Social Security is often an important part of your retirement plan. So I wanted to cover Social Security Retirement Benefits.
In this episode, I address the basics of Social Security along with some of the specific considerations that relate to a woman’s retirement planning.
- What happens if you get divorced?
- Or what happens if you become a widow?
- How is Social Security taxed?
- When can you start taking Social Security benefits?
- How much will you get?
I address these questions and more in this episode of the Women’s Retirement Radio podcast.
Click the play button below to listen:
- A Social Security Overview
- Social Security Spousal Benefits – The Basics (video)
- Social Security Tips for Women Earning Over $100K (video)
- Atlanta Teachers and Social Security Planning
- How Much Longer Will Social Security Last?
Thanks for listening.
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Hi there and welcome to another episode of the Women’s Retirement Radio Podcast. I’m your host Russ Thornton, and today we’re going to talk about social security. I’m sure you’re listening to this and you’re familiar with the idea of social security and what it is and how it works. But I found in my experience working with women as they’re planning for and preparing for retirement that many aren’t that’s familiar with some of the details and nuances, some of the considerations and choices that they might be faced with as they’re thinking about the role social security plays in their overall retirement plan. So let’s start with what the program is.
Social security is a federal program. It’s been around since 1935 when it was signed into law by FDR who was president at the time. Social security is largely funded by what are called FICA taxes, F-I-C-A, and that stands for Federal Insurance Contributions Act. And the way that’s typically assessed is if you are an employee of a company or an organization, 6.2% of your pay or salary is deducted from your paycheck and goes towards social security, and typically your employer pays another 6.2%. So you’ve got somewhere in the neighborhood of 12.4, 12.5% each year that is going to fund social security for current and future benefit recipients. There’s a lot of talk today and there has been for a while about the longterm viability of the Social Security Program. Will it be around by the time you’re ready to retire and file for benefits? That’s something we’ll talk about a little bit further in a moment, but let’s talk a little bit more about the program itself first.
So who gets social security benefits? Well, depending on who you are and your situation, social security benefits are typically paid to retirees and those are the majority of current social security benefit recipients. But social security can also benefit those that are disabled, widowers, spouses, ex spouses, minor children in many situations, and there are other situations where there can be combinations of those factors. So disabled children for example, or family members of someone that is disabled, deceased, et cetera. There are a lot of moving parts and benefit combinations that may come into play or that you may be eligible for, given your specific situation.
But given that this podcast is focused on retirement planning for women and those that are approaching their retirement years, I’m going to focus primarily on the retirement benefit aspects of social security in today’s episode. So if you’re thinking about social security and your eligible benefits as you think about retirement, the earliest that you can typically take social security retirement benefits is age 62, and the latest is age 70 so again, to repeat the earliest you can start social security benefits is age 62, the latest is age 70. But there’s another age related figure or timeline that you need to consider, and it’s what social security refers to as your full retirement age. They often refer to it as your FRA, so your full retirement age, and that’s based on your date of birth.
So if you were born before 1955, your full retirement age according to the social security administration is age 66. If you were born in 1960 or later, your social security full retirement age is age 67. And if you were born sometime between 1955 and 1960 then your full retirement age will be somewhere between age 66 and 67. So for example, it might be 66 and six months if your birthday falls somewhere in the mid point between 55 and 60 as an example. When I post the show notes for this episode, I’ll include a link to the webpage on the social security website that lists the individual for retirement ages based on your specific date of birth. So you might want to check that out just to confirm your full retirement age as it relates to social security.
The other factor that has a large impact on your retirement benefits from social security is when you began to receive your benefits. We just talked about, your full retirement age. Let’s say your full retirement age is 67. So let’s say you were born in 1960 or later, your full retirement age according to the social security administration is age 67. So if you wait and take your full retirement age benefit, so wait until 67 to begin your social security retirement benefits, you will receive 100% of your social security benefits. And that benefit is calculated based on your entire earnings history. And that’s all tracked through the IRS. So yeah, when you get your social security benefit statement in the mail, or if you go online and set up your own online social security account at myssa.gov, be sure to check your earnings history because while it’s likely to be correct, it’s not always correct and you want to make sure that they have accurate information so you get every dollar of the benefits that you’re owed once you start taking those benefits.
