Social Security                        

 

• How do you apply for social security benefits?

• What is your full retirement age and the financial impacts of taking your benefits earlier or Later?

• Can you apply for benefits through your spouse’s social security number?

 

Think Social Security is confusing?

You’re not alone.  There are many rules and many exceptions to those rules.  At American Steel Bridge Insurance Solutions we try to answer the questions that are common amongst most people. Who Qualifies and When: To qualify for Social Security, you must have a work history of 10 years or 40 quarters that you paid into the system.  Some work categories do not pay into the Social Security system.   Most federal employees, railroad workers and some state and local government employees (including teachers) are not covered and it is likely that they will receive reduced or no benefits. Technically, you qualify for benefits at age 62, and if you choose, you can wait as late as age 70.  If you choose to take your benefits early, your benefit will be less, and if you wait, your benefits will be larger.  Deciding at what age to take your benefit can be critical.  The choice you make will decide the amount you receive for the rest of your life.  A key milestone for Social Security benefits is your full retirement age which is based on the year you were born (see below).  You’ll receive your full retirement benefit if you wait until your full retirement age.  Social Security uses your full retirement benefit as a starting point to decide what benefit you or your dependents will receive.  Remember, full retirement age does not represent the highest benefit amount you get.  If your full retirement age is 66, by waiting until age 70 your benefit will increase about 32% above your full retirement benefit.  The chart below shows the year of your birth and your full retirement age.

 Full Retirement Age Based on Year of Birth

Year of Birth                                    Full Retirement Age  

1937 or earlier                                 65 years                                                                                                                                     1938                                                 65 years and 2 months                                                                                                  1939                                                 65 years and 4 months                                                                                                   1940                                                 65 years and 6 months                                                                                                 1941                                                 65 years and 8 months                                                                                                  1942                                                 65 years and 10 months                                                                                                  1943-1954                                        66 years                                                                                                                          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 years  

*Found at https://www.ssa.gov

 

How Much monthly income will I receive? 

There are two basic criteria that determine your benefit; your earning during your lifetime that you paid into the Social Security system and your age when you file for Social Security.  The average benefit (in 2015) was about $1300.  The highest benefit you could earn in 2018 was $2788 (if you filed for benefits at your full retirement age). 

 

Working in Retirement?

If you choose to work through retirement there are a few things you should know.  If you decide to file for benefits before reaching your full retirement age, Social Security imposes an annual earnings limit which is a cap on your earnings.  Here, earnings refer to wages from a job; not investments, rentals, pensions, annuities, government benefits, inheritances etc. 

In 2018, that limit is $17,040.  That means you can earn up to $17,040 and continue to receive your entire Social Security benefit.  However, there are three criteria to consider if your earnings exceed $17,040. It depends on whether you receive your Social Security before, during, or after the year you reach your full retirement age.  

 

Before: Any year you work before the year you reach your full retirement age; If you are earning more than the annual earnings limit while collecting Social Security, they will take back $1 of your Social Security benefit for every $2 you earn over the limit.  The limit only applies to earnings you receive after you start receiving Social Security During: During the year you reach full retirement age, Social Security will deduct $1 for every $3 you earn over the annual earnings limit up till the month you reach your full retirement age.  The annual earnings limit is also increased.  In 2018 the limit is 45,360.  The earnings limit only applies to earnings received before the month you reach your full retirement age. After: Once you reach your full retirement age there is no limit placed on earnings and no reduction in your Social Security benefit because of earnings.  So, work as much as you want and put in all the overtime you can. It’s important to note that any Social Security benefit withheld due to the annual earnings limit are eventually given back gradually once you attain full retirement age.

 

Taxing Social Security:

Social Security used to be tax-free.  Unfortunately, Congress changed all that.  Depending on your income, up to 85% of your Social Security can be taxed. The amount they choose to tax is based on your combined or provisional income, which is the sum of wages, interest, dividends, pensions, taxable income, non-taxable municipal bonds and half your Social Security benefits.  Just about everything is included except distributions from cash values in life insurance policies and Roth IRA’s.   If your provisional income is between $25,000 and $34,000 on a single return or $32,000 and $44,000 on a joint return, up to 50% of your Social Security benefits can be taxed.  Anything higher than this is taxed at 85%.

