Social Security Fundamentals

Published On: February 7, 2019

Written by: Ben Atwater and Matt Malick

Recently several clients have reached out to us with inquiries about Social Security.  Although parts of Social Security are complex, the following basic facts about the program can provide you with an excellent foundation.

• Your full retirement age (FRA) for those born between 1943 and 1954 is 66. For those born between 1955 through 1960, your FRA is 66 (plus some months) and for those born after 1960, your FRA is 67.  For full details visit: https://www.ssa.gov/planners/retire/agereduction.html
• You are first eligible to claim Social Security at age 62 at a reduced benefit. Your full retirement benefit is available to you at your full retirement age (for example, 66) and your maximum benefit, which includes delayed retirement credits, is available at age 70.
• Claiming benefits prior to FRA, i.e. early retirement, results in a permanent reduction in monthly benefits of up to 30%, depending on your full retirement age.
• If you decide to delay your benefits until after age 65, you should still apply for Medicare benefits within three months of your 65th birthday. If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you more money.
• Waiting past your full retirement age (FRA) results in your benefits growing at 8% per year until you reach age 70.
• Social Security calculates your base benefit (full retirement age amount) using an average index of your highest-earning 35 years of work for which you paid Social Security taxes. It doesn’t matter in what years these earnings occurred, Social Security uses the highest 35 years.  If you don’t have 35 years, it uses $0 for each year short of 35 in calculating benefits.
• A spousal benefit is equal to half of your spouse’s benefit, if higher than your earned benefit. For example, if Spouse A’s benefit is $2,800 and Spouse B’s benefit is $1,000, Spouse B will receive the “spousal benefit” instead – $1,400 ($2,800 /2) versus $1,000.  This “top up” or “auxiliary” benefit happens automatically.  Social Security calculates your highest available benefit at full retirement age and pays it to you.
• In addition to the spousal benefit, Social Security offers a survivor benefit. The survivor benefit is usually the higher of the two spouses’ Social Security amounts, including delayed retirement credits.
• Social Security offers an annual Cost of Living Adjustment (COLA) tied to the increase in the Consumer Price Index. The 2019 increase is 2.8%.
• If you are divorced, your ex-spouse’s Social Security claiming strategy has no influence over your benefits.
  • If you were married for 10 consecutive years and have not remarried, you are entitled to either your own benefit or 50% of your ex-spouse’s Social Security benefit, whichever is higher after you reach FRA.
    • If you wish to collect on your ex-spouse’s benefit, you must make an appointment at your local Social Security office and bring the proper documents proving marriage and divorce.
    • There is no need to discuss this benefit with your ex-spouse and your claim has no impact on your ex-spouse’s benefits.

There are some unique strategies to maximizing Social Security, which occur when dealing with survivor benefits and when working while collecting before full retirement age, etc.  In 2015 Congress eliminated the two most beneficial Social Security workarounds: File & Suspend and Restricted Applications. 

Today, Social Security is more of a back-to-basics approach, whereby one decides the best time for each spouse to claim Social Security benefits.  Part of our retirement planning analysis is a detailed breakdown of when to claim Social Security.  If you’d like to discuss your Social Security strategy in more detail, please contact us.