Making the Most of Social Security

August 25, 2010

With all the conversation about changing Social Security benefits, it may be useful for those reaching retirement age to revisit distribution options. There are a number of strategies that can increase the benefits.

The government has incentivized delaying when you apply for benefits. Full retirement benefits are available at normal retirement age (NRA), which varies based on the year you were born. Technically, you can apply for social security at age 62, but you will be reducing your benefits by approximately 25%.  You could also be subject to an earning cap penalty. If you wait until your NRA or, even better, after your NRA (until age 70), you can increase your payout by up to 8%  every year you delayed.

If you are currently collecting Social Security and began early at age 62, you have the option to change your mind.  To do this you can repay the amount received and then reapply for a larger monthly benefit without interest or penalty - essentially receiving a zero-interest government loan.  You may also be able to claim a tax refund or credit for any taxes previously paid on benefits received. 

Married couples can take advantage of a disparity in earning history. If one of the couple has an earnings history and the other has little or no earnings history and is younger, this approach can be useful. In this case, the spouse with the larger income files for benefits at NRA while the other files for spousal benefits. An immediate request is then sent from the breadwinner to suspend only their own benefits.  By doing this, the spouse is allowed to begin receiving spousal benefits at a higher payout, while the breadwinner continues to accrue benefits. Later, after the breadwinning spouse reaches or surpasses his/her NRA, they re-apply and commence receiving benefits at a higher payout.

If you are a married couple where both spouses are working, one spouse may decide to retire before the other. In this case, the working spouse may want to consider filing for spousal benefits while they continue to work, in order to receive one-half of the retired spouse's full retirement benefits, but still allowing their own retirement benefits to increase past NRA.

Navigating these options can be tricky and course of action is unique for each individual.  For more information, please contact your Perelson Weiner partner.

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