2013 Social Security Retirement Guide Written by Jim Blair Published by GEB Media, LLC. Copyright Š 2013
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Disclaimers and Legal Notices
Independent Resource Notice This document is NOT a publication of the United States Social Security Administration. Nor is it endorsed by them, or affiliated with them in any way. The official website of United States Social Security Administration can be found at http://socialsecurity.gov
Results Disclaimer This document contains strategies and advice related to social security benefits that, regardless of the author's own results and experience, may not provide the same (or any) results for you. The author makes absolutely no guarantee, expressed or implied that by following this advice you will save money, receive any benefits, or improve your life in any way, as there are several factors and variables that affect each person's individual situation.
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You further agree that the author or his company cannot be held responsible in any way for the success or failure of your results as a result of the information presented here. It is your responsibility to conduct your own due diligence regarding the safe and successful implementation of any information presented here.
In summary, you understand that the author makes absolutely no guarantees regarding the results of applying this information. You are solely responsible for the results of any action taken on your part as a result of this information.
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Table of Contents Introduction ........................................................................................................... 4 Chapter 1: Social Security Fundamentals ............................................................... 6 Chapter 2: Benefit Computations........................................................................... 9 Chapter 3: Options for Single Individuals ............................................................. 20 Chapter 4: Options for Couples ............................................................................ 24 Chapter 5: Options for Widows/Widowers .......................................................... 34 Chapter 6: Divorced Retirees ............................................................................... 41 Chapter 7: Quarters of Coverage ......................................................................... 42 Chapter 8: Medicare ............................................................................................ 44 Chapter 9: Government Pension Offset (GPO) ..................................................... 55 Chapter 10: Windfall Elimination Provision (WEP) ............................................... 58 Chapter 11: Questionable Retirement ................................................................. 61 Chapter 12: Online Application ............................................................................ 63 Chapter 13: Benefit Appeals and Recalculations .................................................. 66 Chapter 14: Who Should Take Early Benefits at Age 62?...................................... 69 Chapter 15: Pre-Retirement Checklist .................................................................. 71
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Introduction Social Security options for retirees are limited in number, but overlooking them can be costly. Once you make a decision and file for benefits you are locked into those benefits with very few choices for change. The Social Security Administration will not discuss all the options available to you. Their assumption is you have researched all of your options for filing, and decided that filing an application is best for you and your own situation.
The problem is most individuals do not know what choices are available. Most folks know you can file at age 62. Did you know if you were born between 1943 through 1954 and you file for Social Security benefits at age 62 you take a 25% reduction in your monthly benefit from what you would receive at your full retirement age? This reduction is permanent and will be with you for the rest of your life.
Do you know your full retirement age? It is different for individuals and is based on the year you were born. It was initially age 65 but starting for individuals born in 1938 it began to increase and now reaches age 67 for individuals born in 1960 or later. Those born in 1960 or later who take Social Security benefits at age 62 receive a 30% reduction in benefits. This reduction not only affects your benefits but also limits the benefits you leave for your widowed spouse.
Did you know if you delay receiving monthly benefits past your full retirement age you receive delayed retirement credits that equal an 8% per year increase in your monthly benefit? Those whose full retirement age is 66 would receive a 32% increase in their monthly benefit payment if they wait until age 70 to receive benefits. Those are just a few options available to individuals.
A single individual has about 3 different options, a married couple has about 8 different options and a widow/widower has about 4 different options to consider before filing for their Social Security. The Social Security Administration will talk to you about some of the well know options, but you’ll rarely get them to discuss things like the file and suspend and restricted application options available to married couples. And as more cuts are being made to federal
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budgets, the amount of staff and office hours are declining while the number of applicants is increasing. This creates a difficult situation for retirees seeking the information needed to make good decisions.
The good news for readers of this guide is that I intend to help you dispel the mystery behind how Social Security retirement benefits are calculated and awarded. As a former Social Security District Manager, I have spent the majority of my life working with the rules and guidelines of the Social Security Administration. Everything I have learned is available to you in this guide.
This guide is not intended to be a “magic bullet� for acquiring riches at the expense of Social Security, nor is it a manual for manipulating the system to receive undeserved benefits. What it is however, is a resource retirees can use to maximize their retirement benefits. You only apply for Social Security retirement once in your life, so it is reasonable to assume few of you have the expertise to recognize all of your options. Hopefully after reading my guide you will realize there are many more things to consider than simply what date to submit your application.
The best strategy for reading through the chapters ahead is to read all of them in order the first time. You will come across equations and formulas in certain places that can be overwhelming initially. Do not interrupt your reading by spending hours trying to learn them. Work your way through the content first and come back to the difficult parts. The calculations are provided as resource, and in most cases you only need to recognize their output in order to maximize your benefits.
If you have any questions while studying this guide, you can send them to me via email. My email address for support questions is help@socialsecurityretirementguide.com
Wishing You the Best in Retirement, Jim Blair
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Chapter 1: Social Security Fundamentals The best place to begin this guide is with a quick review of Social Security rules and guidelines that apply to retirement benefits. This section includes a wide range of topics, so I decided to list them in bite-size paragraphs to break them up in an organized manner. Understanding these core guidelines from the beginning will make it easier to apply the strategies discussed later to your own personal situation.
The 2013 average retirement benefit is $1,261 per month, according to the Social Security Administration. That equals $15,132 per year, which of course is not a lot. But keep in mind that Social Security was not created to be a standalone retirement account. It should be combined with a retirement portfolio that includes savings, investments and/or pensions.
Social Security benefits are calculated using the 35 highest years of earning years in your career. If you have less than 35 years of earnings then your non-earning years will be represented with zeros. This will negatively affect the average of your benefits calculation and lower your monthly benefit.
There is a minimum requirement of 10 earning years to qualify for any amount of retirement benefits. Social Security measures years in quarters, so it takes 4 quarters of earnings to equal one year, and 40 quarters to meet the minimum of 10 years.
As mentioned, the fewer “zero years� you have will improve your income averages, so it makes sense to pursue more years/quarters of work if you are just short of the 10 year or 35 year baseline. Each $1,160 in earnings counts as a quarter in 2013 and you can earn a maximum of 4 quarters of coverage per year. Thus, if you earned $4,640 in January of 2013 then you will have earned the maximum 4 quarters in only one month.
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The absolute earliest you can receive retirement benefits is at the age of 62. You can delay your benefits as late as age 70. Most people understand that the earlier they enroll the less they will receive on a monthly basis. A 25% reduction in benefits is applied when you enroll at age 62. This reduction amount decreases the closer you get to your full retirement age.
A common myth about the early retirement reduction is that it is a "penalty". This is not true. The reduction simply recalculates your monthly benefits based on the fact you will receive more payments over your expected lifetime. It is the 7% interest return that you miss out on by claiming early.
Earnings limits apply to benefit recipients younger than full retirement age - age 66 for people born in 1943 through 1954. For 2013 this limit is $15,120. If you take benefits early, which is any time before your full retirement age, Social Security will deduct $1 of benefits for each $2 earned over $15,120.
In the year you reach full retirement age there is an earnings limit of $40,080 for the months leading up to your birthday. For example, if your birthday is June 1st then you can earn up to $40,080 between January and May without penalty. However, Social Security will deduct $1 from benefits for each $3 earned over $40,080 during this time. Once you reach your full retirement age, there is no penalty and no limit on the amount you can earn.
Some people must pay federal income taxes on their Social Security benefits if they have what is called other substantial income. 50% of benefits are taxable for individuals with a combined income between $25,000 and $34,000, and 85% of benefits can be taxed on individuals whose income exceeds $34,000. For couples, the 50% threshold begins between $32,000 and $44,000, while the 85% threshold begins for joint incomes more than $44,000.
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Everyone who works must pay Social Security and Medicare taxes on their earnings, regardless of age. Yes, even a 69 year old part-time employee who collects Social Security benefits is required to pay into the Social Security system!
One VERY important consideration for early retirees is health insurance. Keep in mind that you cannot claim any Medicare benefits until age 65. If your employer currently provides your health insurance then you run the risk of paying high insurance costs (or having no insurance) if you opt leave your employer’s plan.
Social Security is configured to provide lower wage workers with a higher percentage of their average working income in retirement. For example, a low wage worker might earn a Social Security benefit close to 50% of their pre-retirement income. The average replacement rate for high income workers is around 25%.
Your Social Security benefits are protected from most debt collections, but they can be taken to collect unpaid federal taxes, federal student loan balances, and child support or alimony. Clearing these debts will leave your Social Security benefits untouched.
Your Social Security retirement payments do not begin magically appearing in your bank account when you reach retirement age. If you do not apply for them you will never receive a single dime from Social Security.
Social Security disability benefits are automatically converted to retirement benefits after you reach Full Retirement Age.
Again, this chapter is simply a collection of what I consider to be important facts about Social Security and retirement. I included them here to answer some frequently asked questions before we get into more detailed information beginning with the next chapter.
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Chapter 2: Benefit Computations There are a lot of misconceptions about how the Social Security Administration computes an individual’s monthly benefit. This is done by computer by the Administration but it is helpful to understand how your benefits are computed. With this knowledge you can insure that your benefits are correct, determine any effect a pension not covered by Social Security has on your benefit, and it will allow you to consider a lot of “what if” scenarios.
To do your own computation you will need to know several things. First you need to know what your Social Security earnings were in each year you worked. Use all of your earnings no matter how long ago you earned them. Second you will need to know the indexing percentages the Social Security Administration uses to bring your past earnings up to “today’s dollars”. Third you will need to know the bend point figures the Social Security Administration uses to determine your monthly benefit.
Ideally you still have a copy of the last Social Security statement the Social Security Administration sent you (pictured above). Unfortunately they are no longer sending them as of July 2011, however, they are available online at www.socialsecurity.gov. Yes, you can get an estimate of your retirement benefits using SSA’s retirement estimator tool. But it does not provide the same information found in the Social Security written statement.
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The newly launched My Social Security website gives everyone instant access to their personal Social Security data, including lifetime earnings and potential benefits as they are currently recorded.
“My Social Security Website” can be found at https://secure.ssa.gov/RIL/SiView.do
This new online feature provides a similar service to the paper statements that were once mailed out annually. It is accessible to anyone with a Social Security number who is 18 years of age or older. Registration is done directly through the website and the following information can be found once you are logged in…
- Your Lifetime Social Security Earnings - Estimated Benefits for Retirement, Disability and Survivors - Estimated Taxes Paid for Social Security and Medicare - Additional Planning Information for Retirement and Medicare
A final option, and one that I DO NOT recommend using, is the retirement estimator tool online at http://www.socialsecurity.gov/estimator/
While this tool may appear to be a handy shortcut, it is not very transparent and therefore is not a reliable means for insuring accuracy. Yes, you can get an estimate of your retirement benefits using SSA’s retirement estimator tool. But it does not provide the same information found in the annual written statement. Omissions include estimates of disability, survivor’s benefits and your complete earnings record. Furthermore, younger Americans who do not have 40 quarters of credits are not even permitted to use the tool. The bottom line is that the statements and the information at “My Social Security” are the two best sources to check for errors on your account.
