Longevity

The single biggest and most difficult question to answer in determining when to take Social Security benefits

is how long you are going to live. If we knew exactly how long you would live, it would be infinitely easier

to know when to start taking benefits. In general, the longer you will live, the more sense it makes to delay

taking benefits. Remember, taking benefits early will result in reduced benefits, while delaying for a period

of time yields higher benefits.

 

Are you married?

If so, what is the age difference between the spouses? Qualifying for Spousal Benefits, individuals need not be eligible for individual benefits in order to qualify for spousal benefits. In order to be eligible to collect spousal benefits, an individual must have been married to his or her spouse for at least a year. This requirement may be waived if he or she was previously eligible for spousal benefits or is the parent of his or her spouse’s child (although the child need not be alive). Additionally, the individual’s spouse needs to have filed for benefits, but need not be collecting them, in order for the individual to collect spousal benefits. There are other factors to consider such as “Termination of Eligibility for Spousal Benefits” and “Collecting Spousal Benefits at Full Retirement Age.”

 

Are you divorced?

If so, did any of his or her previous marriages last at least 10 years? A divorced spouse can apply for spousal benefits on his or her ex-spouse’s earnings record if:

• You are currently unmarried

• Both the individual and the ex-spouse are at least age 62

• They had been married for at least 10 years and they have been divorced for at least two years (this requirement is waived if the individual was entitled to individual benefits at the time of divorce)

 

Survivor Benefits for Divorced Spouses

A divorced spouse can apply for survivor benefits on his or her ex-spouse’s earnings record if:

• He or she is currently unmarried or his or her current marriage started after reaching age 60

• The individual is at least age 60 and the ex-spouse is deceased and they had been married for at least 10 years. There are also other factors to consider, such as “termination of eligibility for spousal benefits” and collecting divorced spouse benefits.

 

The Social Security Surrender Penalty

When you opt to begin receiving Social Security at age 62, you are surrendering 25% of your full Social Security retirement benefit (Primary Insurance Amount, aka PIA).  On what other financial account would you be willing to accept a 25% surrender charge?  Since Social Security is one of the most powerful incomes you can possess, does it make sense to accept that kind of loss?  Please bear in mind, the power of Social Security goes beyond the mere benefit.  It’s a tax-favored income; it’s guaranteed for life, indexed for inflation, and cannot be reduced.  Again we ask: Are you willing to suffer a 25% surrender charge?

 

Do you currently need the income from Social Security benefits?

If you can’t retire without taking Social Security benefits, then you need to decide if you’re ready to retire or willing to keep working.  If you can’t retire without Social Security and you’re determined to retire now despite the financial disincentives, then it’s not so much a financial calculation as it is a lifestyle choice.  If you decide to retire, and you can only do so by taking Social Security now and accepting the surrender penalty, that’s a decision that ultimately rests with you alone.  Only you can balance the emotional side of this important decision against financial considerations and decide if it’s worth it.

 

How are taxes on Social Security benefits calculated?

Whether your Social Security benefit is included in your income for tax purposes — and, if so, what percentage is included — is based on a formula known as Provisional Income. Provisional Income is the sum of all income, including interest and dividends from savings and investments, long and short term capital gains, income from working, interest from tax-free municipal bonds, income from pensions and interest from annuity income plus 50% of your total Social Security benefits.

 

Will you need to continue working after you begin to take Social Security benefits?

One of the most important considerations to account for is earned income before you reach “Full Retirement Age” (FRA) when you are receiving Social Security retirement benefits. Each of us has a “Full Retirement Age.” Depending on when you were born, that age gradually increases before capping at age 67. If you work after beginning to take Social Security benefits and before you reach your full retirement age, you may have to return part of your Social Security.  The good news is that you won’t really “lose” the benefits that you give back because you get them back in the future. The bad news is, until you reach full retirement age, working can cause you to give back some of your Social Security benefits

 

What impact will IRA/401k and other retirement account Required Minimum Distributions have on your taxable retirement income?

One of the most overlooked planning areas is the consideration of what to do if you have significant retirement accounts (IRA/401k-type accounts) and how the withdrawals the government will force you to take when you reach age 70 ½ may cause your Social Security to be taxed. Many people ask, “Well, what can I do about that? After all, I have to make those withdrawals, right?” In short, yes. If you do nothing now, then you will have to take those required withdrawals. The question, then, becomes: What can you do now?

 

 

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