Common Questions Regarding Social Security
By Christopher L. Hudson, CIMA
Below are a few common questions, and/or misconceptions, that we encounter regarding Social Security on a day-to-day basis:
- When can I start collecting my Social Security Retirement benefit?
You are eligible to start taking Social Security retirement benefits beginning at age 62 if you have at least 10 years (40 quarters) of employment. However, your income benefit will be reduced because you are taking it prior to reaching Full Retirement Age.
- Can I file for Social Security and continue to work?
You may, but you have to be aware of the earnings limit imposed if you have not reached Full Retirement Age.
- Are my only options taking Social Security at age 62, Full Retirement Age, or age 70?
No. You are eligible to claim Social Security retirement benefits beginning at age 62 and any time after (age 63, 64, 65…….). Keep in mind if you claim (start) your benefit prior to reaching Full Retirement Age your income benefit will be permanently reduced for the remainder of your life. If you wait beyond Full Retirement Age, your benefit will grow by roughly 8% per year between Full Retirement Age and age 70. Your income benefit will no longer grow once you have reached age 70.
- If I decide to go back to work after reaching Full Retirement Age will my Social Security benefits be reduced?
No. Once you have reached Full Retirement Age there are no earnings restrictions.
- Are Social Security benefits taxed?
In most cases yes, but it depends upon your income (or joint income if you are married). Depending upon your income level either none of your Social Security income benefit will be added to your AGI, 50% of your benefit will be added to your AGI, or 85% of your Social Security income will be added to your AGI. Please check with a tax advisor before making any decisions and confirm the income levels that pertain to that year.
- Should I start my Social Security benefit as early as possible since I have paid into the system my entire career and I don’t want to die before getting my money back?
Deciding when to start taking Social Security depends upon a number of factors both financially as well as psychologically. This is made even more complicated by the fact that none of us has a “crystal ball” and knows exactly how long we are going to live.
The best course of action is to sit down with a credible financial professional and run a detailed cash-flow analysis to determine, from a financial standpoint, when the best time to beginning taking Social Security is in order to maximize your benefits given a reasonable life expectancy. After that, you should have a discussion regarding your comfort level, thoughts and preferences.
Keep in mind that if you do decide to take your Social Security benefit early, you may receive a permanently reduced benefit for the remainder of your life and your spouse may receive a lower survivor benefit upon your passing.
- Does my spouse have to begin their Social Security benefits at the same time that I do if we are both over the age of 62?
No. Married couples have a number of options with regards to when they start, or claim, their Social Security benefits. It is important to understand all of the “claiming strategies” that are available and chose the one that best fits your situation.
- Do I have to claim my Social Security benefits by Full Retirement Age or can I wait?
You do not have to claim your Social Security benefits by Full Retirement Age in fact, there could be a benefit in waiting. Your Social Security income benefit will increase by roughly 8% per year between Full Retirement Age and age 70 if you delay claiming your benefit. After age 70, your income benefit will no longer grow.
- Will my pension income decrease once I start taking Social Security?
Possibly. Check with your company benefits department to see if your defined benefit pension plan is set-up as a “Social Security Offset Plan”. A Social Security Offset Plan is an integrated pension plan that reduces private benefits by a portion of an employee’s Social Security benefit.
Any opinions are those of Christopher Hudson and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss tax or legal matters with the appropriate professional.