 

What is ‘The Windfall Elimination Provision’?

If you spent part of your career working in a field where you did not pay into Social Security, such as some local, State and Federal government workers, and qualified for a pension, you may get hit with the Windfall Elimination provision (due to your pension).  Meaning your Social Security benefits may be reduced.  

Are there any Exception?

This provision doesn’t apply to federal workers hired after December 31, 1983.  Although this provision may reduce your benefits, it’s capped at 50% of your pension amount.  So, if your pension was $1500, the most that your Social Security benefit could be reduced by is $750.

 

What about Spousal Benefits?

Both current and ex-spouses, if you have been married for 10 years, you are eligible for spousal benefits.  You must be at least age 62 to file for benefits.  You are not eligible to receive benefits however, until your current spouse files for their own benefits first.  You don’t have to wait for an ex-spouse to file, but they must be at least age 62.  Spousal benefits do not reduce nor effect the amount that your spouse will receive. As a spouse, you can claim Social Security benefits based on your own earnings or you can collect up to a maximum of 50% of your spouse’s benefit based on their full retirement age. When you file for benefits, Social Security will automatically calculate your benefit based on your work history vs the benefit you would receive based on your spouse’s work history and pay-out the higher of the two.  You cannot receive both. If you file before reaching your full retirement age you will receive a further permanent reduction due to the early filing rule discussed earlier.  That’s something most people should avoid doing.    Born before January 1, 1954 Individuals born on or before January 1, 1954, and after reaching their full retirement age (or age 60 for widows and widowers), may choose to receive only the spousal benefit by filing a restricted application.  This will allow you to delay taking your own Social Security benefits based on your own earnings record until a later date, up to age 70.  This allows your own benefit to grow larger while receiving half of your spouse’s benefit; then later, you can switch to your own benefit that will have grown larger.   This can be an excellent strategy for many people. However, you must be born before January 1, 1954 to use this strategy.

 

Who Else Qualifies?

Widows: If you have been married for at least nine months to someone who has passed away, and they qualified for Social Security benefits based on their work history, you qualify for widow/widower benefits.  The earliest you can qualify is age 60.  So, if you are 58, and your deceased spouse died at age 57, you would be eligible for benefits at age 60.  The amount you qualify for depends on the following four criteria:

1. If your deceased spouse had already started receiving benefits before reaching their full retirement age then you are eligible for the larger of what your deceased spouse was getting or 82.5% of their full retirement amount if you have reached your full retirement age.  This amount is of course proportionately reduced if you have not reached your full retirement age.

2. If your deceased spouse had begun taking benefits at or after his full retirement age you the surviving spouse would be entitled to 100% of what your deceased spouse was getting if you have reached your full retirement age (subject to reduction).  

3. If your deceased spouse had not begun receiving benefits and died prior to reaching their full retirement benefits you the surviving spouse would be entitled to 100% of the deceased spouse full retirement amount if you yourself have reached full retirement age.  This amount is subject to reduction if you are not at full retirement age.

4.   If the deceased spouse had not begun receiving benefits and died after their full retirement age, then the surviving spouse would be entitled to 100% of the deceased spouse’s benefit plus additional credits earned for delaying their benefit, subject to a reduction if the surviving spouse has not yet reached full retirement age. 

 

What if you are a Widow with a Child or Children?

A widow or widower with a dependent child under 16 qualifies for benefits at any age.  The benefit amount is 75% of your full retirement amount.

What if you are a Spouse with a Child of Children?

A spouse as we have seen, qualifies for benefits at age 62.  A spouse with a dependent child (while under age 16 or disabled) is eligible for 50% of the covered worker’s full retirement amount and may receive benefits at any age.     

What if you were a Divorced Spouse?

