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Innovative Strategies to Increase Your Social Security Benefits (Part 1 of 2)

This is the first 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 what 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

1.      Increase Your Social Security Benefits by Working 35-Years

Retirement Age is when you begin receiving Social Security benefits. Your Stop Work Age is the age you are when you leave the work force. Your retirement benefit is based on your highest 35-years of earnings and your age when you begin benefits. If you stop work before retirement age the Social Security Administration (SSA) will use zero (0) for each year without earnings when they calculate your benefits. Additionally, some of your 35-years may be low-earnings years, those low earning years will be averaged in, creating a lower benefit than if you had continued to work.

SOLUTION: If you have low earning or zero earning years in your earnings record, you may want to work before you retire to give your benefits an extra bump.

2.      Don’t Take Early Retirement

If your Full-Retirement Age (FRA) is 66 and you retire at 62 your benefits will be permanently reduced by 25 percent. Additionally, if you are forced to go back to work,  your benefits will be reduced by $1 for every $2 you earn over $15,480 in 2014.

SOLUTION: Bite the bullet. There are many regional, state and federal programs that can assist you during your four-year FRA  “waiting” period. For example, the State of Illinois has a 32-page guide titled the, “State & Federal Programs for Older Americans 2013” located at http://www.state.il.us/aging/1news_pubs/publications/state-federal_book.pdf. This guide is designed to assist older Americans in need and includes sources of financial assistance for energy, tax relief, food, and health care.

3.      Collect Your Extra Credit Social Security Benefit Dollars for Military Service

According to the SSA under certain conditions special extra earnings credits are granted for periods of active duty or active duty for training. Special extra earnings credits are not granted for inactive duty training. For example, if  your active military service occurred:

• From 1957 through 1967, the SSA will add the extra credits to your record when you apply for Social Security benefits.
• From 1968 through 2001, you do not need to do anything to receive these extra credits. The credits were automatically added to your record.
• After 2001, there are no special extra earnings credits for military service.

Note: According to the SSA in January 2002, Public Law 107-117, the Defense Appropriations Act, stopped the special extra earnings that have been credited to military service personnel. Military service in calendar year 2002 and future years no longer qualifies for these special extra earnings credits

SOLUTION:  The SSA provides the following guidelines for claiming extra credit for military service:

• The information that follows applies only to active duty military service in 1957 through 1977,  you are credited with $300 in additional earnings for each calendar quarter in which you received active duty basic pay.
• Active military service in 1978 through 2001 for every $300 in active duty basic pay, you are credited with an additional $100 in earnings up to a maximum of $1,200 per year. If you enlisted after September 7, 1980, and didn’t complete at least 24 months of active duty or your full tour, you may not be able to receive the additional earnings. Check with Social Security for details at www.ssa.gov.

New Earnings Limits May Result in a Decrease in Your Early Retirement Benefits

According to the Social Security Administration (SSA) you can collect  retirement and survivor benefits while working.  If you are receiving benefits before Full-Retirement Age (FRA ) you will receive a reduced benefit.  FRA  for individuals born between 1943-1954 is 66. Taking early retirement at age 62 results in a 25 percent reduction, retiring at age 63 results in a 20 percent decrease, retiring at age 64 has a 13.3 percent drop, and retiring early at age 65 has a 6.7 percent reduction.

For people born later than 1960 FRA age is 67.  If these folks retire at age 62 they can expect a 30 percent cut in benefits. If you can wait to start retirement benefits you can get more than 100 percent of your full benefit by gaining  Delayed Retirement Credits (DRCs). These additional benefits cease at age 70.

Note: If you are working outside of the United States the receiving early retirement benefits and working rules are different.  For details see http://www.socialsecurity.gov/hlp/isba/10/hlp-isba044b-earnwg2-for.htm

The Negative Impact of Working and Receiving Early Retirement Benefits

Individuals who are FRA and working can work as much as they like and their benefits will not be reduced.  There are earning limits for early retirees that are receiving benefits and working. These earning limits change each year.  In   2014 the maximum early retirees can earn is $15, 480.   If you are under FRA for the entire year the SSA will deduct $1 from your benefit payments for every $2 you earn above $15,480.

The SSA provides this example of someone who retires mid-year:

John Smith retires at age 62 on June 30, 2014.  He earned $37,000 before he retired.

On October 5th, John starts his own business. He works at least 15 hours a week for the rest of the year and earns an additional $3,000 after expenses. His total earnings for 2014 are $40,000.

Although his earnings for the year substantially exceed the 2014 annual limit ($15,480), John will receive a Social Security payment for July, August and September.  This is because he was not self-employed and his earnings in those three months are $1,290 or less per month, the limit for people younger than full retirement age.

John will not receive benefits for October, November or December 2014 because he worked in his business over 45 hours per month in all three months.

Beginning in 2015, the deductions are based solely on John’s annual earnings limit.  For more information see http://socialsecurity.gov/retire2/whileworking3.htm

Note: Good news, if your earnings for the year are higher than one of the years originally used to compute your retirement benefit, the SSA will substitute the new year of earnings. This can assist in bumping up your monthly benefit amount.