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When reviewing your lifetime earnings, keep in mind that the Social Security Administration measures earnings as wages and/or net earnings from self-employment. Other types of income, such as investment income, are not included. There is also a maximum earnings cap for each year. Any amount you earned over the maximum earnings cap does not get taxed for Social Security. You will see the annual breakdown of the maximum earnings thresholds when I get into the example computations later in this chapter.
Components of the Social Security Benefits Formula In addition to your complete earnings record, you also need to know your Indexed Earnings and Bend Points in order to calculate your monthly retirement benefit at full retirement age. Let’s take minute to examine what these numbers are and how they are used in the benefits formula.
Indexed Earnings Social Security uses your highest 35 years of indexed earnings to determine your average indexed monthly wages. Indexed earnings are a representation of your past earnings in today’s dollars. Using such indexing ensures your future benefits reflect the general rise in the standard of living that occurred during your working lifetime. The Social Security Administration uses the National Average Wage Index (NAWI) to index earnings for benefit applicants. NAWI indexing depends on the year in which a person is first eligible to receive benefits. For retirement, eligibility is at age 62. If a person reaches age 62 in 2011, then 2011 is the person's year of eligibility. An individual's earnings are always indexed to the average wage level two years prior to the year of first eligibility; earnings in the year you obtain age 60 or later will be taken at face value.
The 2013 indexing factors are provided on the next page‌
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For 2013, the indexing factors are: Year 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971
Factor 15.3544671 14.4550906 13.6902155 13.6199345 13.0184435 12.1673923 11.8020084 11.6989520 11.1467426 10.7258106 10.5167933 10.0152887 9.7755582 9.3917405 9.2226264 8.7032152 8.2440020 7.7138301 7.2923923 6.9476144 6.9476144
Year 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Factor 6.0247848 5.6700136 5.3518733 4.9797252 4.6582890 4.3949480 4.0715695 3.7440446 3.4346703 3.1205473 2.9577183 2.8203250 2.6637387 2.5548869 2.4812410 2.3324878 2.2230020 2.1383369 2.0439248 1.9704932 1.8739404
Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Factor 1.8579615 1.8093989 1.7396665 1.6585543 1.5671119 1.4891707 1.4105624 1.3366460 1.3055013 1.2925386 1.2616960 1.2056482 1.1630904 1.1119804 1.0637074 1.0397881 1.0557089 1.0313333 1 1
We will use these indexing factors in a bit when I run through the benefits calculation examples.
Bend Points A three-tiered benefit formula determines a monthly benefit based on your Averaged Indexed Monthly Earnings (AIME). It is designed to replace a higher percentage of earnings for people at lower levels. At higher levels of earnings the formula provides higher benefits, but the percentage of the benefit relative to AIME declines. The earnings levels where percentages change are called “bend points� because a graph of the benefits would have a bend in the line at those points.
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The Bend Points Formula provides 90% of AIME up to the first bend point, 32% from there up to the second bend point, and 15% above the second bend point. Bend points are adjusted each year for inflation. For 2013 these portions are the first $791, the amount between $791 and $4,768, and the amount over $4,768. Note that these are applied to your monthly earnings, so they correspond to annual income 12 times that amount ($9,492 for the first bend point and $57,212 for the second bend point). Example 1: Your AIME is $3,000. If you retire in 2013 your benefits would be… .9(791) + .32(3,000 - 791) = $1,418.78 (before rounding) This is the monthly retirement benefit you receive if you retire at full retirement age.
Example 2: Your AIME is $5,000. If you retire in 2013 your benefits would be… .9(791) + .32(4,768 - 791) + .15(5,000 – 4,768) = $2,019.34 (before rounding) *All monthly benefit amounts are rounded down to the next dime. So what you see here is a worker with lower wages will replace a higher percentage of those wages with their monthly benefits (46%). And even though the worker with higher wages gets a larger monthly benefit, it replaces a lower percentage of wages (42%). This disparity in percentages grows wider for workers with even higher AIME than those covered in example 2. The table below shows the official bend points for the last few years… Year 2011 2012 2013
First Bend Point $749 $767 $791
Second Bend Point $4,517 $4,624 $4,768
Example Benefits Calculations Okay, so we have discussed the core components you need to calculate your monthly benefits. You have a record of your lifetime earnings. I gave you a chart with the Index Factor for each year of earnings. And we know the Bend Points for 2013. Now it is time to plug this information into the standard benefits formula.
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Example1: Maximum Earnings Worker A maximum earnings worker is someone who has earnings that exceeded the Maximum Earnings threshold for Social Security taxes. Assume our worker was born in 1951 and became age 62 in 2013.
Step 1: Enter the actual earnings in Total Earnings column but do not enter more than the Maximum Earnings column. For example, even though our worker earned $5,000 in 1962 they would only enter $4,800 in the Total Earnings column because that is the maximum amount on which they paid social security tax for that year.
Step 2: Multiply the Total Earnings Column by the Index Factor and enter results in the Indexed Earnings column. (graph continued on next page)
Year
Maximum Earnings
Total Earnings
Index Factor
1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
$4,800.00 $4,800.00 $4,800.00 $4,800.00 $6,600.00 $6,600.00 $7,800.00 $7,800.00 $7,800.00 $7,800.00 $9,000.00 $10,800.00 $13,200.00 $14,100.00 $15,300.00 $16,500.00 $17,700.00 $22,900.00
$4,800.00 $4,800.00 $4,800.00 $4,800.00 $6,600.00 $6,600.00 $7,800.00 $7,800.00 $7,800.00 $7,800.00 $9,000.00 $10,800.00 $13,200.00 $14,100.00 $15,300.00 $16,500.00 $17,700.00 $22,900.00
10.0152887 9.7755582 9.3917405 9.2226264 8.7032152 8.2440020 7.7138301 7.2923923 6.9476144 6.9476144 6.0247848 5.6700136 5.3518733 4.9797252 4.6582890 4.3949480 4.0715695 3.7440446
Indexed Earnings $48,073.39 $46,922.68 $45,080.35 $44,283.01 $57,441.22 $54,410.41 $60,167.87 $56,880.66 $54,191.39 $51,598.71 $54,223.06 $61,236.15 $70,644.73 $70,214.13 $71,271.82 $72,516.64 $72,066.78 $85,738.62
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1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$25,900.00 $29,700.00 $32,400.00 $35,700.00 $37,800.00 $39,600.00 $42,000.00 $43,800.00 $45,000.00 $48,000.00 $51,300.00 $53,400.00 $55,500.00 $57,600.00 $60,600.00 $61,200.00 $62,700.00 $65,400.00 $68,400.00 $72,600.00 $76,200.00 $80,400.00 $84,900.00 $87,000.00 $87,900.00 $90,000.00 $94,200.00 $97,500.00 $102,000.00 $106,800.00 $106,800.00 $106,800.00 $110,100.00
$25,900.00 3.4346703 $29,700.00 3.1205473 $32,400.00 2.9577183 $35,700.00 2.8203250 $37,800.00 2.6637387 $39,600.00 2.5548869 $42,000.00 2.4812410 $43,800.00 2.3324878 $45,000.00 2.2230020 $48,000.00 2.1383369 $51,300.00 2.0439248 $53,400.00 1.9704932 $55,500.00 1.8739404 $57,600.00 1.8579615 $60,600.00 1.8093989 $61,200.00 1.7396665 $62,700.00 1.6585543 $65,400.00 1.5671119 $68,400.00 1.4891707 $72,600.00 1.4105624 $76,200.00 1.3366460 $80,400.00 1.3055013 $84,900.00 1.2925386 $87,000.00 1.2616960 $87,900.00 1.2056482 $90,000.00 1.1630904 $94,200.00 1.1119804 $97,500.00 1.0637074 $102,000.00 1.0397881 $106,800.00 1.0557089 $106,800.00 1.0313333 $106,800.00 1 $110,100.00 1
$88,957.96 $92,680.25 $95,830.07 $100,685.60 $100,689.32 $101,173.52 $104,212.12 $102,162.97 $100,035.09 $102,640.17 $104,853.34 $105,224.34 $104,003.69 $107,018.58 $109,649.57 $106,467.59 $103,991.35 $102,489.12 $101,859.28 $102,406.83 $101,852.43 $104,962.30 $109,736.53 $109,767.55 $105,976.48 $104,678.14 $104,748.55 $103,711.47 $106,058.39 $112,749.71 $110,146.40 $106,800.00 $110,100.00
Step 3: Choose the highest 35 years and add these amounts together. The highlighted years in the table above represent the highest 35 years of indexed earnings. When added together the sum is $3,586,573.90.
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Step 4: Divide the total from Step 3 by 420 (35 years times 12) and round down to the next lowest dollar. This will give you the Average Indexed Monthly Earnings (AIME). $3,586,573.90 / 420 = $8539.00
Step 5: Multiply the first $791 of the AIME by 90%. This is the first bend point. $791 * .90 = $711.90
Step 6: Multiply the amount of the AIME over $791 and less than or equal to $4,768 by 32%. This is the second bend point. ($4,768 - $791) * .32 = $1,272.64
Step 7: Multiply the amount of the AIME over $4768 by 15%. ($8,539 - $4,768) * .15 = $565.65
Step 8: Add the totals from 5, 6, and 7 and round down to the next lowest dollar. This is the monthly retirement benefit at full retirement age. $711.90 + $1,272.64 + $565.65 = $2,550.19
Not too difficult, right? Now let’s do another example with a different tier of lifetime earnings.
Example 2: Worker with Middle Income Worker A middle income worker is someone whose earnings that DO NOT exceed the Maximum Earnings threshold for Social Security taxes. Assume our worker was born in 1951 and became age 62 in 2013.
Step 1: Enter the actual earnings in Total Earnings column but do not enter more than the Maximum Earnings column. In this example we do have to be concerned about Maximum Earnings because all of the workers’ wages fall under the maximum.
