5/4/2012 1:35 PM ET|
More Social Security for Mom
Knowing how and when to begin drawing benefits can make a big difference in her budget. Here's what you and your mom should know.
Many people don't understand how to get the most out of Social Security, which leaves them collecting smaller checks than they could otherwise get. If you're trying to help a retirement-age parent with her finances -- or looking to maximize your own benefits -- you need to know how to properly work the system.
The techniques described below aren't gender specific. When I refer to "your mom," I mean the lower-earning spouse in a current or past marriage. A man can qualify for benefits based on the earnings history of his wife (or his ex or his deceased spouse) just as a woman can.
It's more likely, however, that women will have earned less over their lifetimes than the men they marry have. That means women often wind up collecting lower benefits unless they deploy some of these techniques.
"Social Security is especially important to women," said Jonathan Peterson, the author of "Social Security for Dummies" and executive communications director for AARP. "They tend to have lower earnings and to interrupt their earnings for child rearing and caregiving. They live longer . . . and there will be a whole lot of women facing later life single because of divorce or being widowed. All these things make it important for women to have their eyes open."
Before we go any further, let's review the basics of how Social Security works:
- People typically can qualify for a reduced Social Security benefit starting at age 62. Applying early can mean locking in that lower benefit for life, plus their checks may be reduced further if they continue to work.
- The "full retirement age," when the benefit stops being reduced, was 65 for people born before 1938 but is gradually increasing to 67 for people born in 1960 or later. Once you reach full retirement age, your Social Security benefits won't be reduced even if you continue to work.
- People who postpone their retirement beyond full retirement age earn "delayed retirement credits" that boost their benefit by 8% for each year they put off retiring. The benefit increase stops at age 70.
- People can opt for benefits based on their own earnings record, or they can claim up to 50% of the benefit earned by a spouse or former spouse. Opting for a spousal benefits doesn't affect the benefits of the worker who earned the benefits, whether you're still married or divorced.
- If their spouse or former spouse is dead, people can claim up to 100% of the deceased person's benefit.
Okay, now we can review how to put that knowledge to use in various situations. Such as:
Your mom is married. People who earn less than their spouses, or who were out of the workforce for many years, may get a bigger check by claiming up to half of their spouse's benefit rather than 100% of their own.
But many people don't realize they have this option. Fewer than half of the respondents in a recent poll for AARP who had ever been married even knew that spousal benefits were available.
Your mom typically can start claiming a spousal benefit as soon as she turns 62, as long as her husband has started collecting his benefits. (Another option, if the husband has reached full retirement age, is for him to "file and suspend," which means he applies for Social Security but puts off receiving the checks. That allows your mom to start receiving a spousal benefit, while his own benefit can be left alone to grow.)
If your mom starts claiming benefits early, though, she's locking in a significantly smaller check for the rest of her life. Her spousal benefit check at age 62 would be 30% smaller than if she waited until 66 (today's full retirement age), Peterson said. If her husband's full retirement benefit is $1,000 a month, for example, she would get a monthly check of about $350. If she waited until she turned 66, her check would be $500.
(Furthermore, her checks will be reduced if she continues to work because of withholding, under the Social Security earnings test. In 2012, for example, people younger than full retirement age will see their retirement checks reduced by $1 for every $2 they earn over the exemption limit of $14,640. A different test applies during the year in which an individual reaches full retirement age.)
Some people prefer the "bird in hand" of a smaller check, but that's often a mistake, said Christine Fahlund, senior financial planner for T. Rowe Price. Most people, she said, are better off delaying retirement, if possible, to increase their checks and guarantee the higher payments for life. Not only are they likely to receive more money overall, but the larger checks can also serve as a kind of "longevity insurance" if you live longer than expected and exhaust your other resources.
On the other hand, "later is not always better," Peterson said. Claiming checks earlier can make sense if a person's life expectancy is short because of ill health, for example, or if she simply can't get by without the money.
You can determine the "break-even point" -- when the value of the larger checks exceeds the cost of forgoing the earlier benefit -- by using Social Security's benefit estimator. In the above example, you would first calculate how much your mom would take home in the 48 months between age 62 and age 66 if she chose the smaller benefit ($350 times 48 equals $16,800). Then you'd compare the difference in monthly payments at age 62 and age 66 ($500 minus $350 equals $150), and divide the amount from the first calculation by that amount ($16,800 divided by $150 equals 112 months, or a little over 9 years). So if Mom lives past 75 (age 66 plus 9 years), she'll earn more overall by delaying.
If your mom waits until her own full retirement age to claim spousal benefits, she can benefit from another technique. If her spousal benefit is larger than her own benefit, she can get spousal checks for the years between her full retirement age and age 70. Then, once her own benefit has hit its maximum amount, she can switch from spousal benefits to a benefit based on her own record if that amount is greater.
