What's the surest way to protect yourself from running out of money in retirement? Easy: Maximize your Social Security income. But figuring out how to do that isn't so easy. Act 2's Ask the Expert column gets stacks of mail from readers whose eyes glaze over trying to decipher their Social Security options. "The more I read about Social Security, the more confused I get," admits one West Babylon reader.
Don't be discouraged! The right Social Security strategy can substantially boost your total retirement income. To compare your choices, you need to understand these things:
Social Security really has two sets of rules. One set is for people who file for benefits early; let's call them "Group A." The other set is for people who apply at or after full retirement age; we'll call them "Group B."
You may qualify for more than one benefit. Your Primary Insurance Amount or PIA -- is based on your work record. But if you're married -- or in many cases, even if you're divorced -- you also may be eligible for a secondary benefit based on your spouse's (or ex-spouse's) earnings.
Nobody collects more than one benefit at a time.
Retirees in Group A always receive a reduced benefit; and they can receive only their PIA or their spousal benefit, whichever is larger.
Group B retirees aren't subject to reductions, and they can receive a PIA and a spousal benefit -- by taking one at a time.
Based on our mailbox, no aspect of Social Security creates more confusion than spousal benefits. Here are the most frequently asked questions and answers.
Am I eligible for a benefit based on my spouse's record?
Yes, if a) you're at least 62 years old; b) you've been married at least one year; and c) your spouse has filed for his or her PIA.
I'm divorced. Am I eligible for a benefit on my ex-spouse's record?
Yes, if a) you're at least 62 years old; b) your marriage lasted at least 10 years; c) you're currently unmarried; d) your former spouse is eligible for Social Security, even if he or she hasn't yet applied for it. See more information at socialsecurity.gov/retire2/divspouse.htm.
How big is my spousal benefit?
It depends on your age when you file for Social Security. If you're in Group B, your spousal benefit during your spouse's lifetime is 50 percent of his or her full PIA -- even if he or she filed early and therefore receives a reduced PIA.
If you're in Group A, you get less. At 62, for example, your spousal benefit is 35 percent of your spouse's PIA. Your spousal benefit doesn't affect the amount your husband or wife receives based on his or her earnings.
After your spouse's (or your ex's) death, the maximum survivor's benefit is 100 percent of what he or she was entitled to receive. You'll receive your PIA or your survivor's benefit, whichever is bigger. In other words, whichever spouse dies first, the survivor keeps the higher of their Social Security benefits.
Can I apply for my spousal benefit at 62 and switch to my PIA at 66?
No. If you apply for Social Security at 62, you're in Group A. Your application is automatically for both benefits, and you get the larger of the two.
Can I apply for my spousal benefit at 66 and switch later to my PIA?
Yes. If you apply at your full retirement age, you're in Group B. You're allowed to restrict your application to your spousal benefit, letting your PIA keep growing. This is a very effective way to maximize your Social Security income.
Let's take John and Jane Hypothetical as an illustration. Jane is 62. If she waits until age 66 to file for Social Security, her PIA based on her own work record will be $1,000 a month. John is 66 and he can claim a $2,000 PIA today based on his higher earnings. But if he delays his application until he's 70, his benefit will grow an extra 8 percent a year.
Their optimal Social Security plan:
-- Jane (the lower earner) applies for her PIA at 62, and receives a discounted benefit of $750 a month.
-- John (the higher-earner) files a restricted application for a spousal benefit, based on Jane's record, postponing his own benefit. Since he's in Group B, he qualifies for the maximum spousal benefit: 50 percent of Jane's PIA or $500 a month.
At 70, John will switch from his spousal benefit to his own PIA, which will have grown to $2,640 a month.
What if John postpones his Social Security application and dies before he starts collecting his benefit?
Assuming Jane's at her full retirement age when she files for survivor's benefits, she gets 100 percent of what her husband was entitled to, even if he wasn't yet collecting it. The 8 percent annual credits for John delaying his application accrue in monthly installments. So if John dies at 671/2, for example, Jane's survivor's benefit will be 12 percent more than if John started collecting Social Security at 66.
My husband wants to postpone his benefit. Must I wait until he's 70 for my spousal benefit?
No. As soon as he reaches full retirement age, he'll be in Group B. Then he can file for his PIA to green-light your spousal benefit and immediately suspend his application and let his PIA grow until he's 70.
Will my current spouse get less because my ex collects a benefit based on my earning?
No. Benefits paid to your ex-spouse have no impact on what you or your current spouse can collect.
Social Security representatives have told me the rules don't allow me to take a spousal benefit while postponing my own benefit, or file for my PIA and then immediately suspend my application.
You do have these options if you apply for Social Security at or after full retirement age. But since most people apply earlier, some agency reps are unfamiliar with them. Refer them to the Social Security Administration's website (socialsecurity.gov/retire2/
applying6.htm#a0=1), where this information is clearly posted.
I goofed! Now that I understand my options, I want to cancel my Social Security application and start over so I can collect higher benefits later. Can I do that?
Regardless of age, everybody gets one Social Security do-over -- but you must use it within 12 months of the date your benefits began. If you're inside that deadline, you can pay back all the benefits you've received, and it will be as if you had never applied.
It's all in the timing. It's tempting to tap Social Security as soon as you can, at 62, but the earlier you start, the less you get -- and in the long run, that could be very costly to you and your spouse.
Use the Social Security Retirement Estimator at ssa.gov to see your projected benefit -- your primary insurance amount -- at different ages. If you apply at your full retirement age -- 66 for people born between 1946 and 1954 -- you get 100 percent of your PIA. If you apply later, you get a bonus -- an extra 8 percent a year for up to four years of delay: At 70, you receive 132 percent of PIA.
If you apply before your full retirement age, your benefit is reduced. At age 62, for example, people born between 1946 and 1954 get 75 percent of PIA; those born after 1954 get even less at 62. And all benefit reductions are permanent. Although you'll receive annual inflation (COLA) adjustments if they are issued, your monthly check will always be smaller because you applied early.
The best advice: Don't focus solely on the differences in your initial benefit amounts. Financial experts say it's more important to compare how big your monthly checks will be at age 80, 85, or 90. If you start at age 70, by the time you're 85 your Social Security benefit will be twice as big as if you'd started at 62. That's longevity insurance: the Society of Actuaries says a 65-year-old couple has a 50 percent chance that one of them will live to 92, and a 25 percent chance one of them will live to 97.
These websites can help you navigate the Social Security benefits maze:
--To learn how your benefits are reduced if you file for Social Security early ssa.gov/retire2/agereduction.htm
--For calculators to help you determine when to apply for benefits ssa.gov/retire2/near.htm
--Rights of divorced spouses socialsecurity.gov/retire2/divspouse.htm
--Planning for retirement mymoney.gov/category/ topic1/planning-retirement/-retiring.html