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Step 2: Multiply the Total Earnings Column by the Index Factor and enter results in the Indexed Earnings column. Year
Maximum Earnings
1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
$7,800.00 $7,800.00 $7,800.00 $7,800.00 $9,000.00 $10,800.00 $13,200.00 $14,100.00 $15,300.00 $16,500.00 $17,700.00 $22,900.00 $25,900.00 $29,700.00 $32,400.00 $35,700.00 $37,800.00 $39,600.00 $42,000.00 $43,800.00 $45,000.00 $48,000.00 $51,300.00 $53,400.00 $55,500.00 $57,600.00 $60,600.00 $61,200.00 $62,700.00 $65,400.00 $68,400.00 $72,600.00 $76,200.00 $80,400.00 $84,900.00
Total Earnings $240.00 $3,891.00 $3,127.00 $2,847.00 $6,454.00 $7,073.00 $6,126.00 $4,628.00 $8,075.00 $9,639.00 $10,838.00 $11,984.00 $12,795.00 $16,086.00 $17,668.00 $14,743.00 $14,750.00 $16,100.00 $16,900.00 $16,900.00 $16,900.00 $12,098.00 $13,025.00 $14,211.00 $12,627.00 $15,997.00 $17,088.00 $20,664.00 $21,559.00 $22,440.00 $24,050.00 $21,663.00 $21,997.00 $22,424.00 $22,993.00
Index Factor 7.7138301 7.2923923 6.9476144 6.6152195 6.0247848 5.6700136 5.3518733 4.9797252 4.6582890 4.3949480 4.0715695 3.7440446 3.4346703 3.1205473 2.9577183 2.8203250 2.6637387 2.5548869 2.4812410 2.3324878 2.2230020 2.1383369 2.0439248 1.9704932 1.8739404 1.8579615 1.8093989 1.7396665 1.6585543 1.5671119 1.4891707 1.4105624 1.3366460 1.3055013 1.2925386
Indexed Earnings $1,851.32 $28,374.70 $21,725.19 $18,833.53 $38,883.96 $40,104.01 $32,785.58 $23,046.17 $37,615.68 $42,362.90 $44,127.67 $44,868.63 $43,946.61 $50,197.12 $52,256.97 $41,580.05 $39,290.15 $41,133.68 $41,932.97 $39,419.04 $37,568.73 $25,869.60 $26,622.12 $28,002.68 $23,662.25 $29,721.81 $30,919.01 $35,948.47 $35,756.77 $35,165.99 $35,814.56 $30,557.01 $29,402.20 $29,274.56 $29,719.34
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$87,000.00 $87,900.00 $90,000.00 $94,200.00 $97,500.00 $102,000.00 $106,800.00 $106,800.00 $106,800.00 $110,100.00
$23,576.00 $23,958.00 $24,492.00 $25,136.00 $25,881.00 $27,608.00 $27,955.00 $28,427.00 $28,886.00 $30,002.00
1.2616960 1.2056482 1.1630904 1.1119804 1.0637074 1.0397881 1.0557089 1.0313333 1.0000000 1.0000000
$29,745.74 $28,884.92 $28,486.41 $27,950.74 $27,529.81 $28,706.47 $29,512.34 $29,317.71 $28,886.00 $30,002.00
Step 3: Choose the highest 35 years and add these amounts together. The highlighted years in the table above represent the highest 35 years of indexed earnings. When added together the sum is $1,251,845.80.
Step 4: Divide the total from Step 3 by 420 (35 years times 12) and round down to the next lowest dollar. This will give you the Average Indexed Monthly Earnings (AIME). $1,251,845.80 / 420 = $2,980.00
Step 5: Multiply the first $749 of the AIME by 90%. This is the first bend point. $791 * .90 = $711.90
Step 6: Multiply the amount of the AIME over $791 and less than or equal to $4,768 by 32%. This is the second bend point. ($2,980 - $791) * .32 = $700.48
Step 7: Multiply the amount of the AIME over $4768 by 15%. Does Not Apply
Step 8: Add the totals from 5 and 6 then round down to the next lowest dollar. This is the monthly retirement benefit at full retirement age. $711.90 + $700.48 = $1,412.38
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Now you should have a good grasp of how to calculate your monthly benefit at full retirement age (FRA). There are of course other options besides waiting until you reach FRA, and these will be covered in the chapters ahead.
The big takeaway of this chapter is the fact that you can calculate your benefits yourself. Having access to your most recent Annual Social Security Statement will save you considerable time by providing a log of your earnings. All you need to do from there is follow the formula outlined above.
Perhaps the best part of learning the benefits formula is you won’t have to rely on anyone else for answers. The phone lines and walk-in traffic at your local Social Security office will cost you hours of wait time. And through all that waiting you might not even get a direct answer to your question! The government is deflecting the responsibilities to you for getting the information about your case. The rest of this book will help you become proactive and self-sufficient in these matters.
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Chapter 3: Options for Single Individuals Options for single individuals who are not entitled to benefits from someone else’s work record are limited. Basically you are limited to age-related choices. You can file for benefits any time after age 62 and your monthly benefit amount will be based on your full retirement age (FRA) benefit and your age when you begin to receive benefits.
Important things to take into consideration as an individual when deciding when to file for benefits are your health, family medical history, and of course your financial health. If you have a financial advisor you may want to seek their advice before making your decision. Social Security is a good base retirement for your other retirement income as it is a lifetime benefit. That being said, once you file your application the options for changing your decision are limited. For more information on this subject see “Do Over Provision� in Chapter 11.
Reduction Factors Individuals who claim benefits prior to the full retirement age have their full benefits multiplied by a reduction factor. This factor is generally equal to five-ninths of 1 percent (0.56 percent) for each month the person claimed prior to FRA. The reduction factor changes to five-twelfths of 1 percent (0.41 percent) if benefits are received more than 36 months before FRA. In this case a 20% penalty is also applied for the first 36 months.
If you elect to begin receiving Social Security benefits within 36 months of FRA the monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is known as the reduction factor. If you elect to begin receiving Social Security benefits when there are more than 36 months before FRA the monthly payment will be reduced 20% for the first 36 months plus 5/12 of 1% (0.41%) for each month in excess of 36.
The good news is there is a much easier way to calculate how reduction factors will affect your monthly benefits. You can use a formula that allows you to enter reductions in terms of months to simplify calculations. Let me show you how this works.
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If the reduction factor (number of months prior to FRA) is 1 through 36, subtract 180 by the reduction factor and then multiply it by the FRA benefit amount. Then divide that total by 180. This will equal your monthly benefit amount.
Example: 36 months or less before FRA Say your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 63. The reduction factor (number of months prior to FRA) is then 36. To calculate your monthly benefit you would use the formula below:
180 – 36 = 144 144 x $1500 = 216000 216000 / 180 = $1200 Your monthly benefit at age 63 would be $1200. *All monthly benefit amounts are rounded down to the next dime.
If the reduction factor (number of months prior to FRA) is more than 36 your Social Security benefits will be determined using a different formula. Subtract 192 by the number of months in excess of 36 and multiply it times the FRA benefit amount. Then divide that total by 240. This will equal your monthly benefit amount.
Example: 37 months or more before FRA If your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 62, your reduction factor will be 47 (see the note below). To calculate your monthly benefit you would use the formula below:
192 – 11 = 181 181 x $1500 = 271500 271500 divided by 240 = $1131 Your monthly benefit at age 62 would be $1131.
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Note - Benefits are not payable for any month before you are age 62 for the entire month. Social Security determines you reach the age of your birthday the day before your birthday. Only those individuals born on the 2nd of the month will be eligible to receive benefits the month of their 62nd birthday. In that case, the maximum reduction factor for someone whose FRA is age 66 is 48. For everyone else the maximum reduction factor is 47.
Benefits Options for Individuals The basic options available to single individuals who are not entitled to benefits on another’s work record are: Receive Benefits at Age 62 Receive Benefits at FRA (currently age 66) Receive Benefits at Age 70
If you take benefits at age 62 you will receive a reduction of about 25% in monthly benefits over FRA. In 2013, earnings in excess of $15,160 will affect monthly benefits. Social Security will deduct $1 in benefits for every $2 you earn over $15,160. These figures increase in the year you reach FRA to $40,080 for only those months before the month you reach FRA and $1 of benefits are deducted for every $3 you go over the $40,080.
If you delay benefits past FRA you will receive a 5/8 of 1% for each month you delay benefits which equals 8% per year. You will receive a 32% increase in monthly benefits over FRA if you wait until age 70.
The following is an example of monthly benefits and what you might expect to receive over your lifetime in Social Security benefits:
(Continued on next page)
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Date of Birth: 12/28/1951 FRA Benefit: $2094 Expected Death Age: 81.02 years No cost of living increases were included.
Options Age 62 benefit – Monthly benefit $1579 (lifetime benefit $361,591) Age 66 benefit – Monthly benefit $2094 (lifetime benefit $381,108) Age 70 benefit – Monthly benefit $2764 (lifetime benefit $370,376)
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Chapter 4: Options for Couples Options for couples include the normal age based choices as well as choices that will maximize benefits for both individuals. Delaying either of your individual payments will allow payments to be made while still building monthly benefits. Each member of the couple is free to file for benefits as they desire, but if you want to maximize your benefit and maximize survivor benefits you will need to look at other options that both individuals need to consider.
As with anyone, you and your spouse can file for benefits any time after age 62. You and your spouse’s monthly benefit amounts will be based on each of your full retirement age (FRA) benefits and the ages at which you begin to receive benefits. You both need to take into consideration your health, family medical histories, and financial stability when making your decision. If you have a financial advisor you may want to seek their advice before making your decision.
Social Security provides a nice foundation for your retirement income, but most people will need to combine it with other retirement incomes to lead the lifestyle they desire. It is a lifetime benefit that provides benefit payments not only for your lifetime but also that of your spouse. Once you file your applications your options are limited on what you can do to change your decisions. For more information on this subject see “Do Over Provision� in Chapter 11.
The reductions for receiving early benefits are similar to the individual reductions discussed in the previous chapter. The big difference comes in the administration of spousal benefits. To keep things consistent I will cover all couples scenarios from the beginning.
If you and/or your spouse elect to begin receiving Social Security benefits within 36 months of FRA the monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is known as the reduction factor. If you and/or your spouse elect to begin receiving Social Security benefits when there are more than 36 months before FRA the monthly payment
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will be reduced 20% for the first 36 months plus 5/12 of 1% (0.41%) for each month in excess of 36.
There is an easy way to calculate how reduction factors will affect your monthly benefits. You can use a formula that allows you to enter reductions in terms of months (as opposed to the percentages) to simplify the formula. Let me show you how this works.
If the reduction factor (number of months prior to FRA) is 1 through 36, subtract 180 by the reduction factor and then multiply it by the FRA benefit amount. Then divide that total by 180. This will equal your monthly benefit amount.
Example: 36 months or less before FRA Say your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 63. The reduction factor (number of months prior to FRA) is then 36. To calculate your monthly benefit you would use the formula below:
180 – 36 = 144 144 x $1500 = 216000 216000 / 180 = $1200 Your monthly benefit at age 63 would be $1200.
If the reduction factor (number of months prior to FRA) is more than 36 your Social Security benefits will be determined using a different formula. Subtract 192 by the number of months in excess of 36 and multiply it times the FRA benefit amount. Then divide that total by 240. This will equal your monthly benefit amount.
(Continued on next page)
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Example: 37 months or more before FRA If your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 62, your reduction factor will be 47 (see the note below). To calculate your monthly benefit you would use the formula below:
192 – 11 = 181 181 x $1500 = 271500 271500 divided by 240 = $1131 Your monthly benefit at age 62 would be $1131.
Note - Benefits are not payable for any month before you are age 62 for the entire month as discussed on Page 19 of this book.
Spousal Benefits If your spouse is alive and receiving Social Security retirement benefits, you may be eligible to receive a spousal benefit, even if you do not have enough work credits of your own. Eligibility begins at age 62. The maximum spousal benefit is 50% of what your husband or wife receives.
In cases where you have both worked, it is possible to make a claim for your own benefits and claim the greater of your own benefit or the spousal benefit. This should be carefully planned to maximize the overall benefit to the spouse.
