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Social Security “Two-for-One”

When you start receiving Social Security retirement benefits, some members of your family may also qualify to receive benefits on your record. If they qualify, your spouse or child may receive a monthly payment of up to one-half of your full-retirement age (FRA) benefit amount. These payments will not decrease your retirement benefit. In fact, the value of the benefits your family may receive, added to your own, may help you decide if taking your benefits sooner may be more advantageous.

Eligibility Rules for Children

The following information about eligibility is a quote from the Social Security Administration (SSA) Web site. (For details please see http://www.socialsecurity.gov/pubs/EN-05-10085.pdf )

When you qualify for Social Security retirement benefits, your children may also qualify to receive benefits on your record. Your eligible child can be your biological child, adopted child or stepchild. A dependent grandchild may also qualify. To receive benefits, the child must:

• be unmarried; and
• be under age 18; or
• be 18-19 years old and a full-time student (no higher than grade 12); or
• be 18 or older and disabled from a disability that started before age 22.

Normally, benefits stop when children reach age 18 unless they are disabled. However, if the child is still a full-time student at a secondary (or elementary) school at age 18, benefits will continue until the child graduates or until two months after the child becomes age 19, whichever is first.

 Comparing Early versus FRA Social Security Benefit Retirement Strategies

As stated earlier, benefits paid for your child will not decrease your retirement benefit. In fact, the value of the benefits he or she may receive, added to your own, may help you decide if taking early retirement may be more advantageous. The following two scenarios illustrate this concept:

Scenario #1

A 62 year-old single parent with a 14-year old child with a FRA of 66 and monthly FRA benefit of $1,000. If this single parent retires at 62 he or she can collect $750 per month and the child can collect 50 percent of the FRA benefit of $500 for a total of $1,250. The $1,250 can be collected for four-years until the child is 18.

Scenario #2

A 62 year old single parent with a 14-year old child with a FRA of 66 and monthly FRA benefit of $1,000 waits until FRA to begin benefits.

Deciding Which Social Security Strategy is Best

The break-even age of Scenario #1 and Scenario #2 is 78. Therefore if the single parent does not expect to live beyond age 78 (due to health problems or other issues) he or she should take advantage of Scenario #1 and collect the the child’s benefit for four years.

The SSA states that it is important to keep in mind that there is a Family Maximum. The total varies, but generally the total amount you and your family can receive is about 150 to 180 percent of your FRA benefit. For more information about the Family Maximum amount see an earlier blog at http://kathleensindell.com/blog-writing/excerpt-from-social-security-maximize-your-benefits-9 .

Make it Easy on Yourself with These Quick Tips

This is the second part of a two part series on quick ways to increase your Social Security benefits. If you are adverse to using complex planning scenarios or computer programs this series provides six quick strategies to increase your monthly Social Security benefits. After seeing which Social Security Benefit strategy works best, you may want to compare strategies or fine tune your approach by using a Social Security Calculator at http://www.socialsecurity.gov/retire2/AnypiaApplet.html.

4. Wait Longer to Apply for Social Security Benefits

Social Security benefits are increased by a certain percentage (depending on date of birth) if you delay claiming your retirement benefits beyond Full-Retirement Age (FRA). The chart below indicates the yearly and monthly rate of increase by year of birth. For example, If you were born in 1948, your FRA is 66. If you work until 70 you will receive 32 percent more than your base FRA benefit. That is, let say your FRA benefit is  $1,000 your do not apply for benefits until age 70. You FRA benefit with Delayed Retirement Credits (DRCs) will be $1,320 per month [$1,000 + (4 X 8 percent = 32 percent X $1,00)] = $1,320.

The benefit increase is not compounded and increases no long apply after the age of 70, even if you continue to delay taking benefits. If you’ve already reached full-retirement age, you can choose to start receiving benefits before the month you apply. However, the Social Security Administration cannot pay retroactive benefits for any month before you reached FRA or more than 6-months in the past.

Here’s An Important Point: If you decide to delay your retirement, be sure to enroll in Medicate at age 65. For more information see www.ssa.gov/retire2/justmedicare.htm. If you do not enroll, your Medicate coverage may be delayed and cost more.

5. Take advantage of Spousal Benefits with File and Suspend

If you and your current spouse are FRA, one of you can apply for retirement benefits now and have the payments suspended, while the other applies only for spousal benefits (for more information see http://www.socialsecurity.gov/retire2/yourspouse.htm#a0=1). This approach allows for both individuals to delay receiving retirement benefits on their own earnings records and paves the way for both individuals to receive Delayed Retirement Credits (see above for details).

If you are already entitled to benefits you can Suspend current or future retirement benefit payments up to age 70 beginning the month after the month when you made the request. (Remember, the SSA pays benefits the month after they are due.) You do not have to sign your request to Suspend benefits, you can ask the SSA orally or in writing. (However, I would make certain you have a receipt of your request. You want to make certain that you will receive your DRCs.)

Let’s stay that you started to receive benefits less than 12-months ago and you changed your mind about when you want to start benefits. You can withdraw your Social Security Claim (called Reset Your Application) For details see  http://www.ssa.gov/retire2/withdrawal.htm . Keep in mind that this is a one time action and you will have to repay all the benefits you and your family received based on your retirement application.

6. Use Your Taxable Assets First

Some folks pay taxes on their Social Security benefits. Claimants pay taxes on their total income (investment earnings, pension payouts, wages, tax-exempt interest and half of their Social Security income). To reduce your tax liability remember that Roth IRAs are not counted as taxable income.  Withdrawals from 401(k), 403(b), IRAs and other tax-deferred accounts are included as taxable income. There may be real advantages to using your taxable accounts before you apply for Social Security benefits. This will allow those non-taxable accounts (like Roth IRAs) to increase in value.