If there's a dependent child in the mix, the rules change a bit. Your mom can receive a full spousal benefit -- up to half of her husband's full retirement benefit -- at any age, as long as her husband has filed for Social Security and the child is receiving benefits. (The children of Social Security recipients qualify for checks as well, as long as they're unmarried and under 18, or under 20 and full-time students, or disabled with a disability that started when they were younger than 22.) Your mom can receive her spousal benefit until the child reaches age 16. At that point, the child's benefits would continue but your mom's would stop unless she's old enough to receive retirement benefits (age 62 or older) or survivors' benefits as a widow or widower (age 60).
Your mom is divorced. Your mom can claim benefits based on her ex's record as long as:
- She's at least 62.
- The marriage lasted at least 10 years.
- She's currently unmarried.
What's more, her ex doesn't have to cooperate. As long as he's 62 or older, he needn't have filed to receive his own benefits for her to claim a spousal check, and his approval isn't needed. It will help the application process if your mom has his Social Security number, but the Social Security Administration says it can track down his records without it.
The benefit amount and rules for collecting are the same for a divorced spouse as for a current spouse. As noted above, claiming a spousal benefit doesn't reduce the ex's benefits, or affect the benefits of his current spouse or any other former spouses. But as with other retirement benefits, choosing to take the money early will result in a permanent reduction in your mom's checks. If she continues to work, the check could be reduced further by the earnings test.
If she delays claiming her spousal benefit until she reaches her own full retirement age, she'll also preserve the choice to switch to her own retirement benefit at age 70, if that amount is greater.
What if your mom remarried after her divorce? She can't claim benefits based on an ex's record if she's still married to a subsequent spouse. But if the later marriage ends -- by divorce, annulment or death -- she can apply for benefits based on either previous spouse's record.
Your mom is widowed or her ex has died. Once a breadwinner dies, so does the 50% limit on spousal benefits. Your mom can claim up to 100% of the retirement benefit of a deceased spouse -- or a deceased ex. Furthermore, she can receive benefits at a younger age -- 60, or 50 if she's disabled -- and she can even remarry, as long as she does so after age 60.
To qualify for a survivor's benefit, she typically must have been married to the covered worker for at least nine months before his death. If they were divorced, the marriage must have lasted at least 10 years.
The nine-month minimum for current spouses has some exceptions. If the breadwinner died in an accident or in the line of duty as a member of a uniformed service, or if the couple was previously married to each other and the past marriage lasted nine months, the minimum is waived, and the survivor can apply for benefits.
As with other Social Security benefits, claiming a survivor's benefit before she reaches full retirement age will result in a smaller check, but the minimum is typically 71-1/2% of the dead spouse's benefit. If the person who died was receiving reduced benefits, the survivor's check is based on that reduced amount.
Another difference between spousal and survivor benefits is more flexibility in switching between benefits. If your mom receives benefits as a surviving spouse or surviving divorced spouse, she can switch to her own retirement benefit as early as age 62. Or she can wait to switch until full retirement age to her own, unreduced benefit.
If your mother does remarry after 60, she may qualify for benefits both as a widow and as a spouse. She can choose which benefit to take, but she can't take them both. Social Security will calculate both benefits, and she can choose the larger one.
Clearly, Social Security has a lot of moving parts. It's easy to get confused and make a mistake that could result in a smaller benefit than what she's entitled to. What's important is educating yourself and running the numbers, using the Social Security benefits estimator and tools like AARP's retirement calculator, to understand all your options.
"At least then people won't do stuff because they didn't know any better," Peterson said.
If you suspect your mom should be getting a bigger check, you or she can contact the Social Security Administration at 800-772-1213 to get the review process started.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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SSI & medicare is not a handout. The USA forcibly takes approximatly 15.3% of everything I earn (Employee and Employer part combined) so that I qualify for SSI. Conservatively that means my wife and I at 45 years old have contributed about $300,000 so far with more to come. Even with the recent reduction we are still contributing 13.3%.
If we keep this up another 20 years we'll have put a total of nearly $650,000 or more into the system. Therefore it is not a handout. We have paid dearly for this benefit. Just because the government mis-manages it does not mean I will let them off the hook for paying it.
They made a contract with the American people that said if we take your money you'll get retirement. If they don't want to hold up thier end of the bargin then give me back my money.