If either you or your spouse is eligible to receive spousal benefits you can begin to receive those benefits as early as age 62. As with receiving benefits on your own work record before FRA, the benefits will be reduced for age. The reduction for each of the first 36 months of reduction is 25/36 of 1%. The reduction for each month greater than 36 is 5/12 of 1%. The reduction amount is based solely on the number of months involved.
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Reduced spousal benefits (prior to FRA) are computed as follows: If the number of reduction months is 1 through 36 you subtract the number of reduction months from 144 and multiply that figure by the original benefit. Divide that figure by 144 to determine the monthly benefit amount.
Example: 36 months or less before FRA If your FRA is age 66 and your benefit is $500 and your spouse’s FRA benefit is $2000 and you begin to receive Social Security benefits at age 63, your reduction factor (number of months prior to FRA) will be 36. To calculate your monthly benefit you would use the formulas below:
Your Own Benefit: 180 – 36 = 144 144 x $500 = 72000 72000 divided by 180 = $400
Your Spousal Benefit: $2000 divided by 2 = $1000 $1000 - $500 = $500 144 – 36 = 108 108 x $500 = 54000 54000 divided by 144 = $375
$400 + $375 = $775 Your monthly benefit at age 63 would be $775.
Example: 37 months or more before FRA (next page)
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If the number of reduction months prior to FRA is 37 through 60 you subtract the number of reduction months in excess of 36 from 180 and multiply that figure by the original benefit. Divide that figure by 240 to determine the monthly benefit amount.
If your FRA is age 66 and your benefit is $500 and your spouse’s FRA benefit is $2000 and you begin to receive Social Security benefits at age 62, your reduction factor (number of months prior to FRA) will be 47 (see the note below). To calculate your monthly benefit you would use the formulas below:
Your Own Benefit: 192 – 11 = 181 181 x $500 = 90500 90500 divided by 240 = $377
Your Spousal Benefit: $2000 divided by 2 = $1000 $1000 - $500 = $500 47 – 36 = 11 180 – 11 = 169 169 x $500 = 84500 84500 divided by 240 = $352
$377 + $352 = $729 Your monthly benefit at age 62 would be $729. *All monthly benefit amounts are rounded down to the next dime.
Note - Benefits are not payable for any month before you are age 62 for the entire month as discussed on Page 19 of this book.
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The original benefit is equal to ½ of your spouse’s FRA benefit. If you are also entitled to benefits from your own work record, the original benefit is equal to ½ of your spouse’s FRA benefit minus your FRA benefit.
Basic Options Available to Couples: Receive Benefits at Age 62 (either individual or both) Receive Benefits at FRA (currently age 66) (either individual or both) Receive Benefits at Age 70 (either individual or both)
Additional Strategies Discussed in this Chapter
File and Suspend With “File and Suspend” the higher lifetime wage earner applies for benefits at FRA, but then immediately suspends the benefit payments. What this does is establish the amount that the lower wage earning spouse can receive in spousal benefits. So it creates an opportunity to claim spousal benefits while at the same time allowing the higher wage earner’s own benefits to continue increasing in value until they reach age 70.
Restricted Application A “Restricted Application” is also valuable for increasing lifetime benefits in situations where both spouses have a good wage record and one wants to continue to work after FRA. Here, the working spouse applies for spousal benefits on the other’s record. This allows him or her to receive spousal benefits while continuing to work and increase their own benefit until age 70.
The working spouse files a "restricting an application" to other’s benefits only. When the working spouse chooses to retire, they begin to draw their own higher benefit (which
29
will have fully matured). As a bonus, the spouse who retired first would get a higher survivor benefit in the future, if that happens.
Spousal Benefits Reductions and Credits If you take benefits at age 62 your benefit will be reduced from your FRA benefit. Earnings in excess of $15,120 before your FRA will also affect you and your spouse’s monthly benefits. Social Security will deduct $1 in benefits for every $2 you earn over $15,120. These figures increase in the year you reach FRA to $40,080 for only those months before the month you reach FRA and $1 of benefits are deducted for every $3 you go over the $40,080.
If you delay your own benefits past FRA you will receive a 5/8 of 1% for each month you delay benefits which equals 8% per year. You will receive a 32% increase in monthly benefits over FRA if you wait until age 70.
Examples These are some examples of how certain application options can affect what you and your spouse might receive over your lifetimes in Social Security benefits. The following assumptions were made:
Husband Date of Birth: 08/28/1948 FRA Benefit: $2090 Expected Death Age: 81.07 years
Wife Date of Birth: 05/29/1948 FRA Benefit $1387 Expected Death Age: 84.08 *No cost of living increases were included in the options that follow.
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Option 1: Husband "claims and suspends" August 2014 when both reach Full Retirement Age. Wife files “restricted application” for spousal benefit August 2014 ($1045). Wife files for own benefit May 2018 at Age 70 ($1830). Husband files for own benefit August 2018 at Age 70 ($2758). Husband receives $383,362 Wife receives $403,792 Total Lifetime benefits $787,154
Option 2: Wife files for own benefit May 2014 at FRA ($1387). Husband files “restricted application” for spousal benefit August 2014 at FRA ($693). Husband files for own benefit August 2018 at Age 70 ($2758). Husband receives $417,319 Wife receives $353,652 Total Lifetime benefits $770,951
Option 3: Wife "claims and suspends” August 2014 when both reach Full Retirement Age. Husband files “restricted application” for spousal benefit August 2014 at FRA ($693). Wife files for own benefit May 2018 at Age 70 ($1830) Husband files for own benefit August 2018 at Age 70 ($2758). Husband receives $402,836 Wife receives $338,966 Total Lifetime benefits $741,802
Option 4: Wife files own benefit August 2013 at Age 65 ($1294). Husband files “restricted application” for spousal benefit August 2014 at FRA ($693).
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Husband files own benefit August 2018 at Age 70 ($2758). Husband receives $417,319 Wife receives $355,160 Total Lifetime benefits $772,479
Option 5: Husband files own benefit August 2013 at Age 65 ($1,950). Wife files “restricted application� for spousal benefit May 2014 at FRA ($1045). Wife files for own benefit May 2018 at Age 70 ($1830). Husband receives $388,050 Wife receives $376,320 Total Lifetime benefits $764,370
Option 6: Wife files own benefit May 2014 at FRA ($1387). Husband files own benefit August 2018 at Age 70 ($2758). Husband receives $383,362 Wife receives $357,302 Total Lifetime benefits $740,664
Option 7: Wife files own benefit August 2013 at Age 65 ($1,294). Husband files own benefit August 2018 at Age 70 ($2758). Husband receives $383,362 Wife receives $355,160 Total Lifetime benefits $738,522
Option 8: (Continued on next page)
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Wife files own benefit August 2014 at FRA ($1387). Husband files own benefit August 2014 at FRA ($2090). Husband receives $390,830 Wife receives $334,590 Total Lifetime benefits $725,420
Option 9: Wife files own benefit August 2013 at Age 65 ($1,294). Husband files own benefit August 2014 at FRA ($2090). Husband receives $390,830 Wife receives $332,448 Total Lifetime benefits $723,278
Option 10: Husband files own benefit August 2015 at Age 65 ($1950). Wife files own benefit August 2015 at Age 65 ($1,294). Husband receives $388,050 Wife receives $327,688 Total Lifetime benefits $715,738
Note: In all options, the wife’s benefit converts to widows benefits which equal the husbands benefit at the time of his death.
The bottom line is the longer you delay taking benefits the more money you will receive over the long term. However, this does not mean you and your spouse both have to wait until age 70 to significantly expand the value of your lifetime benefits. Using “file and suspend” or “restricted applications” can create a number of opportunities for your household to receive benefits at age 66, while at the same time growing your primary benefits and widow/widower benefits for the future.
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Chapter 5: Options for Widows/Widowers Widows and Widowers have options not offered to others. You can file for so-called survivor benefits any time after age 60 (age 50 if disabled). These monthly benefits will be based on the deceased individual’s full retirement age (FRA) benefit and your age when you begin to receive benefits. You can choose between survivor benefits and your own benefit when you are ready to file. You can switch to the benefit you didn’t originally take at any time.
If you remarry before age 60, you will not qualify for a survivor benefit. However, if you remarry after age 60, you may be eligible to receive a survivor benefit based on your former spouse's earnings record. Eligible children (18 and under or disabled) can also receive a survivor benefit, worth up to 75% of the deceased's benefit.
As you will read in this chapter, it is important to calculate all possible scenarios to make a decision that is best for your own situation. Consider your health, family medical history, and your financial health in making your decision. If you have a financial advisor you may want to seek their advice before making your decision.
Once again, Social Security can provide a good foundation to your complete retirement income picture. You can take benefits in such a way as to maximize your Social Security benefit once you reach FRA or age 70. If you elect to begin receiving Social Security benefits before your FRA (whether it is the widows/widowers benefit or your own benefit) your benefit will be reduced.
The reductions for receiving your own benefits early are similar to the individual reductions discussed in Chapter 2. The difference with widows/widowers is the additional death benefits from their spouse, which is dependent on when or if they received benefits before passing away. To keep things consistent I will cover all scenarios from the beginning.
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Individual Benefits If you elect to begin receiving your Social Security benefits within 36 months of FRA the monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is known as the reduction factor. If you elect to begin receiving your Social Security benefits when there are more than 36 months before FRA the monthly payment will be reduced 20% for the first 36 months plus 5/12 of 1% (0.41%) for each month in excess of 36.
There is an easy way to calculate how reduction factors will affect your monthly benefits. You can use a formula that allows you to enter reductions in terms of months (as opposed to the percentages) to simplify the formula. Let me show you how this works.
If the reduction factor (number of months prior to FRA) is 1 through 36, subtract 180 by the reduction factor and then multiply it by the FRA benefit amount. Then divide that total by 180. This will equal your monthly benefit amount.
Example: 36 months or less before FRA Say your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 63. The reduction factor (number of months prior to FRA) is then 36. To calculate your monthly benefit you would use the formula below:
180 – 36 = 144 144 x $1500 = 216000 216000 / 180 = $1200 Your monthly benefit at age 63 would be $1200.
If the reduction factor (number of months prior to FRA) is more than 36 your Social Security benefits will be determined using a different formula. Subtract 192 by the number of months in excess of 36 and multiply it times the FRA benefit amount. Then divide that total by 240. This will equal your monthly benefit amount.
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Example: 37 months or more before FRA If your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 62, your reduction factor will be 47 (see the note below). To calculate your monthly benefit you would use the formula below:
192 – 11 = 181 181 x $1500 = 271500 271500 divided by 240 = $1131 Your monthly benefit at age 62 would be $1131.
Note - Benefits are not payable for any month before you are age 62 for the entire month as discussed on Page 19 of this book.
Widows/Widowers Benefits Even if you file for early benefits yourself, you can still wait to file for survivor benefits at FRA with no reduction. If your deceased spouse did not receive a reduced retirement benefit you will be entitled to 100% of the deceased spouse’s benefit plus any applicable delayed retirement credits. If your deceased spouse was receiving reduced retirement benefits you will be entitled to the higher of what he/she would be receiving if he/she were still alive or 82.5% of his/her FRA amount.
