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Understanding Social Security benefits

Understanding Social Security benefits

As Baby Boomers near retirement, benefit issues begin to loom -- here's help to smooth the way

by Connie Cone Sexton - Sept. 21, 2012 02:27 PM

The Republic | azcentral.com

There's no way to avoid the tough questions when you start figuring out just when to begin withdrawing Social Security benefits.

Perhaps the hardest of all: having to guess how long you might live.

The age at which you start collecting affects how much that monthly check will be. It comes down to figuring out how much you want to gamble on what can happen to your health and your lifestyle.

Reach age 62 and the access gate to the benefit opens. But start collecting then and you'll realize only about 75 percent of what you'd collect if you wait until full retirement age around 66.

For every year you hold off from there until 70, the benefit will grow by about 8 percent.

So at age 62, the questions are: "Do I want the money now?" and "What are the odds I'll live on and not need the money before I'm 66 or even 70?"

Social Security officials say that means sitting down before you hit retirement age to figure out how much money you'll need to live on after you quit working. Factor in savings, investments, any pension and total it up.

What to consider

If you take the benefit before your full retirement age, it will be smaller but you will receive it for a longer period.

If you wait until full retirement age or later, you will receive a larger monthly benefit for a shorter time.

In 2010, the average age at which female retirees began collecting Social Security was 63.7, according to the latest Social Security statistical analysis. For men, it was 63.8. That same year, 49 percent of women who began taking their entitlement were age 62, vs. 43.6 percent of men.

In Arizona during 2010, 724,817 retired workers were receiving a Social Security benefit, with the average monthly payment at $1,200.30. That's slightly higher than the national average of $1,175.50.

The right time to retire is different for each person and depends on his or herparticular situation, according to Kari Sanderfer, a public-affairs specialist with the Social Security Administration.

To understand how payments can vary, the SSA office gives this example:

If your expected monthly benefit at your full retirement age of 66 is $1,000, but you choose to start taking it at age 62, your monthly benefit would be reduced by 25 percent to $750. This generally would be a permanent reduction.

But if you wait until age 70 to receive benefits, your payment would be $1,320, roughly 76 percent more than what you would have received at age 62.

A case in point

Glendale resident Alberto Sanchez wanted to keep working past age 62 and made it to his goal of retirement at age 65. The former vice president of student affairs at Glendale Community College left his job in July. But it was months before that he started becoming curious about his Social Security benefits.

"Around October and November, I started inquiring about it, and the first thing I did was get on the government website," he said. The site, which has several pages, charts and calculators, left Sanchez wanting to talk with someone face-to-face.

He called a toll-free number and set up an appointment at a Social Security office near 59th Avenue and Bell Road in Glendale.

"I walked in, and there were a lot of people in the office," he said with a laugh. "I felt fortunate that I had made an appointment rather than just walk in."

He spoke with an SSA representative, who reviewed his records and had him fill out documents. The man then asked Sanchez when he planned to start withdrawing his benefit.

In January, his 66th birthday, he said.

It wasn't that he hadn't considered waiting until 70. "But by then, it's kind of a calculated risk of my own mortality and, I guess, the status of Social Security itself. It's been kind of a campaign football, but I figure a bird in hand is worth at least three in the bush."

He plans to invest the benefit check.

Sanchez said he was told to check back with the SSA office about three to four months before he plans to start taking the benefit.

Last Monday he spent about 30 minutes waiting on hold for someone at the SSA office to take his call.

"You have to be patient," he said. "I've found it always takes a long time for them to answer."

Sanchez plans to visit the office, again, with more paperwork. His first SSA contact had noticed Sanchez was a vet.

"He said for me to bring in my discharge papers," Sanchez said. "It provides other benefits. If I die, my wife will have access to my benefits."

Although waiting until 66 to get his full retirement will be helpful, Sanchez is surprised at the monthly amount.

"What you get after working so long is really quite trivial," he said.

Sanchez is dismayed that some people have only their Social Security check to live on.

"I can't imagine only having $1,000 to live on," he said. "I guess it could keep your body and soul together and keep you in Spam and pork and beans."

That said, Sanchez is quick to note he hadn't been steadfast in saving money all his life.

"Not until I was around 35," he said. "I myself was a victim of the spending syndrome."

His adult children, ages 23 and 27, have heard his advice on saving for the future.