If you were married to your ex-spouse for at least ten years and you did not remarry before age 60, you may file for benefits as early as age 62 under your ex-husbands work history.  At full retirement age, you would be entitled to 50% of your ex-spouse’s full retirement amount subject to a reduction if you file early. If your ex-spouse is deceased, you may file for widow / widower’s benefits on their work record at age 60. Child of Retirees: When you qualify for Social Security benefits, your children may also qualify based on your earnings record.  Children generally receive 50% of your full retirement benefit.  Your eligible child could be your biological child, stepchild, adopted child or grandchild.  Your unmarried children must be under 18, or up to age 19 if full time students.  A child who was disabled before age 22 is also eligible.

Child Survivor?

Your unmarried children who are under 18, or up to age 19 if full time students, can receive Social Security benefits when you die.  And your child can receive benefits at any age if they were disabled before age 22.  The benefit amount is 75% of your full benefit amount.

 

What is the Government Pension Offset Provision (due to a Spouse or Survivor’s pension)?

If you’re the spouse or survivor of someone that qualifies you for Social Security benefits, but you also get a pension because of your work in local, state or federal government, your benefit may be reduced due to the Government Pension Offset Provision.  The reduction comes to two thirds of your government pension.  So, if you’re receiving a pension of $1,200 per month, and your eligible for a spousal benefit of $1,300, your benefit would be reduced by $800 (two thirds of $1,200) leaving you with a Social Security benefit of $500.    

Does Social Security cover Disability Benefits?

There are two types of disability benefits:

1)Social Security Disability Insurance (SSDI) which covers disabled workers and some family members who depend on them.

2) Supplemental Security Income (SSI) to cover low- income individuals including the disabled, blind and those 65 and over.

 

 

SSDI: A disability can be financially devastating to an individual or a family dependent on income that is lost due to someone’s inability to work.  Social Security Disability Insurance, (SSDI) is a benefit that is available to anyone who is eligible for Social Security benefits, regardless of income.  Generally, to qualify for SSDI, you must expect to be either physically or mentally disabled and unable to work for at least 12 months. You must also be under age 65 and have worked at least five of the last 10 years prior to your disability.  If you’re thinking of applying for SSDI you can count on a wait time of six to eight months.  You must also pass two tests based on your work history; the recent-work test, and the durationof-work-test.  Check with your Social Security office to see if you qualify.  Once you have received benefits for 24 months you are also eligible for Medicare parts A, B and D (See section on Medicare). Benefits for family members:  If you should become disabled, dependent members of the family may also qualify based on your work.

 

How old do I need to be to expect benefit if I were a Spouse? 

A spouse age 62 and older or a spouse of any age if they are caring for your child who is under age 16 or who disabled.

Widow: A surviving spouse, if age 60 or over, is eligible to receive their spouse’s benefits. For a disabled widow or widower, the eligible age is reduced to age 50.

Child:  Your unmarried child, adopted child, stepchild or grandchild may be eligible.  Your child must be under 18 (under 19 if still a student) or any age if disabled before age 22. How much can you earn:  Benefits are calculated much like Social Security calculates your retirement benefits.  For instance, someone age 50, with current earnings of $50,000 could expect a monthly benefit of around $1,500.  A qualifying child could expect about $1,125, and a spouse caring for a qualifying child could also expect $1,125.  The family maximum would be $2,695 which could reduce the benefits of some family members. Your SSDI benefits are not reduced if you are receiving Veterans Administration (VA) benefits or private disability insurance (although private insurance may reduce their benefits if you receive SSDI).  You may receive SSDI and workers’ compensation concurrently if the total benefit does not exceed 80% of your pre-disability earnings.

 

How does SSI differ from SSDI?

Unlike SSDI, Supplemental Security Income (SSI) pays benefits based on need without regard to your work history.  If you are 65 or older, blind or disabled and you are in severe financial need, you likely qualify for SSI.  To qualify you must have little or no income and very few assets.  For 2018 the most you can receive from SSI, living in California, is $910.72 per month for an individual and $1,532.14 per month for a couple.  There are several categories depending on your age, health or living facilities, so you should check with Social Security to confirm eligibility. Additionally, the value of your assets can not exceed $2,000 if you are single or $3,000 if you are a married couple.  Social Security does not count the value of your home or car in making its determination.