But again, let’s say your full retirement age is age 67, if you wait and don’t taking your retirement benefits from social security until age 67 you will get 100% of your eligible social security retirement benefit. If on the other hand, you take it as early as 62, which is the earliest age that you can begin taking retirement benefits, you will only get approximately 70% of what would’ve been your full retirement age benefit. In other words, if you take it at 62, you’re basically going to lock in a benefit that is approximately 30% less than what you would have received if you had started at your full retirement age, age 67 in this example. And if you defer your retirement benefits until age 70 which is the latest that you can defer your social security retirement benefits, you’ll get somewhere in the neighborhood of 124 to 130% of your full retirement age benefit.
And that’s because as you defer your social security benefits beyond your full retirement age, you get something called delayed credits and they actually increase your social security benefit the longer you wait up until age 70 which is the maximum. So a couple of key things you want to think about when you’re thinking about your social security planning strategy is when is your full retirement age? And that’s going to be, again based on your date of birth. If you were born before 1955, it’s age 66. If it’s on or after 1960, your full retirement age is age 67. And if you were born between 1955 and 1960, your full retirement age is going to be somewhere between 66 and 67. Also, another key age-related date to think of is when you start your benefits. If you started as early as age 62, you’re going to basically lock in an approximate 30% reduction in your full retirement age benefit that you would have received if you had waited until your full retirement age.
If on the other hand you are willing and able to defer your benefits to age 70, you will get somewhere on the order of 124 to 130% of your full retirement age benefit, and those are because of the delayed retirement credits that accrue to your benefit if you are able to defer your benefits beyond your full retirement age. A couple of other things to think about is taxation. So if you start receiving your social security benefits, and if your taxable income from all sources falls between 25 and 34,000 for an individual, or 32 to $44,000 for a couple, up to 50% of your social security benefits will be taxed. If on the other hand, your taxable income in the year that you receive it is greater than $34,000 for an individual or greater than $44,000 for a couple, up to 85% of your social security benefits will be taxed. So this is not just free non-taxable money. You need to think about the tax implications of when and the amount that you receive in social security benefits as well.
There are also some interesting planning opportunities or considerations for women. As I mentioned in my last episode when we were talking about retirement planning considerations for women, we mentioned a couple of situations where women might find themselves alone and that could be through death of a spouse and they find themselves as a widow. It could be through divorce, and so they then have an ex spouse. And there are some interesting specifics around planning for social security if you find yourself in a divorce or in a widowhood situation. So a couple of things to be aware of; for current spouses, so if you’re married and you and your spouse both are eligible for social security, you have the option to take your own social security benefit that you have earned and accrued through your career of earnings, or you can take 50% of your spouse’s benefit, whichever is higher.
So you can take the greater of your own benefit or 50% of your spouse’s benefit. This is while you’re married. If you’re divorced, and this is important, if you’re divorced and you were married for greater than 10 years, the same benefit applies to you. So let’s say you were married for 12 years, you get ready to retire and file for social security benefits, you can still choose to receive your own benefit or 50% of your now ex spouses benefit, whichever is greater. So that’s something to think about. If you are divorced and you elect to take 50% of your ex spouses benefit, it does not affect his benefit at all. So it does not cost him anything. It does not impact his benefits at all. That’s just a choice that you get.
But I want to be clear, it’s either or. You cannot take your benefit and an ex spouse’s benefit. You can take your benefit or 50% of an ex spouse’s benefit if we’re talking about a divorce situation. Something else to be aware of is if you’re divorced and let’s say you’re taking 50% of your ex spouse’s benefit and years down the road you survive your ex spouse. So your ex spouse passes away, you had been receiving 50% of his social security benefit, you can now receive 100% of his social security benefit because now you are considered a widow. And that leads me into how widow’s benefits work. So if you’re married and you survive your spouse, you can receive your own or your deceased spouse’s social security benefit. You get the greater of either at 100%. So you get to get 100% of your own benefit or 100% of your deceased spouse’s benefit.
If you were married, now divorced, but you were married for greater than 10 years, you’re also eligible for widow benefits at 100% if it’s greater than your own benefit. Also, if you are a widow and you meet certain stipulations, you can actually elect to take social security survivor benefits as early as age 60. There are some other considerations that go into that and that’s beyond the scope of our conversation today, but something else to be aware of. So there are some situations where as a widow you can actually start taking benefits as early as age 60. If you have questions about that, please reach out to me and let me know.
