5 Ways to Leverage your Social Security Benefits
October 22, 2018
In October, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), will be released. Early indications suggest that the cost-of-living adjustment that will take effect for social security recipients at the beginning of 2019 could come in between 2.5%-3.00%. This is the first increase in some years that has not been consumed by Medicare premium hikes. Do you know enough about Social Security to leverage your benefits?
- “I can’t collect until I stop working (e.g. actually “retire”); any income I earn will reduce the benefit dollar for dollar.” True?
False - You can work and receive Social Security. If you are younger than your “full retirement age” (FRA) and earn over the earnings limit, a portion will be withheld [$1 for every $2/$3 over the limit, depending on the circumstances]. Any amounts withheld are repaid over your lifetime, beginning at your FRA. If you have hit your FRA, your benefit is not reduced regardless of how much you earn. Plus, income other than wages – rental income, capital gains, etc. – generally does not impact your benefit regardless of your age.
- “The longer I wait to start collecting, the bigger the benefit; I should work as long as possible and not collect until I actually retire.”
Like most things, it really depends.
It is true that, if you choose to receive your Social Security retirement before FRA, your monthly benefit (and future COLA) is reduced. However, if you start early, you may receive that amount for a longer time.
If you delay collecting until after your FRA, your monthly benefit (and future COLA) is increased – up to 32%! But delaying works only if you live long enough to take advantage of it, so health and life expectancy must be taken into account.
And there are maximums, caps, and limits, so there are diminishing returns. The maximum monthly benefit for a person retiring in 2018 at FRA is $2,788 per month. Each year of delay can increase that maximum, but only up to 32% total. And the credits for delay end at age 70, regardless of whether you hit the 32%.
- “My spouse is insisting on starting benefits now, so I have to start mine as well.”
Each individual can make the decision to start early, at FRA, or delay, and married people can make different choices for their own benefits. For some married couples, the smartest move may be to take advantage of both early commencement and delayed benefits.
- “Where were you 6 months ago? I filed for Social Security already so I can’t take advantage of delayed credits now.”
While the government has restricted “do overs” significantly in recent years, you can still change your mind and delay your benefits. You must make the decision within 12 months of your election, and repay any benefits received.
- “Even if I don’t get the full advantage from Social Security, at least whatever remains will benefit my family.”
Social Security retirement benefits are only paid while you are alive. If you are married and both qualify, your surviving spouse may be able to “step up” his or her benefit (e.g. receive the greater of his/her own benefit or your benefit), but won’t receive both. And your children cannot receive benefits unless they are minors or disabled at the time of your death. So planning to take full advantage of Social Security now is key.
The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, attorney or tax professional regarding your specific investment, legal or tax situation.
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It is important to remember that investing entails risk. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. The value of a portfolio will fluctuate based on market conditions and the value of the underlying securities. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss. Investors should contact a tax advisor regarding the suitability of tax-exempt investments in their portfolio.