Congress is still dithering while Social Security runs out of gas. The newly released trustees’ report says the old age programs will run out of money by 2037. That is no better, and no worse than last year’s projection, according to Paul Katzeff of Investor Business Daily.
With nothing in the trust fund, trustees say benefits then will have to be paid solely by tax revenues. So checks would have to shrink to 78% of what is promised. Perhaps Congress will restore Social Security’s financial health before that happens. Meanwhile, what if you retire and want to start drawing benefits? You can take steps to boost the size of your monthly check.
1. Delay the Start. The most basic strategy is to postpone tapping into the program. You can start collecting at age 62; but if you wait until your full eligible age, your benefits will be higher. Depending on your age, waiting until your reach full eligibility age, which the program calls Normal Retirement Age (NRA) will increase your monthly check by up to 30%. Normal Retirement Age is 66 for people born between 1943 through 1954. It is 67 for anyone born in 1960 or later. The Table below shows Normal Retirement Age for various dates of births.
AGE AT WHICH YOU ARE ELIGIBLE FOR FULL BENEFITS
1937 or earlier 65
1938 65 + 2 months
1939 65 +4 months
1040 65 +6 months
1941 65 +8 months
1942 65 +10 months
1943-1954 66
1955 66 +2 months
1956 66 +4 months
1957 66 +6 months
1958 66 +8 months
1959 66 +10 months
1960 later 67
Aside from resulting in a smaller check, starting benefits early also exposes you to an earnings cap penalty. For every $2 you earn in excess of a certain threshold, you will lose $1 in benefits.
2. Reward for Extra Delay. If you wait until after your NRA your starting benefits are even higher. This is due to the delayed retirement credit. It can be worth up to 8% a year, until age 70, depending on when you were born. Anyone born in 1943 or later gets the 8% annual premium. If you were born in 1933-1934, it’s worth only 5.5% extra per year.
Suppose you were born in 1944; your NRA would be 66. Let’s say your monthly check would be $1,000, given your earnings history. If you wait until age 70 to start benefits, your check will be 32% higher. That’s 8% times four years. Your monthly check would be $1,320. The additional benefit you gain by waiting until 70 vs. 62 is significant. The extra monthly benefit is typically 75% higher, says Alicia Munnell, director of the Center for Retirement Research at Boston College.
3 File and Suspend. The size of benefits for your spouse or dependent children can be based on your earnings record, not theirs. That is the case once you file for your own benefits. File the claim, then suspend your claim. Delay the start until a later date, when their payments will be larger. Meanwhile, your spouse can start to get benefits at a higher level than they would otherwise. The difference this strategy makes is biggest when one spouse has a lot more lifetime earnings than the other. As a practical matter, it is best to disclose your plan in advance to the Social Security office where you will file your claim. You have to physically show up and identify yourself anyway.
4. Do Over. How many times do you get a “Do Over”? Benefits are based on when you start. But you can pay back benefits you have received, then start over at a higher level due to yur higher age. Your start over may also be higher due to the additional earnings. If you repay the benefits, you do not pay interest or penalty. The Social Security Administration will inform you how much you must repay. It can include spousal benefits.
Once you repay, you can immediately apply for the higher benefits at you older age. You may also be able to claim a deduction or credit for some taxes paid on past benefits. Do your homework. The question is how long it will take later higher monthly benefit s to more than make up for the amount you repay. There is also an opportunity cost. Cash used for repayment could be used for investments instead of returning to the Social Security Administration. And don’t overlook other costs. If you stop benefits, automatic deductions that pay your Medicare premiums will also end. You will have to pay Part B Premiums out of pocket.
5 Switch Over. Once you hit age 66 or slightly older if you were born after 1954, rules get flexible concerning the basis for your benefit. Suppose you are two-career couples; you could start benefits, collection 50% of your spouse’s benefit. You are not starting your own benefit; you are delaying that until the benefits would be higher at age 70. At that point your spouse could also switch to collection 50% of your benefit. Her check may be reduced if she started before NRA. And, when you die the spouse jumps up to your benefit amount
Call on us. So if you know someone that is looking for a way to save taxes and remain invisible to the IRS, call me at 702-642-8953 or write me at isueirs@aol.com. With me you get No conditions. No exceptions. No time limits and No IRS.
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