by Daniel Foran
New Jersey Financial Advisor Answers Social Security Questions
Even if Social Security isn’t your biggest source of income in retirement, it’s likely still an important piece of your overall plan. Do you know how much you’ll receive, when you’ll start taking your benefits or how these benefits actually work?
Figuring out how to maximize your Social Security benefits can be complicated and overwhelming – the Social Security handbook alone has more than 700 pages! But it’s an extremely important decision to make. And the decision will have a permanent effect on the amount you receive.
At Foran Financial Group, we’ve compiled a few important factors to consider before making a decision about your Social Security benefits. Taking the time to strategize when you’ll claim benefits will help you maximize your legacy and live comfortably in retirement.
If you have a question about Social Security that is not addressed here, contact us! The team at Foran Financial Group is ready to help.
When is the best time for you to take Social Security benefits? Contact Foran Financial Group and let us help.
How are Social Security Benefits Calculated?
Social Security benefits are calculated based on your lifetime earnings. The Social Security Administration (SSA) takes your 35 highest-earning years and applies a special formula to them to generate your monthly benefit amount. This monthly benefit is also known as your Primary Insurance Amount (PIA).
You will get 100 percent of your PIA if you take benefits at your full retirement age, reduced benefits if you take them before your full retirement age, and increased benefits if you take them after your full retirement age.
What Is Full Retirement Age?
Full retirement age ranges from age 66 to 67 depending on your birth year. Use the chart below to find your full retirement age and see how much your PIA would be reduced if you claimed at age 62 or 65 instead.
A Closer Look at How Full Retirement Age Works
Generally, the longer you wait to claim benefits, the more money you’ll receive.
For example, let’s say your full retirement age is 66 and you’re PIA is $2,000. If you retired at age 66, great! You’d receive exactly $2,000 a month.
If you wanted to retire early and take benefits at age 62, you’d receive $1,500 – 25 percent less each month. If you waited until age 70, you’d receive $2,640 – 32 percent more than your PIA!
(For other important age-based retirement decisions, read our recent blog post: Your Relationship with Money: Important Ages to Keep in Mind.)
Mathematically speaking, it pays to delay Social Security until as close to age 70 as possible. However, based on your situation, waiting may not be the best choice!
Taxes and Social Security
Whether or not you’ll pay taxes on your Social Security benefits depends on your combined income.
By IRS standards, combined income = your adjusted gross income + nontaxable interest + half of your Social Security benefits.
If you’re married and file a separate tax return, you’ll likely pay taxes on your benefits. If you’re single or married filing jointly, use this chart to figure out what percentage of your benefits may be taxed:
You can technically continue working after you start receiving Social Security benefits, but you’ll want to be aware of how it may impact your tax bill.
Medicare and Social Security
Medicare is a federal health insurance plan for individuals who are at least 65. If you start claiming Social Security before age 65, the SSA automatically enrolls you in Medicare when it’s time.
If you delay Social Security past age 65, you’ll need to apply for Medicare about three months before your 65th birthday.
In some cases, you may pay more for medical insurance if you delay past age 65, so it pays to apply as soon as you can.
How Spousal Benefits Work
Married couples have two options when it comes to Social Security: They can claim their own benefits, or they can claim spousal benefits.
Here’s a quick overview of how spousal benefits work:
- Spousal benefits allow you to receive up to 50 percent of your wife or husband’s PIA (if your spouse’s monthly benefit is $2,000 at full retirement age, you can receive up to $1,000).
- You have to be married at least one year before you can apply for benefits.
- If you’re divorced, you can apply for your ex-spouse’s benefits if you were married at least 10 years.
- You can’t “double-dip” and receive both spousal benefits and your own benefits. You receive the higher of the two.
- You receive reduced spousal benefits if you start collecting before you reach full retirement age.
- Spousal benefits max out at your full retirement age, so there’s no need to wait until age 70.
Maximizing Social Security Benefits as a Married Couple
Maximizing Social Security benefits as a married couple is a little more complicated because you can choose between your own benefits or spousal benefits.
Here are two ways to maximize benefits depending on your household’s income situation.
Claiming Strategy for Spouses Where One Earns More than the Other
In cases where one spouse makes more money than the other, you’ll typically maximize benefits if the lower-earning spouse claims early while the higher-earning spouse waits as long as possible. This strategy also increases the future spousal benefit amount if one was to live longer.
Claiming Strategy for Spouses Who Earn About the Same
If both spouses are high-income earners, it may make sense to let both benefits build for as long as possible.
For example, let’s say both spouses are eligible for benefits of around $2,500 a month at age 66. If they both waited until age 70, they’d receive $3,300 each, or $6,600 combined. If one took benefits at age 62 and the other at 70, they’d only receive $5,175 a month ($1,875 + $3,300).
Assuming both spouses are in good health, it may make sense to delay benefits.
Spousal benefits don’t really come into play in these situations because each spouse’s individual benefit amount would be higher than the 50 percent of the spouse’s that they’d qualify for.
When Should You Take Benefits?
Deciding when to take Social Security benefits isn’t a purely mathematical decision. Talk to a financial advisor about when you plan to retire, your other retirement benefits, and your overall health.
If you have health issues and suspect you won’t live until your mid-80s, it may be wise to claim benefits early. But if you suspect you’ll live longer than average, it would make sense to hold out until closer to age 70, if possible.
How Foran Financial Group Can Help
Choosing when to take Social Security benefits is one of the biggest decisions you’ll make in the retirement planning process. At Foran Financial Group, we help clients comb through their entire financial picture (their goals for retirement, their plans in retirement and their financial situation) and strategize ways to maximize these retirement benefits.
For over a combined 60 years, our Somerville, New Jersey-based firm has been helping families build sustainable wealth. Foran Financial Group offers personalized, intensive financial planning and full-service wealth management in a personal, supportive environment. Our multi-generational planning and investment team has helped hundreds of families pursue and maintain greater financial confidence.
If you’re not currently working with a financial advisor or feel it’s ready to make a change, schedule a no-obligation conversation with our team. We’re here to help.
The financial professionals associated with Foran Financial Group may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.