If you take survivor benefits first AND before your FRA AND your deceased spouse did not take benefits before their FRA, your benefits will be reduced from your deceased spouses FRA amount including any entitlement to delayed retirement credits.
If your deceased spouse took his/her benefits before FRA, then your survivor benefit will be reduced using the following formula:
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1. Widows/widowers benefit based on the higher of the deceased’s death benefit at FRA or fictitious life benefit at FRA with any applicable delayed retirement credits using the applicable fraction; 2. 82 1/2 % of the deceased spouses death benefit at FRA; 3. Determine the deceased spouse’s death benefit as if now alive. 4. Arrange the results obtained in 1, 2, and 3 in order from the lowest amount to the highest amount and identify each by type. 5. Locate the sequence of results obtained in step 4 on the following chart. The benefit payable is underlined.
NOTE: Bring all FRA amounts up to effective date of widows/widowers entitlement using any applicable cost of living adjustments.
Determine the deceased workers FRA benefit at the time of his death. You then have to determine what your benefits will be by reducing the benefit based on your age, what the benefits would be based on 82.5% of the FRA benefit and the amount of benefit the deceased individual was receiving at the time of his/her death.
Put those 3 figures in the boxes on the next page by putting the lowest of the 3 amounts in column 1, the middle amount in column 2 and the highest of the 3 amounts in column 3. Based on how the amounts work out in lowest to highest order determines which sequence you will use to determine your monthly benefit amount. Depending on which sequence you fall, the underlined amount is what you will receive.
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Low Amount
Mid Amount
High Amount
Sequence 1
Reduced Widows/Widowers
82.5% Death FRA Amount
Deceased Spouses Retirement Benefit
Sequence 2
Reduced Widows/Widowers
Deceased Spouses Retirement Benefit
82.5% Death FRA Amount
Sequence 3
82.5% Death FRA Amount
Reduced Widows/Widowers
Deceased Spouses Retirement Benefit
Sequence 4
82 % Death FRA Amount
Deceased Spouses Retirement Benefit
Reduced Widows/Widowers
Sequence 5
Deceased Spouses Retirement Benefit
Reduced Widows/Widowers
82.5% Death FRA Amount
Sequence 6
Deceased Spouses Retirement Benefit
82.5% Death FRA Amount
Reduced Widows/Widowers
* You may need to call 1-800-772-1213 or go into the local Social Security office for this information. If you never received any benefits from your deceased spouse’s record you will have to go into the Social Security office with a copy of the death certificate to prove you are the surviving spouse. If you are a surviving divorced spouse you will need your divorce decree and if the divorce decree does not show the date of marriage, you will need your marriage certificate. A method of computing a reduced widow/widower benefit requires the use of the total possible reduction factor (RF) based on your date of birth. That number will vary from 60 to 84. That method is: (FRA or Unreduced Benefit) x RF x .285 Total possible RF for claimant's date of birth
= Reduction Amount
Round the result up to the next dime. The result is the amount of reduction. Subtract the Reduction Amount from the FRA or Unreduced Benefit for the amount payable.
EXAMPLE: A widow born on 08/31/1951 is entitled beginning 08/2011. Her FRA is age 66. Her RF is 66 while the total possible RF is 66. The Unreduced Benefit is $2094.
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Using the above formula: $2094 x 66 x .285 = $596.79 rounded up = 596.80 66 $2094 – 596.80 = $1497.20 reduced to the next full dollar amount or $1497.00 payable. Another way to estimate survivor benefits is by comparing the charts and examples on the Social Security website at: http://www.ssa.gov/survivorplan/survivorchartred.htm
Benefits Options for Individuals The basic options available to widows/widowers are: Age 60 - Receive widows/widowers benefits only AND: Stay on widows/widowers benefits. Switch to own benefit at Age 62. Switch to own benefit at FRA. Switch to own benefit at Age 70 and receive applicable delayed retirement credits.
Age 62 – File for own benefit only AND: Switch to widows/widowers benefit at FRA.
If you take benefits between age 60 and 62 you will receive a reduction in your benefit over FRA. Earnings in excess of $15,120 will affect monthly benefits. Social Security will deduct $1 in benefits for every $2 you earn over $15,120. These figures increase in the year you reach FRA to $40,080 for only those months before the month you reach FRA and $1 of benefits are deducted for every $3 you go over the $40,080.
If you delay your own benefits past FRA you will receive a 5/8 of 1% for each month you delay benefits which equals 8% per year. You will receive a 32% increase in monthly benefits over FRA if you wait until age 70.
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Examples The following is an example of monthly benefits and what you might expect to receive over your lifetime in Social Security benefits. The following assumptions were made:
Deceased Individuals Date of Birth: 12/28/1949 FRA Benefit: $2094 Widow/widowers Date of Birth: 08/31/1951 Own FRA Benefit: $1252 Expected Death Age of surviving spouse: 83.53 years No cost of living increases were included
Option 1: Surviving spouse files for widows benefits ($1497 per month) at age 60 and stays on that benefit. Total lifetime benefit $422,154. There is no reason for the surviving spouse to switch to own benefit at either age 62 or FRA as these benefits are less than the widow’s benefit.
Option 2: Surviving spouse files for widow’s benefits ($1497 per month) at age 60 and switches to own benefit ($1652) at age 70 with delayed retirement credits. Total lifetime benefit $447,264.
Option 3: Surviving spouse takes own benefit ($944) at age 62 and switches to widows benefits ($2094) at FRA. Total lifetime benefit $484,108.
The last option is the one that will pay the surviving spouse the most amount of money over her lifetime. This is just one piece of the puzzle to consider as outlined above when deciding when to file and what benefits to take.
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Chapter 6: Divorced Retirees Benefits for a divorced spouse or surviving divorced spouse may be payable if certain conditions exist: The marriage must have lasted at least 10 years or more; You must not be currently married; You must be age 62 or older; Your ex-spouse must be at least age 62 or older, disabled or deceased;
Note: The marriage of a divorced spouse will terminate entitlement to such benefits unless the marriage is to an individual of the opposite sex entitled to widow(er)'s, mother's, father's, CDB, divorced spouse's, or parents benefits. The divorced spouse can be entitled or re-entitled to benefits if he/she was divorced from the Number Holder and remarried but the later marriage terminated, provided the other requirements for entitlement are met.
Benefit payments are computed the same as for spouses (page 19) and widows (page 27).
You do not need to know the Social Security number or the whereabouts of your ex-spouse to file for benefits. The Social Security Administration will find this information for you.
Taking benefits from your ex-spouse will not affect their benefits or the benefits of the current spouse if they are remarried.
The options for a surviving divorced spouse are the same as those for a widow/widower. The options for a divorced spouse are the same as a spouse except the restricted application process. Also, an independently divorced spouse can draw benefits even if their ex-spouse is not receiving Social Security benefits if you meet the requirements above and the divorce was more than 2 years in the past.
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Chapter 7: Quarters of Coverage Everyone needs 40 quarters of coverage to be eligible for retirement benefits and premium free hospital insurance of Medicare. It doesn’t matter when these quarters are earned. If you earn your 40 quarters in your 20’s and 30’s and never earned another quarter you will still be eligible for retirement and premium free hospital insurance. Keep in mind however, that when the Social Security Administration computes your benefits they will use your highest 35 years of earnings and if you don’t have 35 years of earnings they will use $0 for those years to compute your monthly benefit amount. These zeros will significantly impact your Average Indexed Monthly Earnings (AIME) and in turn reduce your monthly benefit. How does someone earn a quarter of coverage? People often ask if they can just pay the tax and purchase a quarter of coverage. You can only earn a quarter of coverage by working for someone or through self-employment. In 2013, you will earn a quarter of coverage for every $1,160 of wages or net profit you earn. It doesn’t matter how quickly or how long it takes to earn the $1,160. You can only earn a maximum of 4 quarters of coverage in a year. The amount of earnings needed to earn a quarter of coverage in past years is different. After 1977, quarters of coverage are based on increments of covered earnings credited to the calendar year. The following chart contains the earnings needed to earn a quarter of coverage:
(See full chart on next page)
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Year
Earnings
Amount Required
Amount
for 4 QCs
2013
$1,160
$4,640
2012
$1,130
$4,520
2010/11 $1,120 2009
Year
Earnings
Amount Required
Amount
for 4 QCs
1994
$620
$2,480
$4,480
1993
$590
$2,360
$1,090
$4,360
1992
$570
$2,280
2008
$1,050
$4,200
1991
$540
$2,160
2007
$1,000
$4,000
1990
$520
$2,080
2006
$970
$3,880
1989
$500
$2,000
2005
$920
$3,680
1988
$470
$1,880
2004
$900
$3,600
1987
$460
$1,840
2003
$890
$3,560
1986
$440
$1,760
2002
$870
$3,480
1985
$410
$1,640
2001
$830
$3,320
1984
$390
$1,560
2000
$780
$3,120
1983
$370
$1,480
1999
$740
$2,960
1982
$340
$1,360
1998
$700
$2,800
1981
$310
$1,240
1997
$670
$2,680
1980
$290
$1,160
1996
$640
$2,560
1979
$260
$1,040
1995
$630
$2,520
1978
$250
$1,000
Before 1978, quarters of coverage were earned differently. The Social Security Administration credits Quarters of Coverage on wages paid to an individual after 1936, or on Self-Employment income for taxable years beginning after 1950. They may use military service wage credits, or railroad compensation to establish the QCs in some cases. For years before 1978, a Quarter of Coverage is any calendar quarter beginning January 1, April 1, July 1, or October 1, in which you were paid at least $50 in wages, or credited with at least $100 of self-employment income (SEI).
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Chapter 8: Medicare Medicare coverage is available to individuals age 65 or older, who have been entitled to Social Security disability benefits for 24 months or those who have End-Stage Renal Disease. This book will cover Medicare coverage for those ages 65 or older. If you have questions about entitlement because of entitlement to Social Security disability or ESRD you should contact the Social Security Administration.
You have 3 enrollment opportunities to file for Medicare. The first is the initial enrollment period, the second is the general enrollment period and the third is the special enrollment period.
The initial enrollment period is 7 months beginning with the third month before you turn age 65 and ends the third month after you turn age 65. For example, if your birthday is in June, your enrollment period would begin March 1st and end September 30th.
The general enrollment period is January 1st through March 31st of each year. If you enroll during the general enrollment period the Medicare coverage will begin July 1st. You will be subject to a 10% penalty for each full year you are eligible to enroll in Medicare but wait to file.
The Special Enrollment Period (SEP) is for individuals and their spouses who have an employer group health plan coverage based on current employment. The SEP is the period for enrollment in Medicare Medical Insurance or Premium Hospital Insurance is provided for individuals who are eligible for Medicare Medical Insurance or Premium Health Insurance on the basis of age or as disabled beneficiaries, and have been (or are currently) covered by a group health plan (GHP) or a large group health plan (LGHP) based on current employment status. This is a 7 month enrollment period that begins the first month entitlement to medical insurance based on employment ends. If you are covered by a group health plan and do not need the Medicare Medical Insurance it is strongly suggested to apply for the premium free Hospital Insurance at age 65.
