Maximizing Social Security Benefits

With a little bit of planning, you can maximize your Social Security benefits.

Let’s review the general rules of Social Security benefits.

In order to receive Social Security benefits, you must have worked for at least 40 quarters (10 years) and have reached age 62.  If you choose to take your Social Security benefits at age 62, you will receive a reduced benefit from your full retirement age benefit.  Most people reach Social Security full retirement age somewhere between age 65 and 67 depending upon your year of birth.  You can also delay taking your Social Security benefits and receive an increase in benefits – up to age 70.

If you start receiving Social Security benefits before full retirement age, the amount of money you can earn from working is limited to $15,120 per year (for 2013).  The annual earnings limit amount changes each year, so make sure you are up-to-date on the current year limit if you plan on working after receiving benefits.  If you earn more than $15,120 per year, your benefits will be reduced by $1 for every $2 over the annual limit.  Once you reach full retirement age, you can earn as much as you want to and still receive all of your Social Security benefits.  During the year you reach full retirement age, the earnings limits are different and too complex to discuss here. 

People often confuse the earnings limitation with the taxation of Social Security Benefits.  These two items are mutually exclusive.  The earnings limitation is how much money you can earn before Social Security takes back some of your monthly benefit.  The misconception is that after full retirement age, you can earn all that you want to and not pay income tax.  This is not true.  The amount you pay income tax on is calculated based upon your income that includes wages, Social Security and other income such as dividends, interest, etc.

Your spouse can receive Social Security benefits based upon either his/her work history or yours.  The general rule is that a spouse gets the higher of his/her benefit or one half of your benefit.   Planning can increase the amount of money you can receive when determining the timing and on which spouse’s record to file.

There is also a survivor benefit for surviving spouses and children.  This benefit is calculated differently from the spousal benefit and can be claimed by children that are students and under a certain age, and by surviving spouses under certain circumstances.

With proper planning, you can determine when it is best for you to start taking benefits, whose record to file on for the benefits and when to stop working or reduce earned income.

As you can see, there are many ways you can claim Social Security Benefits.  We can assist you in determining the best method and timing for you.   If you have any questions on determining when and how you should file for your Social Security benefits contact us for a consultation.

/posted by Suzan Ross, CPA, PFS