"I tell my own kids, please take part of your earnings - 50 bucks a paycheck - and put into a savings account or buy a CD. By the time you're 40, you'll have several thousand dollars. It's sort of like you're making money for free."

Think you're there? Better check

Full retirement age isn't the same for everyone.

If you were born from 1943 to 1954, full retirement age is 66.

• 1955: 66 years and 2 months.

• 1956: 66 years and 4 months.

• 1957: 66 years and 6 months.

• 1958: 66 years and 8 months.

• 1959: 66 years and 10 months.

• 1960 and later: 67.

To see precisely how much a $1,000 retirement benefit would be reduced if you took benefits when you turn 62 (or how much a spouse's $500 would be reduced in the same situation) depending on your birth year, go to socialsecurity.gov and search for "benefits by year of birth."

More on this topic

Today's story is the fourth in an eight-part series on issues facing Baby Boomers, whether retirement is two years or two decades away.

Find the coming weeks' installments in the Your Money section of The Arizona Republic and the whole series at boomers.azcentral.com, along with online checklists, resources and videos of our Boomer trio, three Valley residents who share their concerns on each of these topics.

Sept. 9: The "sandwich generation": Advice and support resources for Boomers caring both for parents and children.

Sept. 10: Planning for retirement and what you need to be doing in your 40s, 50s and 60s.

Sept. 17: Health screenings to do now to help prevent diseases later.

Sept. 24: Social Security how-to.

Oct. 1: Medicare how-to.

Oct. 8: Housing - deciding when to downsize and when to stay put, and how to adapt your home.

Oct. 15: Legal documents - what you need and how to set them up.

Oct. 22: Mind and soul - keeping the mind active and engaged in the world

Top 10 things to know about Social Security

Top 10 things to know about Social Security

by Connie Cone Sexton - Sept. 21, 2012 02:28 PM

The Republic | azcentral.com

1. How do I apply?

About four months before you plan to retire, go to the Social Security Administration website, socialsecurity.gov, to apply online or call 800-772-1213 for an appointment at a local office.

2. How is my benefit calculated?

It typically is computed using "average indexed monthly earnings." This average summarizes up to 35 years of a worker's indexed earnings. A formula is then applied to this average to compute the primary insurance amount. The PIA is how much you would receive at your full retirement age.

3. What's the maximum monthly Social Security benefit?

For a worker retiring in 2012 at the full retirement age of 66, the highest monthly amount is $2,513. In December 2011, the average monthly Social Security benefit for a retired worker was about $1,229.

4. Do married couples get less in Social Security?

There is no marriage penalty. A married couple's lifetime earnings are calculated independently to determine their benefit amounts. Each spouse receives a monthly benefit amount based on his or her own earnings.

5. What are options for married couples in choosing how to take benefits?

If you are at full retirement age, you can apply for retirement benefits and then request to have payments suspended. That way, your spouse can receive a spouse's benefit and you can continue to earn delayed retirement credits until age 70.

If your spouse has reached full retirement age and is eligible for a spouse's benefit and his or her own retirement benefit, he or she has a choice. Your spouse can choose to receive only the spouse's benefit when he or she applies online and delay receiving retirement benefits until a later date. If retirement benefits are delayed, a higher benefit may be received at a later date based on the effect of delayed retirement credits.

6. How do survivor benefits work?

A widow's or widower's benefits are based on a percentage of the deceased worker's benefit amount. The percentage varies depending on the widow's or widower's age at the time of retirement.

7. How much can I make at a job while collecting Social Security?

It depends on your age. If you work and are full retirement age or older, you may keep all of your benefits, no matter how much you earn.

If you are under full retirement age for the entire year, you can earn $14,640 gross wages or net self-employment a year and not lose any benefits in 2012. You will lose $1 in benefits for every $2 earned above $14,640.

If you reach your full retirement age during 2012, you can earn $38,880 gross wages or net self-employment prior to the month you reach full retirement age and not lose any benefits in 2012. You will lose $1 in benefits for every $3 earned above $38,880.

8. What safeguards should I take to ensure my Social Security earnings record is correct?

Check your annual Social Security statement to see whether it correctly lists the amount you earned each year. Also, make sure your name and date of birth are correct.

If there is an inaccuracy in your earnings, try to find proof to give to Social Security. This could be in the form of a W-2 form, tax return, wage stub or pay slip, your own wage records and any other written documents showing that you worked.

9. How much is in the Social Security Trust Fund, and when is it estimated to run out?

The fund has a surplus of more than $2.7 trillion.