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There is a 4th enrollment opportunity but it is for those who are Medicare beneficiaries. The Transfer Enrollment Period is a special enrollment opportunity for Medicare beneficiaries who are also Health Maintenance Organization (HMO) or Competitive Medical Plan (CMP) enrollees and whose HMO or CMP enrollment is terminated either on a voluntary basis or because of termination of the HMO or CMP contract.
If you begin to receive Social Security benefits before the age of 65 you will automatically receive a Medicare card in the mail about 3 months before you attain age 65. If you have not filed an application for benefits you will need to file an application for Medicare at age 65 with the Social Security Administration.
The different parts of Medicare include: Part A – Hospital Insurance Part B – Medical Insurance Part C – Medicare Advantage Part D – Prescription Drug Coverage
Parts A and B are referred to as original Medicare.
Part A covers expenses when you have to stay as in inpatient in the hospital and skilled nursing care if it follows a stay as an inpatient in the hospital. This coverage is free if you or your spouse worked and earned at least 40 quarters of coverage based on Social Security covered earnings. If you are not entitled to premium free Part A you may be able to purchase Premium Part A Health Insurance.
Part B covers doctor visits, outpatient hospital visits, lab tests and some skilled nursing care at home. You do not need to enroll in Medicare Part B if you are covered by an employer’s group health plan based on you or your spouse’s employment until that coverage ends. See the
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information on the Special Enrollment Period above. The base premium for Medicare Medical Insurance for 2013 is $104.90 per month. This can be higher based on your income.
Part C or Medicare Advantage is run by private insurance companies. They combine Parts A and B under this plan. Some plans also cover Part D. Some plans have deductibles and others do not. Some plans will only cost the base premium of $104.90 per month the Social Security Administration deducts from your monthly benefit check. Other plans cost more but cover more. You can change plans in the fall of each year.
Part D covers prescription drugs. The plan you pick will be based on where you live, what drugs you take including the strength and frequency of your drugs. You will pay a premium and have out of pocket expenses as each insurance company covers drugs differently. You can change plans as your needs change in the fall of each year.
Medicare Means Testing A change in the Medicare law affects how monthly Medicare Medical Insurance (Part B) and Medicare prescription drug (Part D) premiums are charged if you have a higher income. Depending on your (and your spouses) income you may have to pay higher monthly premiums for these services.
I am sure your first question is does this affect me? The change will only affect a small percentage of Medicare eligible individuals. The Social Security Administration will determine if you will have to pay higher premiums. Social Security will use your most recent federal tax return information to make this decision. If you must pay higher premiums, a sliding scale is used to make the adjustments. This will be based on your modified adjusted gross income. This is the total of your adjusted gross income and tax-exempt interest income.
If you have a higher income, you will pay an additional premium amount for Medicare Part B and Part D coverage. Here is how it works:
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•
Part B helps pay for doctors’ services and outpatient care. It also covers other medical services, such as physical and occupational therapy, and some home health care. For most Medicare recipients the government pays a substantial portion—about 75 percent—of the Part B premium and you pay the remaining 25 percent. Since 2007, higher-income beneficiaries pay a larger percentage of the total cost of Part B based on income they report to the IRS. Higher-income Medicare recipients pay a monthly Part B premium equal to 35, 50, 65 or 80 percent of the total cost, depending on what they report to the IRS.
•
Medicare prescription drug coverage (Part D) helps pay for your prescription drugs. The government pays a major portion of the total costs for this coverage and the Medicare recipient pays the rest. Plan costs vary depending on the plan, and whether you get extra help with your portion of the Medicare prescription drug costs.
As they have in prior years, beginning January 1, 2012, higher-income Medicare recipients with Medicare prescription drug coverage will pay monthly premiums plus an additional amount equal to 35, 50, 65 or 80 percent of the total cost depending on what they report to the IRS. The additional amount you pay will be tied to the base premium, not your own premium amount. Because individual plan premiums vary, the law specifies that the amount is determined using one base premium.
In 2013, if you file your taxes as “married, filing jointly” and your modified adjusted gross income is greater than $170,000, you will pay higher premiums for your Medicare Part B and Part D coverage. If you filed your taxes using a different status and your modified adjusted gross income is greater than $85,000, you also will pay higher premiums.
If your income information received from the IRS by the Social Security Administration shows you need to pay higher Medicare premiums, Social Security will send you a letter explaining the reasons for the increase and what your premiums will be. If you have both Medicare Part B and
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Part D, you will pay higher premiums for both. If you have only one, Medicare Part B or Medicare Part D, you will pay an income-related monthly adjustment amount only on the benefit you have. If you decide to enroll in the other program later that year and you already are paying an income-related monthly adjustment amount, the adjustment will be applied automatically when you enroll.
To determine your monthly adjustment amount, Social Security will use your most recent federal tax return information. Generally, this information is from a tax return filed two years prior (i.e. for 2013, tax year 2011 filed in 2012). If you amended your tax return and it changes the income counted to determine the income-related monthly adjustment amount, let Social Security know. They will need to see a copy of the amended tax return you filed and your acknowledgment receipt from IRS. They will update their records with the information you provide, and correct your income-related monthly adjustment amount, as appropriate.
If your income has gone down due to any of the following situations and the change will make a difference in the income level considered, contact Social Security to explain this and request they make a new decision about your income-related monthly adjustment amount: •
You married, divorced, or became widowed;
•
You or your spouse stopped working or reduced your work hours;
•
You or your spouse lost income-producing property due to a disaster or other event beyond your control;
•
You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan; or
•
You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.
If any of the above applies to you, Social Security will need to see documentation verifying the event and how it has reduced your income. The documentation you provide should be related to the event and may include a death certificate, a letter from your employer about your
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retirement, or something similar. If you filed a federal income tax return for the year in question, you will need to show them your signed copy of the return.
The standard Part B premium for 2013 is $104.90. Since there was a 1.7% cost-of-living adjustment (COLA) in 2013, people already enrolled in Part B in 2011 with income below $85,000 for an individual or $170,000 for married couples, will see an increase in their premiums to $104.90 in 2013.
If you are single and filed an individual tax return, or married and filed a joint tax return, the following chart will apply: Modified Adjusted Gross Income (MAGI) Individuals with a MAGI of $85,000 or less Married couples with a MAGI of $170,000 or less Individuals with a MAGI above $85,000 up to $107,000 Married couples with a MAGI above $170,000 up to $214,000 Individuals with a MAGI above $107,000 up to $160,000 Married couples with a MAGI above $214,000 up to $320,000 Individuals with a MAGI above $160,000 up to $214,000 Married couples with a MAGI above $320,000 up to $428,000 Individuals with a MAGI above $214,000
Part B monthly premium amount Standard premium ($104.90 for 2013)
Prescription drug coverage monthly premium amount Your plan premium
$146.90 (Standard premium + 42.00)
Your plan premium + $11.60
$209.80 (Standard premium + $104.90)
Your plan premium + $29.90
$272.70 (Standard premium + $167.80)
Your plan premium + $48.30
$335.70 (Standard premium + 230.80)
Your plan premium + $66.60
Married couples with a MAGI above $428,000
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If you are married and lived with your spouse at some time during the taxable year, but filed a separate tax return, the following chart will apply:
Modified Adjusted Gross Income (MAGI) Individuals with a MAGI of $85,000 or less Individuals with a MAGI above $85,000 up to $129,000 Individuals with a MAGI above $129,000
Part B monthly premium amount Standard premium ($104.90 for 2013) Standard premium + $272.70 Standard premium + $335.70
Prescription drug coverage monthly premium amount Your plan premium Your plan premium + $48.30 Your plan premium + $66.60
If you disagree with the decision regarding your new premium amount, you have the right to appeal. You may request an appeal in writing by completing a Request for Reconsideration (Form SSA-561-U2) or you may contact your local Social Security office to file your appeal.
You can find the appeal form online at the Social Security website; request a copy through Social Security’s toll-free number at 1-800-772-1213. You do not need to file an appeal if you are requesting a new decision because you experienced one of the events listed above and it made your income go down or if you have shown the information used was wrong.
Conditions for Providing Equitable Relief Equitable relief is the way of undoing harm caused an individual by the Government's actions, failure to act, or misinformation. Equitable relief may be granted no matter how few months of coverage or premiums are involved.
The Social Security Administration and Center for Medicare Services may take action to prevent or correct inequity to the individual when his/her Medicare Medical Insurance Premium Hospital Insurance enrollment, termination, or coverage rights are prejudiced because of the error, misrepresentation, or inaction of an employee or agent of the Government. (See note on next page)
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NOTE: An “agent� of the Federal Government is one who is authorized to act on behalf of the Federal Government in matters pertaining to Medicare, such as a social security employee or an employee of a Medicare carrier. If the evidence shows that an individual received misinformation from someone (e.g., employer, insurance company) which received the misinformation from an employee or agent of the Federal Government, this would also qualify for equitable relief.
- The actions include (but are not limited to) the designation of enrollment and coverage periods, and appropriate adjustment of premium liability.
- The actions may be part of the initial claims process, post- adjudicative processing, or as a result of information or decisions that arise from the appeals processes.
- There is no time limit on granting equitable relief for these errors.
- Where the Government clearly erred, equitable relief can be considered by the Social Security Administration on its own motion without the beneficiary having to ask for it.
Equitable relief applies to Medicare Medical Insurance and Premium Hospital Insurance for those who are age 65 or older, on Social Security disability or have End Stage Renal Disease. This relief, however, does not apply to premium free Hospital Insurance.
An equitable relief decision is not subject to appeal; however, an appeal can be made concerning the correctness of, for example, the entitlement date or the termination date. Additional evidence relating to erroneous information can be presented during the appeals process.
(continued on next page)
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Requirements for Equitable Relief The elements that the SSA requires for equitable relief to be granted are: •
Government error, misrepresentation, or inaction;
•
Prejudice to the individual's SMI or Premium-HI rights; and
•
Evidence of the error.
If you caused or contributed materially to the Government error by fraud or similar fault, equitable relief will not be granted even if the main elements are present in the case.
Prejudice to Medicare Medical Insurance Rights Prejudice to your rights may consist of: •
carrying private insurance you did not need;
•
electing surgery in advance of entitlement because you were misinformed about the entitlement date;
•
missing an enrollment period;
•
inability to pay a large premium arrearage which accrued due to Government delay; or
•
any other hardship with health insurance or health care needs that is traced to Government error, misrepresentation, or inaction on enrollment, premium collection, or termination of entitlement.
What the Evidence Must Show In most cases, the Social Security file must show that an error occurred, e.g., delay in awarding entitlement, erroneous termination, failure to bill for or deduct premiums, disallowance reversed on appeal. In other cases, an allegation by the beneficiary may be the first indication that an error occurred.
There must be evidence which shows that: •
You took such appropriate and timely measures to assert your rights as could reasonably be expected under the circumstances; and
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•
Because of administrative fault, delay, or erroneous action or inaction by an employee or agent of the Social Security Administration or the Center for Medicare Services or another Federal Government instrumentality, the enrollment or premium rights will be impaired unless relief is given.
SUBSTANTIATION OF ALLEGED ERRORS You may allege that your rights were prejudiced due to misinformation received. Such allegations must be substantiated.