I am aged 67 and have received Soc. Sec. since I turned 64. At the time of my retirement I had thought my job was being fazed out after being taken over by others. All my calculations were great, I thought. I can afford to live off this, along with my deceased husband's pension. With some money in stock, along with a small amount in IRA CD'S. Over 3 years later Boy was I wrong! For more months than I can count now I have been looking for employment to at least supplement my income to make ends meet with food and gasoline alone. I have discovered that age is really high on the discrimination list in this country. Yes I have been put out to pasture for sure. Hopefully Social Security won't run out too before I get a job; become completely disabled; or the shovel comes out for me! If Social Security ever runs out then money should start coming out of the checks of legislators salary & pensions, since they are the ones who have stolen from our benefits that American workers paid into all our lives. The money in the Social Security system was, and is, paid into a fund to insure workers have a livable income in retirement. However this money has been used for other things, which in my opinion the legislators have repeatedly broken the rules and laws over the years by using the funds for other purposes. This is the American workers money deducted every paycheck for the length of their employment with little raise in living costs after they start collecting it (when you do get an increase, by the way they raise the cost of Medicare & supplements). This is not the golden years as I thought is was going to be.
Social Security must always provide a secure and stable base
so that older Americans may live in dignity."
What gets left out of this article much like the other articles including the government budgets is the widow who is left only a thousand dollars to live on. My mother is in this position with a large old house to heat. She cannot just sell it and rent an apartment as she would not have enough money to do so. Yet, the government keeps raising Medicare expenses, and Medicare supplements keep going up. i wish I could help her but I am laid off and struggling to survive myself. Many old folks are fine until one spouse dies and leaves the other with one small income to survive. No one talks about this or wants to acknowledge it as a major problem facing an older person.
How does waiting until you are 70 to retire get you more if you die at 65? What are the odds?
I am not talking about the goverment I' m talking about the people of the United States of America!!!! I don't think that it is right that they are set for life after they leave office I think they need to get a job toooooo!!!!!!!!!!!!!!!!!
Okay... say at 62 you get 1000 dollars per month.... that is 12000 per year.... At age 66 you would get 15600 dollars per year. or a differenc of 3600 dollars. if you divide that into the 48000 dollars you would get between age 62 and 66, it comes out to 13 years... add that 13 years to the 66 year retirement age. You would have to live to age 79 to recover the money you didn't get for not retireing at age 62... THAT IS NOT INCLUDING ANY INTEREST THAT SHOULD HAVE BEEN ACUMULATING... ALSO figure all the SS money that is never given out because the person dies... MILLIONS of people.... NOW , WHERE IS THAT MONEY AT ?????.
People don't be NOT SMART............. we are getting the shaft when it comes to SS payments.
The SS trust fund is not bankrupt. The fund collects more taxes than it pays out in benefits each year. These surplus funds are invested in the safest, most liquid investment in the world, US Treasury bonds. Call those IOUs if you want, but everybody else calls them investment grade securities. These bonds are really stored in a special vault at the SSA, an actual 'lockbox'.
Of course, the problem is that the SS trust fund is projected to start paying out more than than it collects starting in a few years and deplete this surplus by 2036 under the current law.
I am retired and disappointed. I know I will not live long enough to receive all the money deducted from my paycheck back in a retirement check. Due to my occupation and my health it was apparent I could not hold out for a later age. I put my 3 kids through college so not much was in the ole 401K. Retirement blues is my new music
if you knew anything at all? you would know that we are in a mess because: 1) politicians have been writing trillions of IOU'S agaist ssi,pulling out the money for their use. Money they borrowed, with no intention ever to pay it back. 2) outsourcing of jobs to other countries. USA business are clear from paying into ssi/medicare or taxes on money in forigein coutries. 3) loop holes in Americans with disability act, allows every fn handicapp person legal or illegal to draw ssi for life. 4) ssi is also the new welfare for all who work the system. 5) loopholes in the tax laws benefit the wealthy and big business. We are drilling oil in this country at a 30% higher rate.than ever before in us history. we still subsaide big oil.Now our politicans have tied ssi into the national debt. it costs $2.40 to drill a barrel of oil in this country, a dollar more if you go more than 100ft, below the ocean floor.(you figure out why the price is so high) we pay single parents ssi/welfare. Then they get a tax refund and tax credit for children(they never worked to earn this money or paid any taxes. yet they get a large refund.Read up on the new high deductable health insurance plans now going into affect. These were drafted up and passed while G.W. Bush was in office. Our polticans make btwn 250k and 350k a year which they draw for life, while still drawing their social security. Don't forget they get the best/free medical in the world. If they would make companies that outsource pay into ssi, make those who borrowed agaist ssi pay back, those who never work, unable to collect , those who make more than $100,000 a year unable to collect and stop using it as welfare, we would be just fn fine. Oh yah. people who don't do their homework before they put another corrupt policianin office. What is wrong with protecting our enviroment,producing green priducts, as we become a thriving country again. Money and greed doesn't protect of lives. People,common sense and a safe planet does.
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