Don't Leave Extra Money on the Social Security Table

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Question:  You once wrote a column on social security tips.  I cut it out but now I can’t find it.  Can you give me an update?

Answer:  The subject of social security benefits in general can be daunting.  Hopefully you will find something below helpful that will keep you from leaving extra money on the Social Security table.

  1. When you work and pay FICA (Federal Insurance Contributions Act) taxes, you earn credits toward retirement benefits.  Credits are based on annual earnings and you can earn up to four credits per year.  If you earn 40 or more credits you are fully insured and eligible to receive benefits. 

  2. You can collect your Primary Insurance Amount (PIA) at your Full Retirement Age (FRA). If you were born between 1943 and 1954 your FRA is 66.  If you were born between 1955 and 1959 it is 66 plus 2 months for every year after 1954.  And if you were born after 1959 your FRA is 67.

  3. You can begin to collect reduced benefits before your FRA and as early as age 62.  If you begin early, your benefits will be permanently reduced by as much as 30%.

  4. Up to 85% of your Social Security benefits can be taxable, depending on your other income.  You should consider the tax consequences of collecting early, especially if your spouse continues to work.

  5. If you delay receiving your benefits beyond your FRA, you will receive delayed retirement credits (DRC) and your benefits will increase by 8% per year until age 70.

  6. Individuals who are working and receiving Social Security benefits before their FRA and earn more than $15,720 per year stand to lose $1 of benefits for every $2 of earnings.

  7. If you worked for a government agency that did not withhold FICA taxes from your salary, the pension you receive from that job may reduce your Social Security benefits. This is known as the Windfall Elimination Provision, or "WEP."  WEP primarily affects individuals who worked in other jobs long enough to qualify for Social Security benefits and have a pension from a job that did not withhold FICA tax.

  8. If you are age 62 or older and have a child under 18 (19 if he/she is in high school), that child might be entitled to collect Social Security benefits. If your spouse is helping you care for your child then he or she can collect benefits at any age until that child turns 16.

  9. If you are age 62 or older and your spouse files for Social Security retirement benefits, you may be entitled to collect spousal benefits.  Spousal benefits will amount to 50% of your spouse’s primary insurance amount.  If you are entitled to your own benefits, you collect those first and then collect spousal benefits until the combined amount equals 50% of your spouse’s primary insurance benefit.

  10. Widower’s can begin collecting spousal benefits at age 60.

  11. If you are an unmarried divorced spouse, you become eligible to collect spousal benefits once you and your ex-spouse both reach age 62.

  12. Amounts that your ex-spouse collects based on your earnings record will not reduce any benefits to which you or your current spouse are entitled.

Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to ken@montereypw.com.