It’s 2017: What You Thought You Knew About Social Security…
Category: Financial and taxes in retirement
May 27, 2017 — If you thought you knew everything you needed to know about when and how to claim your Social Security benefit – think again. For those who have not yet claimed their benefit as of 2017, two major developments probably affect you. This 2 Part article will help educate you on how to best navigate this new world. Part 1 explains how benefits are different (lower and later) for people born in 1955 or later, and how those folks might cope with that. Part 2 explains the 2016 changes affecting the popular claiming strategies called “file and suspend” and “restricted benefit”.
Where you born in 1955 or later?
The first item affects those who will celebrate their 62nd birthday in 2017 (or in a later year). If that describes you, the age in which you are eligible for full Social Security benefits is on its way from age 66 to 67. The Full Retirement Age (FRA) will steadily increase from age 66 in two-month increments over the next six years – eventually reaching age 67 for those born in 1960 or later. Note that this is not a new development. The increase in claiming age was made the last time the Social Security program was overhauled. When these changes were made in 1983 the idea was to help save Social Security by extending the age in which benefits were paid. It also reflects the fact that average life expectancies are now much higher than they were when Social Security was created.
But wait, there is more bad news for boomers born in 1955 or later. Your Social Security benefits are also taking a hair cut compared to your fellow boomers who were born prior to 1955. For example, if your FRA is 67 you can still take your benefits when first eligible at 62, but you will now be getting 70% of your FRA instead of the 75% that someone who turned 62 last year or earlier received. And if you wait until the age where you can get your maximum benefit, age 70 (also unchanged), you will now get 124% of your FRA benefit instead of 132%. This means there is slightly less benefit for waiting to age 70 to claim, although you still get more by waiting. You might want to speak with your financial advisor about how this impacts you.
What can you do about it?
Well you can’t change your birthday. But you can do a few things to try to mitigate the increase in your FRA and reduced benefit. One is to delay your claiming date to at least your new Full Retirement Age – 66 years and 2 months for those born in 1955 all the way to 67 for those with a 1960 birthday. At least that way you won’t have to take a financial haircut. Delaying to age 70 is almost always an even better idea, unless you absolutely need the money or don’t think you or your spouse will live past age 80. A person born in 1955 who claims at age 70 would get a check 75% higher than if they claimed at age 62 – plus cost of living increases, and even without working during that period.
Working longer is another thing to consider. If you continue working you will be paying into Social Security along the way. But remember that your benefit is based on your highest 35 earning years (and you need at least 10 earning years to be eligible in the first place). Consider this example:
Susan worked from 1981 to 1990, then took off 20 years to raise a family, rejoining the paid workforce in 2010. With only 17 earning years, that leaves 18 zeros next to her computation. Every year she can work until age 67 (or 70) knocks off some of those zeros, thereby increasing her benefit, possibly up to 20% or more.
For those who already have 35 years of earnings history at high income levels, the benefit of working longer is less powerful. It is hard to move your average unless you can replace some low earning years with higher ones. But for most people, who typically don’t have 35 earning years at the maximum contribution (adjusted for inflation), you can still increase your benefit somewhat. For example, the maximum amount of earnings subject to the Social Security payroll tax in 2017 is $127,200; most people haven’t been earning at that level throughout their careers.
Know where you stand
The one thing you should definitely do before you make a claiming decision is to find out how much you would receive in retirement SS benefits at various claiming ages. SocialSecurity.gov has a great Quick Calculator that will do this for you. It will not only show your benefit claiming at age 62 vs. 67 vs. 70, but if you are still working it will show you how much extra your continued work might be worth. For example, we used it to run this calculation for a hypothetical person born in August, 1955 who currently makes $50,000 a year. Since that amount of earnings is well below the maximum subject to withholding, continuing to work won’t move this person’s benefit up much. But waiting to claim to age 67 or 70 will increase the monthly benefit significantly – $1042 at age 62 vs. $1904 at age 70.
[jcolumns]
Claiming Age
–
62
67 (FRA)
70
[jcol/]
Mo. Benefit – No Work
–
$1042
$1555
$1904
[jcol/]
Mo. Benefit-Keeps Working
$? *
$1595
$2026
[jcol/]
Mo. Diff – Work vs. No Work
$?*
$40
$122
[/jcolumns]
* If you claim at age 62 but keep working anyway your benefit could go up if you can replace some low earning years in your 35 year calculation. Up to age 67 your benefit will be reduced (but not after that), but you will get all of that back afterwards.
Note that the Quick Calculator bases its estimates on your reported current earnings. If you had long periods where you didn’t work or most of your earning years are very different from your current, its estimates will be off. In that case Social Security has a variety of other Calculators that can give you a much more precise estimate.
Claiming strategies Curtailed
In Part 2 of this article we will explain a major change affecting two popular Social Security claiming strategies that was announced in late 2015. Those are file and suspend and restricted benefit.