The Government employee or agent identified as having given the misinformation (if known) will be asked to report his/her recollection of the event. If the employee cannot recall the interview or discussion, he/she should nevertheless report on the probability that he/she gave the misinformation or misadvise that you claim receiving.
If the Government employee or agent cannot be identified for any reason, a statement will be made by the supervisor or other person in authority as to the likelihood of such an error. This statement may be based on the supervisor's observations of the type of errors known to have been committed in the local field office, the fact that there was a preponderance of trainees who could have interviewed the beneficiary when the alleged error occurred, etc.
In cases involving alleged misinformation from a teleservice center, the Social Security field office management should assess the likelihood that misinformation was given.
REQUIRED DOCUMENTATION Equitable relief may not be granted unless the file contains documentary evidence. The evidence can be in the form of statements from employees, agents, or persons in authority that the alleged misinformation, misadvise, misrepresentation, inaction, or erroneous action actually occurred.
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In the absence of such personal knowledge, the evidence can consist of a statement that there is a strong likelihood based on personal knowledge or prior experience that an error occurred.
What Does Not Justify Equitable Relief Relief cannot be provided merely because of hardship or because of “good cause� for failure to enroll. There must be some erroneous action or inaction by the Government which is prejudicial to the rights of the individual.
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Chapter 9: Government Pension Offset (GPO) Government pension offset (GPO) applies to spousal benefits when the spouse is also entitled to a pension from work not covered by Social Security. Government includes federal, state and local entities. These include but are not limited to Civil Service Pensions, Public Employees Retirement Systems, some teachers, police and firemen/women. If you have wages where you contribute to a pension other than Social Security you may see a reduction of any benefit that is payable for another’s Social Security work record.
A spouse includes a wife, widow, husband, widower, divorced wife or husband, surviving divorced wife or husband, mother, father, surviving divorced mother or father, young husband or wife who have a child of the worker in their care.
If any of these conditions apply you may be wondering why your benefits may be reduced. Benefits paid to wives, husbands, widows and widowers are “dependent’s” benefits. These benefits were established in the 1930s to compensate spouses who stayed home to raise a family and who were financially dependent on the working spouse.
It has since become more common for both spouses in a married couple to work, each earning his or her own Social Security retirement benefit. The law has always required that a person’s benefit as a spouse, widow or widower be offset dollar for dollar by the amount of his or her own retirement benefit. For example, if a woman worked and earned her own $800 monthly Social Security retirement benefit, but she also was due a $500 wife’s benefit on her husband’s Social Security record, Social Security could not pay the wife’s benefit because her own Social Security benefit offset it.
Before enactment of the Government Pension Offset provision, if that same woman was a government employee who did not pay into Social Security, and who earned an $800 government pension, there was no offset, and Social Security was required to pay her a full wife’s benefit in addition to her government pension. If this government employee’s work had
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instead been subject to Social Security taxes, any Social Security benefit payable as a spouse, widow or widower would have been reduced by the person’s own Social Security retirement benefit. In enacting the Government Pension Offset provision, Congress intended to ensure that when determining the amount of spousal benefit, government employees who do not pay Social Security taxes would be treated in a similar manner to those who work in the private sector and do pay Social Security taxes.
A pension is any periodic or lump sum payment received from a defined benefit or defined contribution plan (i.e. 401(k), 403(b), or 457) which is based on your own non-covered earnings while in the service of a State, local, or federal government and is payable because of retirement or permanent disability. Some pensions that are not included for offset purposes include but are not limited to Social Security benefits, VA benefits, Black Lung benefits, Railroad Retirement annuities, workers compensation, state reimbursements for Medicare Medical Insurance premiums, and survivor annuities.
For GPO to apply, you must be eligible for and entitled to a pension from work not covered by Social Security. This is determined by the pension paying agency, not the Social Security Administration. Eligibility for a pension means a pension payment is payable for a month if you had been separated from the employment and you made the proper application for the pension payment. Entitled to a pension means you meet the entitlement requirements for the pension plan which includes filing the application and a benefit is payable for the month.
Determining the offset amount is as simple as taking 2/3rds of your government pension amount and subtracting it from the auxiliary benefit payable to you. To do this, divide your government pension by 3, multiple that amount by 2 and deduct the sum from your auxiliary benefit.
Here are a couple of examples‌ (Continued on next page)
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Example 1: Government Pension
$1,500
Social Security Spousal benefit
$1,000
$1,500 divided by 3 = $500 $500 x 2 = $1,000
$1,000 - $1,000 = $0 Verdict: You are not eligible for any benefit from your spouse’s Social Security record.
Example 2: Government Pension
$1,500
Social Security Widows benefit
$2,000
$1,500 divided by 3 = $500 $500 x 2 = $1,000
$2,000 - $1,000 = $1,000 Verdict: You are eligible for a monthly benefit of $1,000 from your deceased spouses Social Security record.
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Chapter 10: Windfall Elimination Provision (WEP) If you work for an employer who does not withhold Social Security taxes from your wages the pension you receive based on that work may reduce your Social Security benefit. In this case you are entitled to a pension from work not covered by Social Security and you will be subject to the windfall elimination provision of the Social Security act. These include but are not limited to Civil Service Pensions, Public Employees Retirement Systems, some teachers, police and firemen/women.
If you have wages where you contribute to a pension other than Social Security you may see a reduction in the amount of benefits payable to you each month. The Windfall Elimination Provision affects how the amount of your retirement or disability benefit is calculated. A modified formula is used to calculate your benefit amount, resulting in a lower Social Security benefit than you otherwise would receive.
Why does the Social Security Administration use a different formula to compute your monthly benefit? Social Security benefits are intended to replace only a percentage of your preretirement earnings. The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent.
Before 1983, people who worked in a job not covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers. They had the advantage of receiving a Social Security benefit representing a higher percentage of their earnings, plus a pension from a job where they did not pay Social Security taxes. Congress passed the Windfall Elimination Provision to remove that advantage.
Refer back to the chapter on benefit calculations. We discussed how Social Security benefits are based on your highest 35 years of wages after your earnings are indexed or adjusted for
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inflation. Social Security then uses three brackets (bend points) to determine your monthly benefit payment. Once the SSA determines your averaged indexed monthly wage, your benefit is determined by multiplying 90% times the first bracket, 32% times the second bracket and 15% times the third bracket.
Within the Windfall Elimination Provision, the 90% factor is reduced by using a modified benefits formula. With certain exceptions, the 90% factor is reduced to 40%.
One of these exceptions occurs if you have 30 or more years of “substantial� earnings in a job that Social Security taxes. In these cases the 90% factor is not reduced. See the chart below.
Year
1937-54
Substantial Earnings $900
Year
1984
Substantial Earnings $7,050
2001
Substantial Earnings $14,925
1955-58
$1,050
1985
$7,425
2002
$15,750
1959-65
$1,200
1986
$7,875
2003
$16,125
1966-67
$1,650
1987
$8,175
2004
$16,275
1968-71
$1,950
1988
$8,400
2005
$16,725
1972
$2,250
1989
$8,925
2006
$17,475
1973
$2,700
1990
$9,525
2007
$18,150
1974
$3,300
1991
$9,900
2008
$18,975
1975
$3,525
1992
$10,350
2009
$19,800
1976
$3,825
1993
$10,725
2010
$19,800
1977
$4,125
1994
$11,250
2011
$19,800
1978
$4,425
1995
$11,325
2008
$18,975
1979
$4,725
1996
$11,625
2009
$19,800
1980
$5,100
1997
$12,150
2010
$19,800
1981
$5,550
1998
$12,675
2011
$19,800
1982
$6,075
1999
$13,425
2012
$20,475
1983
$6,675
2000
$14,175
2013
$21,075
Year
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Exceptions are also made if you have “substantial� earnings in 21 to 29 years. After you determine the number of years of substantial earnings you have (as outlined above) you can determine the percentage used in the first bend point. The 90% factor is reduced as outlined below. Years of substantial earnings 30 or more
Percentage
29
85 percent
28
80 percent
27
75 percent
26
70 percent
25
65 percent
24
60 percent
23
55 percent
22
50 percent
21
45 percent
20 or less
40 percent
90 percent
If you get a low pension you are protected. The reduction to your Social Security benefit cannot be more than half of the amount of your pension that is based on earnings after 1956 on which you did not pay Social Security taxes. While your pension can be reduced by as much as $385 per month, it is never taken down to $0.00. You will receive some type of monthly payment.
The windfall provision does not apply to survivors benefits. If you arrange for your surviving spouse to receive your pension based on work not covered by Social Security, they will still be eligible for their full Social Security benefit based on their own work record.
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Chapter 11: Questionable Retirement Individuals filing for Social Security monthly benefits between the age of 62 and their full retirement age AND who are self-employed or a corporate officer will find they have to provide the Social Security Administration with proof that their work and earnings have been reduced before benefits will be paid. The Social Security Administration refers to this as “Questionable Retirement�.
In the recent past, the SSA actively sought and questioned individuals who they believed were still working more than 45 hours a month as self-employed. But effective December 2011, the Social Security Administration accepts and posts the earnings allegations of corporate officers and self-employed individuals without questioning or developing the allegations.
Previously, they had a long-standing policy to develop questionable allegations of retirement made by corporate officers and self-employed individuals. The rationale for creating the questionable retirement policy was that corporate officers and self-employed individuals could control the amount of their earnings, by reporting lower than actual earnings, thereby avoiding deductions under the annual earnings test. The Social Security Administration believed that the application of this policy to those individuals would provide long-term program dollar savings to the trust fund.
Over time Social Security found that the time spent questioning corporate officers and selfemployed individuals, and the processing associated with this policy did not always result in consistent payment decisions. In addition, while the QR determinations provided immediate program savings to the Social Security Trust Fund, there were no long-range savings.
Once the individual reached their full retirement age and Social Security applied the adjusted reduction factor, the individual ended up with a higher ongoing monthly benefit amount. Since individuals are living longer, this higher ongoing monthly benefit eventually eliminates any short-term program dollar savings. If Social Security initially accepts the lower earnings
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allegations, they permanently reduce the benefit amount. This lower benefit amount results in benefit outlays over a lifetime of about the same or less as if Social Security had imposed questionable retirement and then adjusted for the adjusted reduction factor.
The elimination of the questionable retirement policy does not affect the substantial services in self-employment policy. The Social Security Administration will continue to develop for substantial services in the grace year for self-employed individuals.
In your initial year of retirement (grace year) Social Security holds that if a taxpayer spends more than 45 hours a month in self-employment he/she is not retired. Less than 15 hours a month is retired. Work between 15 and 45 hours a month may be considered as retired.
A simple way to avoid any questionable retirement claims is to simply wait until full retirement age before beginning to collect Social Security retirement benefits. Once an individual has reached full retirement age, Social Security no longer tracks how much an individual earns as full benefits have already matured.
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Chapter 12: Online Application The Social Security Administration is pushing to have people file their applications for retirement disability and Medicare benefits online. This is due in part to the number of people filing for benefits and Social Security’s struggle with staffing of their field offices. Filing for benefits online is a good way to file. You can file from the comfort of your home, don’t have to wait to talk with someone and can leave the application and come back to it later if needed.