It is estimated to run out in 2033, three years earlier than was projected last year, say the trustees who oversee the program. After 2033, the tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.

10. What are some of the proposed changes to fix the problem?

Options include raising the full retirement age to 68 by 2028, reducing further the benefit for those taking early retirement at 62, and lowering the benefit for the highest of earners.

Sources: Social Security Administration, AARP

Social Security FAQ

Social Security FAQ

by Connie Cone Sexton - Sept. 21, 2012 02:28 PM

The Republic | azcentral.com

Question: I'm retired, and the only income I have is from an Individual Retirement Account. Are my IRA withdrawals considered "earnings"? Could they reduce my monthly Social Security benefits?

Answer: No. The SSA counts only the wages you earn from a job or your net profit if you're self-employed. Non-work income such as annuities, investment income, interest, capital gains and other government benefits are not counted and will not affect your Social Security benefits.

Most pensions will not affect your benefits, either. However, your benefit may be affected by a government pension from work on which you did not pay Social Security tax. For more information, visit www.socialsecurity.gov or call 800-772-1213 (TTY 800-325-0778).

Q: How long does it take to complete the online application for Social Security retirement benefits?

A: It can take as little as 15 minutes to complete the online application at www.socialsecurity.gov. In most cases, once your application is submitted electronically, you're done. There are no forms to sign and usually no documentation to mail in.

Social Security will process your application and contact you if any further information is needed. There's no need to drive to a local Social Security office or wait for an appointment with a Social Security representative. (Some people may feel more comfortable visiting the office in the planning stage to get all questions answered.)

Q: How do I earn coverage for Social Security?

A: You earn Social Security credits, sometimes referred to as quarters of coverage, when you work and pay Social Security taxes. The credits are based on the amount of your earnings. In 2012, you receive one credit for each $1,130 of earnings, up to the maximum of four credits per year. Each year, the amount of earnings needed for a credit goes up slightly as average earnings levels increase. Generally, a person needs 40 credits to be eligible for retirement benefits.

There are special rules for the self-employed. Read more about self-employment and Social Security in the online publication "If You Are Self Employed," at socialsecurity.gov/pubs/10022.html.

To learn the amount required for Social Security credits for prior years, see Quarter of Coverage at socialsecurity.gov/OACT/COLA/QC.html.

Q: My neighbor, who is retired, told me that the income he receives from his part-time job at the local nursery gives him an increase in his Social Security benefits. Is that right?

A: Retirees who return to work after they start receiving benefits may be able to receive a higher benefit based on those earnings. This is because Social Security automatically recomputes the retirement benefit after crediting the additional earnings to the individual's record.

Learn more by reading the publication "How Work Affects Your Benefits" at socialsecurity.gov/pubs/10069.html.

Q: I plan to retire soon. When are Social Security benefits paid?

A: Social Security benefits are paid each month. Generally, new retirees receive their benefits on either the second, third or fourth Wednesday of each month, depending on the day in the month the retiree was born. If you receive benefits as a spouse, your benefit payment date will be determined by your spouse's birth date.

Q: My husband and I are entitled to our own Social Security benefits. Will our combined benefits be reduced because we are married?

A: No. When each member of a married couple works in employment covered under Social Security and both meet all other eligibility requirements to receive retirement benefits, lifetime earnings are calculated independently to determine the benefit amounts.

Therefore, each spouse receives a monthly benefit amount based on his or her own earnings. If one member of the couple earned low wages or did not earn enough Social Security credits (40) to be insured for retirement benefits, he or she may be eligible to receive benefits as a spouse. To learn more about retirement, visit socialsecurity.gov/retirement.

Q: I have never worked, but my spouse has. What will my Social Security benefit be?

A: You can be entitled to as much as one-half of your spouse's benefit amount if you start your benefits when you reach full retirement age. If you want to get Social Security retirement benefits before you reach full retirement age, the amount of your benefit will be reduced. The amount of reduction depends on when you will reach full retirement age.

For example, if your full retirement age is 66, you can get 35 percent of your spouse's unreduced benefit at age 62. The amount of your benefit increases at later ages up to the maximum of 50 percent if you retire at full retirement age. However, if you are taking care of a child who is younger than 16 or who gets Social Security disability benefits, you get full benefits, regardless of your age. Learn more at socialsecurity.gov/retire2/yourspouse.htm.

Source: Social Security Administration