Comments? Is this new information to you or have you realized this all along? Will it affect either when you elect to receive your benefits or how long you will work? Please share your thoughts in the Comments section below.
For further reading:
Part 2: 2016 SS Claiming Changes
Money: Full Retirement Age Starts Going Up This Year
Woman Get a Bigger Social Security Bump
5 Reasons Why Filing for Social Security is More Complicated Than You Think
How the New Social Security Claiming Rules Affect You
Comments on "It’s 2017: What You Thought You Knew About Social Security…"
mary11 says:
Well, it's nice and dandy if you can continue working past 62, but the difference from collecting at 62 or at 66 was a difference of $ 70 monthly. Not much of an incentive for me when you have responsibilities of aging parents....or have been layed off and can't find work....
Louise says:
There seems to be very little education to teach people about Social Security and the calculation of the highest 35 years of earnings. Women are hit the hardest typically when they stay home to raise children. They may be able to do so with their husbands making excellent money but their Social Security account remains stagnet during their non working years.If these women were better educated in the need to add to their Social Security accounts, they might return to work earlier. Even worse, if they stayed home with children then divorce down the road, they will have less working years to add to their SS account and may never reach the 35 years working mark thus receiving a small SS check. Young people never think about SS because it is something OLD people receive and they think getting old is so far down the road. All the information is out there for anyone to educate themselves. Not sure how to get the word out to educate younger people.
mary11 says:
Ditto Louise. ....
before I got layed off at 58 I did some major retirement planning research. I wanted to be sure that my hubs and I wouldn't be struggling in retirement. Amazon has a lot of books that you can read on social security and retirement planning . I subscribed to their unlimited kindle plan and you can read all of them for less than $10 per month. I counsel now my friends with all information that I have aquired!! It's very important that you plan for your retirement so you can make the right decisions. Alot of people think that the social security office will provide all of the information that they need but that's not true.
Susan says:
I agree the education for Soc. Sec. is very poor & to say the least VERY confusing. You're lucky if you read a lot & can get two same answers. It would be great if the Soc. Sec. Office actually offered a class to help people with info & to answer questions. We are lucky in our area that our Council of Aging offers a class several times a year & the lady is willing to meet one on one with you on a scheduled date. They were knowledgeable, I never felt rushed etc. I have told my friends about it & they also found it very helpful.
Louise says:
Mary11 you and I share the same age when layed off! It was pretty devastating for me as I had previously lost the greatest job of my career at age 51 and working there 18 years. Then lost the second best job at age 58 after 4 years. I read an article that I have attached in regard to 'sneaky' ways employers get rid of people. My situation is number 2 on this list. They layed off 4 of us, all in our mid to late 50's then threw in a token part time 20 year old. Furthermore, the 4 of us just happend to work for the same company where I lost my job of 18 years. The company owner had done work for this company and things didn't work out as he had hoped so he had a 'grudge' against them. My opinion is that he had two ulterior motives and one was he wanted to hire a Ph.D and by eliminating all of us he had the money to spend on this individual (which I found out very shortly after we were layed off they hired this person) and he had a grudge against that company we used to work for and by getting rid of us, he felt vindicated. The owner struggles with finances so he does a juggling act to find ways to get what he wants.
http://www.huffingtonpost.com/2013/11/04/older-workers-get-rid-of-them_n_4213955.html
mary11 says:
Thanks Louise interesting article. I was number 2 too! I worked for a large corporation and alot of downsizing was going on the last 2 yrs before they layed me off. So I was suspecting I was going to be next after they eliminated many of my job duties and put me in the sales dept. I had never worked in sales so not meeting their quotas did me in....I was not unhappy to go and needed to be home full-time to take care of my mother anyway.
Louise says:
With my old company I also knew one man who was subjected to isolation #8 on the list. In the beginning he was considered a golden boy. This man ALSO worked for the company I worked at for 18 years. He was in his early 50's too. When I first started working there he was a manager and headed up many areas and was involved in everything. I don't know what happened to him but suddenly he was no longer in charge of anything. He didn't go to meetings and I really have no idea what he did all day but he was not involved in day to day business. His office was in a spot where no one even passed by often. It took a long while but he finally left the company. While I worked there I saw a lot of people fired and a lot of people hired! Glad I no longer work there. It took a long time to feel that way because I loved my job and my boss was a young genius. But the owner of the company was a pretty evil guy.
Ken says:
Per Louise's comment, I am also amazed at how many people take the first opportunity to claim their Social Security benefit, without any thought or preparation. There are some good reasons to take it at 62, but a lot more to wait. People owe themselves (and their surviving spouses) at least some careful deliberation on the pros and cons. The SSA.gov site has a ton of good info and tools to help.
Jeanne says:
Agreed we should educate ourselves and the earlier the better. What seemed so far off in my 40s seemed to suddenly loom on the horizon in my 60s!
