he is considerably
older than his wife, my client wants to plan for her future. Assuming he passes
away first, in addition to inheriting his investments, she can begin collecting
survivor benefits from Social Security.
In addition, if she
chooses to remarry after turning 60, she isn’t penalized financially. She can
continue to collect this amount each month because Social Security rules allow
for survivor benefits to continue if remarriage takes place after reaching age
60.
Buried within the
guidelines Social Security’s operations manual, there are many nuances that can
offer attractive benefits to those who qualify. If your family situation
involves death, disability or the retirement of someone who paid into the
Social Security system, be sure you double check to ensure you or your loved
ones collect all the benefits they are entitled to. You may be entitled to tens
of thousands, possibly even hundreds of thousands of dollars in additional
benefits over your lifetime.
Bud Boland is a Wealth
Adviser at Brightworth and has devoted his career to
working with high net worth and high-income individuals and families. Bud works
closely with clients to understand their needs and develop customized financial
plans to help them reach their short- and long-term goals. Bud is a CERTIFIED
FINANCIAL PLANNER™ practitioner and received his Bachelor of Science in
Financial Management with an emphasis in Financial Services from Clemson
University.
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