by Dave Kutcher
Social Security will likely play a substantive role in your retirement planning. There are a lot of myths out there about social security benefits and so we wanted to clear the air on some of the most prominent misconceptions about benefits.
Cost of Living Adjustments (COLA) – “doesn’t my income go up every year for inflation and isn’t that the only way I can increase my benefit”?
Annual increases are NOT guaranteed. COLA increases are based upon the consumer Price Index (CPI) for urban wage earners and the Clerical Workers (CPI-W). Over the last 115 years, there have been three times that there was no COLA increase in monthly benefits; 2009, 2010, 2015.
You can impact your monthly benefit by choosing when you receive benefits. In general, the longer you wait to receive benefits, the higher your starting benefit amount will be.
Additionally, if you continue to work after receiving benefits and your earnings in these later years of work are among the highest you have been paid, your benefits may be adjusted upward accordingly.
That’s my final answer – Most people are not aware of this, but you have up to 12 months following approval of your benefits to change your mind and cancel or withdraw your application. If you have received benefits during that 12-month period, you will be required to pay back that income.
Working during retirement reduces my social security benefit – Many people work while receiving social security benefits. If you choose to do so prior to reaching your Full Retirement Age (FRA) and your earnings are substantive enough, your benefits may very well be reduced. However, they are not lost forever. At FRA your benefit amount will increase to account for benefits withheld due to the earnings you had while you remained working.
For people younger than their FRA who have started social security benefits and remain working, your benefits will be reduced $1 for every $2 earned over $21,240.
My account is like an IRA and I can only get back what I have accumulated from my contributions – Your social security benefits do not depend upon a personal account of your payroll contributions over the years. The social security benefit is the result of a formula that is based upon your credits earned throughout your work life. Once your benefits are determined, and any subsequent COLA adjustments continue for your lifetime, regardless of how much income you have received in relation to your contributions. Payroll taxes, funded by both you and your employer, are used to pay benefits to everyone in the system according to the formulas for benefits.
I should claim my benefits at age 62, the earliest possible date – You have a choice as to when you begin your social security benefits. While you might be eligible to begin receiving benefits at age 62, any benefits you do claim prior to your full retirement age (FRA) will be reduced. Waiting to receive benefits past your FRA increases your monthly benefit amount. The formula will make these adjustments up to age 70.
Claiming benefits and fully retiring do not have to go hand in hand. You may choose to receive benefits and remain working, or you may even delay receiving benefits after you have stopped working. In this latter instance you will want to be sure you have other assets to draw from during any gap between your employment and the beginning date of your social security benefits.
The point here is that there is some flexibility, and you can choose a plan of action that will serve you and your situation best.
I’m going to lose benefits if my spouse dies before receiving their benefits – Certain family members and dependents of deceased workers are eligible for their own benefits if the deceased worker had earned credits in the system.
A widow or widower of any age who is caring for a deceased workers child is eligible to receive benefits if the child is under age 16 or disabled.
A widow or widower who is age 60 + or age 50+ and disabled is eligible for benefits based upon the deceased workers credits.
Parents who are over age 62 and who were dependent on the deceased worker for 50% or more of their own support are eligible for benefits.
In certain situations, adopted children, step-children, grandchildren may be eligible for benefits based upon a deceased workers credits.
An unmarried child of a deceased worker may be eligible for benefits if they are under age 18 or even if over age 18 if they are disabled.
Planning to maximize your social security benefits and knowing what you or your dependents are eligible for in terms of benefits can be tricky. Your first step to understanding your benefits is to set up your own personal account and subscribe to benefit notices from the social security administration. You may do so by visiting www.ssa.gov/myaccount
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Frontier Retirement; 10928 Eagle River Road; Eagle River, AK 99577; (907) 795-7452.