BTW, it is "laid off" (not "layed off"). ;-)
Louise says:
Each person has their own reasons to take SS early or later. For me in 7 years time I had lost two jobs, had been on unemployment twice and lost my Mother after an 8 month fight with cancer. By the time all that was behind me I was 60 years old still trying to find a job. The two jobs I previously held paid a salary of between $46,000-$58,000. I knew those jobs were not going to fall in my lap but as hard as I tried to find almost anything at any pay, there was nothing. I do admit I was offered a customer service job rather than the job I applied for at one place and turned that down. So, I waited till age 62 1/2 to collect SS. Our financial advisor told us to list all our monthly bills, credit card balances and so forth. Add it up to see what kind of money is outgoing. We had no outstanding credit balances. Just normal bills. We don't go out to dinner many times a year or spend money on entertainment. So with our SS, one small pension and withdrawal from IRA's we pretty much maintain our previous lifestyle as when we worked. We have analyzed certain bills and when we could, we cut back. We saved a lot of money by changing car/house insurance company. We had 3 vehicles and sold one. We are trying to sell things we don't need or have duplicates of. We have donated a lot to Vietnam Veteran org. and Goodwill. Hub retired at 63 and couldn't be happier.
Ron says:
Whatever you choose please be sure to vote for the candidates or political party that supports fully funding Social Security and Medicare. Most Americans rely on this well thought out program!
Kay says:
"Get What's Yours,The Secrets to Maxing Out Your Social Security, Revised and Updated" by Kotlikoff, Moeller and Solman is the best resource I've seen on social security. It explains the lingo, some general guidelines, the gotchas to avoid, along with lots of real life examples. Be sure and get the Revised and Updated version that was revised in 2016 to include the recent changes to social security.
Dianne Chrestopoulos says:
This is all well and good, however - those of us who are vested in SS BUT also have a state teacher's retirement pension are getting screwed! I will be 64 this year but am being told that it is called "double dipping" to get my SS and my teacher's retirement. Both of which I have paid into. So they are going to cut my SS because it is less, and maybe I will get some and maybe not. I worked, I paid into the system, I should get what is owed to me. WHY is it teachers, firemen and police who always get the rotten deal? Yet state workers and legislators who pay into SS and their state retirement can collect both? How is this fair? Esp to those of us WHO do not make much money in a long career anyway (I have taught for 41 years and barely make $67,000) - compared to business and so forth. The same with firemen and police. If anyone has an answer for this I would love to know what it is. We have been trying to get this changed so that those of us who paid into the system will get our fair share.
Kay says:
Dianne, are you saying that in your teaching job of 41 years, you have paid into social security (fed oasdi)? Or is your vesting in social security from a different job?
"If you paid Social Security tax on 30 years of substantial earnings you are not affected by the Windfall Elimination Provision (WEP)". (from the social security website: https://www.ssa.gov/planners/retire/wep-chart.html)
Jennifer says:
Sometimes older workers are forced to take lower paying jobs which only lowers their average when the final Social Security benefit is computed. I think that must be taken into consideration as well.
I am 63( almost)! and I have had to take lower paying jobs and now my current job is being phased out. I am looking for other opportunities as well as working my business--(the only reason for me taking any job is for health insurance) or else my business would be full time.
Flo says:
Jennifer,
Your SS is based on your 35 highest earning years and not the last ones held before filing. Non-working years are counted as 0’s. So some low earning years can't hurt you, and you are better than having some zeros in the computation. See https://www.ssa.gov/pubs/EN-05-10070.pdf
Diane
As a retired teacher, I receive both SS and a pension. My SS is not lower based on the pension income.
Many government employees ( firefighters and police) do not contribute to SS.
Jennifer says:
Hi Flo:
I am aware of how the computation is made for SS Benefits. However even if there is a 35 year average--of course I would make more (now than I did as a student) still if I make less which I do than a few years ago--my benefit will be smaller than if I could have continued with the larger benefit. My job was phased out five years ago after 12.5 years with the same medical practice business. the business was sold to Johns Hopkins. The newer job I had to take paid $12,000 less per year and I left October 1, 2012 from the higher paying job. If I am forced to sustain a lower paying job for very long then I will have a lower benefit. I do not have any zeros in my profile I have worked my whole adult life..
Thanks for your help.
Jennifer
Jim C says:
My wife worked for the State for about 6 years as an RN and did not pay into SS.This reduced her substantial earning years down to 29 resulting in a $30.00 decrease in her monthly SS check. Not a lot but she was only short by one year.
Admin says:
From Louise (moved to this Blog): Does anyone know of a calculator to determine Social Security benefits when a person has worked less than 35 years?
I know zero's have to be added into the calculation for unworked years during the 35 year period.
Editor's Comment: There are plenty of SS calculators to choose from, including from socialsecurity.gov
https://www.ssa.gov/oact/anypia/index.html The Quick Calculator there is pretty good. It will allow you to correct their earning assumptions to put in the zeros you mention you have (use the "See the Earnings We Used" link to do that).
Here is how they calculate your benefit https://www.ssa.gov/oact/COLA/Benefits.html