It is recommended that you apply up to four months before you want your retirement benefits to begin. For example, if you want to receive benefits in June then you would file by the end of January to be safe.
Someone from your local Social Security office will still review your application and likely give you a call to verify some information or let you know what documents they may need to complete the processing of your application. The retirement and Medicare online application is simpler than the disability process because medical information is also collected. All applications gather the information needed to process your request to completion.
Some of the questions you have to answer whether you file in person, by phone or online include: Initial Information Your full name, Social Security number, gender and date of birth; Your mailing and residence address; Your phone and email contact information; Your language preference; Your place of birth and citizenship information;
Personal Information Other Social Security numbers and names you have used (ex. maiden name);
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Have you been unable to work during the last 14 months and is your disability expected to last at least 12 months or can be expected to result in death?
Family Are you currently married? If yes, your spouse’s name, Social Security number, date of birth, marriage date, marriage type (i.e. clergy or public official, etc.), and place of marriage; Have you had any prior marriages that lasted 10 years or more? Do you have any unmarried children under the age of 18? Do you have any unmarried children aged 18 to 19 still attending elementary or secondary school full time? Do you have any children who became disabled prior to age 22?
Earnings Did you work or will you work in the current year? If yes, your employer’s name, address, date your employment started and ended (or will end); Are you self-employed? Have your or your spouse worked outside the US? Do you agree with your earnings history shown on your Social Security statement? Are you a corporate officer of your employer? Are you related to a corporate officer of your employer? Do you receive earnings from a family corporation or other closely held corporation? May Social Security contact your employer if necessary? What are your total wages and tips in the current year? Did you earn wages and tips over $1220 in all months of 2012 (this figure will normally change each year)? Months of 2012 when earnings are less than $1220 (this figure will normally change each year);
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Do earnings include any special payments paid in one year but earned in another year?
Other Pensions/Annuities Have you ever worked in a job where Social Security taxes were not deducted or withheld? Did your spouse work for the railroad for 5 years or more?
When to Start Benefits You will be asked what month you want your benefits to begin; Will you accept an age-related reduction in benefits? Direct deposit information including the bank routing number, your account number and the account type (savings, checking, etc).
Other Benefits Have you recently filed an application for Supplemental Security Income benefits? Do you intend to apply for Supplemental Income benefits? Have you filed any previous application(s) for Medicare, Social Security, or Supplemental Security Income benefits?
Health Insurance Have you enrolled in Medicare Part B? Do you want to enroll in Medicare Part B? Are your receiving Medicaid?
Remarks You are given the opportunity to add any remarks you feel are necessary.
Once your application is complete you will be given the opportunity to review your answers and make any corrections before submitting your application to the Social Security Administration.
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Chapter 13: Benefit Appeals and Recalculations Automatic Reviews Social Security will review your benefits calculation every year to check for increases. Thus, it is possible to positively influence your lifetime income averages if new earnings from wages can replace one of the 35 years used previously to compute your retirement amount. However, if you are continuing to work for this reason then it makes more sense to wait until full retirement age in to avoid the earnings cap.
This automatic annual review usually occurs in the fall, after all employer W-2’s are processed. For example, increases due to 2011 earnings were paid in November 2012, retroactive to January 2012.
Another annual event is the COLA (cost of living adjustment) review. In January 2013, the Social Security administration announced that benefits would increase 1.7% to accommodate national cost of living increases. The COLA adjustment was 3.6% in 2011. There were no COLA increases in 2010 or 2009.
Finally, when you reach full retirement age, your benefits are reviewed to be sure all reductions for age apply, with increases for months that work prevented benefit payment. In the case of early retirees receiving benefits while still working, this review could increase benefits if their earnings were high enough to prevent benefit payment for five months. The review at full retirement age would result in a benefit increase by the amount of those five months.
Protective Filing Protective filing is the term used for the first time you contact the Social Security Administration to file a claim for retirement. Protective filing dates may allow an individual to
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have an earlier application date than the actual signed application date. This is important because protective filing often affects the entitlement date for retirement beneficiaries and their dependents.
Note that a written statement must establish intent to file. This may be necessary to protect your rights to receive benefits beginning with a specific month. The Social Security Administration cannot begin your benefits any earlier than the month you file if you want benefits to begin before your full retirement age. Even if you are at your full retirement age or older, retroactivity of benefits is limited.
The written statement must show your intent to claim benefits either for yourself or on behalf of another. A written statement of intent to file must be signed or initialed (this includes typed signatures and initials) by you, a third party, or an SSA employee to establish the protective filing date. A Social Security Administration employee's personal identification number satisfies the signature requirement when the employee completes the 800 Number System Worksheet to document the protective filing date. A written statement also includes the date you or the third party first completes the Internet Claim.
Do Over Provision You may have unexpected changes after you file for your Social Security retirement benefits. If you are receiving Social Security Retirement benefits and you change your mind (for any reason) you may be able to withdraw your Social Security claim. You can then re-apply at a future date.
You can only do this before you are entitled to retirement benefits for less than 12 months and you are limited to one withdrawal per lifetime. This is a change in policy that the Social Security Administration began December 8, 2010. Before the change you could withdraw your application at any time. It is now even more important to make the right decision the first time.
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Appeals If the Social Security Administration makes a decision you disagree with, you can file an appeal. The first appeal is called a Request for Reconsideration. A person other than the person who made the initial determination will review the case and any additional information you provide and determine if the decision was correct or should be changed.
If you still disagree with the decision after the reconsideration process, you can file a Request for Hearing before an Administrative Law Judge. You will then be granted a hearing and will present your case before the Administrative Law Judge. If you still disagree with the decision you can request an Appeals Council review of the Judge’s decision.
You have 60 days from the date of the decision to file your appeal. Social Security will grant you an additional 5 days for mail time when filing your appeal. If you are outside your appeal period, you can still file if you have good cause for late filing.
Earnings Test If your age is under your full retirement age, employment can prevent you from receiving some or all of your Social Security retirement benefit. The amounts change yearly. In 2013 if you are between age 62 and December 31st of the year before you reach your full retirement you can earn up to $15,120 each year without affecting your Social Security benefit. If you earn over that amount the Social Security Administration will withhold $1 for every $2 you earn over $15,120. The year you reach your full retirement age the yearly amount increases to $40,080 per year with $1 for every $3 you go over $40,080 withheld from your Social Security benefit. Only earnings for months before you reach your full retirement age counts toward the $40,080.
Once you reach your full retirement age earnings have no effect on your Social Security monthly benefits. Note: This only refers to wages affecting the receipt of monthly payments. It does not refer to recalculation of benefits based on your earnings.
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Chapter 14: Who Should Take Early Benefits at Age 62? There will always be situations where, even if you understand the advantages of delaying benefits, you simply cannot wait 3 to 8 years without the additional income provided by Social Security. Here are a few situations where it likely makes sense to take early benefits at age 62, despite the fact that it will cost you money in the long run.
Low Income It doesn’t help you to earn more benefits later if you can’t afford to pay your bills today. You should always prioritize your immediate needs (housing, food and transportation) before worrying about investment returns. You wouldn’t starve yourself to add money to a savings account, and Social Security is a form of retirement savings. The bottom line is you need food and shelter first, so if that is a concern then go ahead and claim your benefits early.
Health Issues None of us will live forever and you will need to survive into your eighties to gain the highest returns from the strategies in this book. With that in mind, if you have a medical condition that will likely prevent you from seeing your 83rd birthday, then you might decide to enjoy your benefits today. Keep in mind though that your decision here could affect your spouse’s benefits as discussed on Chapter 3.
Secure Health Insurance This is a big one, and it impacts everyone regardless of their current health. Even if you elect to receive early benefits at age 62, your Medicare insurance does not begin until age 65. Don’t leave a stable job with health benefits solely on the premise that a combination of savings and social security will be enough to fund your retirement. An average couple in their 60’s pays close to $2000 per month for private health insurance (not including out-of-pocket expenses). You really need a secure health insurance plan between the ages of 62 and 65 if you want to minimize the risks of claiming early retirement.
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Better Financial Opportunities What I would call “the rarest of circumstance� would be if you have an investment option that exceeds the risk-free 7% return of delaying your benefits. This only applies to people who have an extraordinary investment opportunity, or those who are comfortable gambling away their returns in hopes of beating the 7% guaranteed return. If you are lucky enough to be in this group then by all means take advantage of your good fortune.
Officially Retired Many of you will continue to work after age 62, and if you make over $15,120 the government will reduce your benefits $1 for every $2 you earn over this amount. Your early benefits will also factor into how much you pay on income taxes at the end of the year. So although you will be receiving more money with early benefits, a hefty chunk will disappear before it lands in your checking account. Thus, you want to be officially retired before opting for Social Security benefits at an early age.
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Chapter 15: Pre-Retirement Checklist What do you need to do before you file for Social Security benefits? What can be done after you file for Social Security benefits? Not considering all of your options before you file can put you in a bad situation and you may be stuck with your decision.
Social Security benefits are a lifetime benefit. This can be not only your lifetime but also your spouse’s lifetime. Social Security benefits were never meant to be your only income in retirement. They should complement your other sources of retirement. They make a good base income when you are trying to decide how to use your other investments. The choices you make of when to draw your Social Security benefits affects your monthly income and that of your spouse if they survive you. Taking benefits at 62 will cut your benefit by 25% over your full retirement age benefit. It will also limit the amount your surviving spouse can draw when you die. Waiting until age 70 will increase your full retirement age benefit by 32%. This also increases the benefit to your spouse if they survive you.
Of course money isn’t the only consideration when deciding when to take your benefits. Other things to consider include your health, your family history and your current financial standing. Delaying benefits can take several years to reach the “breakeven point” but if you live to the average age of 75 for men and 80 for women you will recover the initial loss and a lot more. Looking at all of your options is the only way to make sure you are making the right decision. You have anywhere from 3 choices for single individuals to 10 choices for married couples.
The commissioner of Social Security has told his employees not to discuss these options with you. He stated he believes the American public is very smart and through the internet they will have researched their options and know what they want to do when they contact Social Security to file for benefits. In fact, the goal of the Social Security Administration is to have at least half of the retirement applications filed online.
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It is my experience that most people, while very smart and internet savvy, do not know about all of the options available. Not knowing all the options can result in you not receiving the maximum benefit possible in Social Security Benefits.
If you file for benefits and find later you made the wrong decision you may not be able to correct your mistake. You have one year from the time you became entitled to benefits to withdraw your application. Even if you can withdraw you have to come up with all the money Social Security paid you before they will process the withdrawal. You can only file this withdrawal once.
All that being said, my Social Security pre-retirement checklist is short but very important:
1. Before you file make sure you consider all options available to you and your spouse.
2. Talk to someone about your decision before actually filing your application.
3. If you filed an application for retirement benefits and you feel you made a mistake be sure to talk with someone. An employee of the Social Security Administration or a non-governmental Social Security consultant will help you explore any options available.
Good luck with your decision.
Jim help@socialsecurityretirementguide.com
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