So a couple of bigger picture questions that I think are probably on everyone’s minds, especially if you’re nearing retirement age and nearing the age at which you are eligible to think about starting your social security [efforts 00:13:09] and that is will social security last? Is it going to be here when I am eligible to start benefits? Is it going to be there for the rest of my life? And my honest answer is I don’t know. Right now there are projections that shows the social security trust fund running out of money at some point. As more people retire, there are going to be more people that are relying on social security benefits and that number is only going to grow and so the benefit recipient population is a growing number and at some point that’s going to far outweigh or outstrip the number of working Americans that are paying into social security. They are helping to fund those benefits.
So what’s the solution? Well, they can either reduce benefits to current or future recipients. They can increase taxes or funding to get more money into the social security program to fund future benefits, or some combination of the two. How is that going to play out? I don’t know. Every election cycle that seems to be a pretty big political football that a lot of candidates used to in my opinion, scare pre retirees and retirees and help swing votes and things like that. Politics aside, I don’t know how that’s going to play out. What I do a offer for some of my clients is when we’re doing retirement planning, depending on their age, depending on their timeline and how many years they have ahead of them, we can look at several different scenarios, one of which might include the assumption that they’re going to receive their full social security benefit for the rest of their lives.
We can also say, what if they received no social security benefits? What if it either goes away or what if, just to be a little bit more conservative, we want to say, “What is my financial plan? What does my retirement plan look like if we assume zero social security benefits?” And then there are some mid points where we can say, “What if I get 50% of my expected social security benefit?” Or, “What if I get a third of my expected social security retirement benefits?” So there are some planning scenarios and modeling that we can do to look at the potential impact of potential or possible changes to the social security program in the future. I don’t know how those are going to play out. I don’t know if or when there’ll be changes. I don’t know if taxes will go up, benefits will go down or there’ll be some combination of the two. There’s also been talk about moving full retirement age, which is now again somewhere around 66 or 67, moving that back. As Americans are living longer, many are working longer.
So ultimately, I don’t know, and I’m not sure that anyone does know, but I do think it’s smart to look at different social security benefit scenarios when you’re putting together and looking at your retirement plan. And ultimately I think you need to kind of go with your gut feel and if you want to assume 100% of your social security benefit will be there, that’s fine, just recognize there are maybe some risks associated with that. And if you want to be more conservative and reduce that by 50% or two thirds or not even include social security at all, that’s certainly an option too. So just something to think about.
Along those same lines, under the umbrella or theme of retirement planning, social security is just part of your retirement plan. Some, not all, but some of you are going to be eligible for a corporate pension from a current or a prior employer. So that can also help fund your lifestyle and provide income in retirement. You also are likely going to have accumulated investments and savings. So those can play a big and sometimes an important role in helping to fund your retirement lifestyle and to allow you to achieve the goals and accomplish the things that are important to you and those that you care about. I talked to many people and they’re focused on social security because they want to make the right decision and the smart decision. But I think social security should be looked at and considered in the context of your larger financial and retirement plan and your larger lifestyle.
It’s an important part of your retirement plan, but it’s still just a part and you need to think about that relative to the other moving parts of your income sources, your savings, your investments, your spending, your goals, your timelines, your life expectancy, all sorts of things and all of which I discuss and work with my clients on when we’re developing and establishing and then monitoring and adjusting their retirement and financial plan on an ongoing basis.
And one final thing I’ll mention, and actually I have to thank one of my clients for this. A few years ago I had written an article on my website, at wealthcareforwomen.com, and I had talked about the importance of optimizing your social security benefits. And frankly for most, certainly not for all, but for most people that involves basically waiting until age 70 because as I discussed earlier in this episode, if you’re able to wait until age 70 that’s going to give you your maximum social security retirement benefit. And so in simple terms, if you want to get the most money out of social security, the best thing to do is wait until age 70. But as one of my clients thankfully pointed out to me, creating a plan for your best life to make the most of your one life is not always about the most money. It’s not always optimizing for the greatest dollar amount.
Let me give you a couple of examples. Let’s say that you have a family history of disease, chronic health issues, whatever the case may be. And your parents and grandparents both made it until their late 70s and then they passed away. Well, clearly if you have a documented family history of not living beyond your 70s, it probably doesn’t make a lot of sense to defer your social security benefits until age 70 because then you might only have, based on family history, up to 10 years to receive those benefits. So based on health history, family history, it might make a lot of sense to start taking those benefits earlier, as early as 62. Family history and health aside, frankly just think about your lifestyle and your needs and your goals. You might plan on living a long full life into your 90s, and you might have family history to document that you have a good chance of doing so, but you might also want to plan on doing more, being more active, traveling more, having more disposable income earlier in your retirement years.
So it may, it may make financial sense based on your personal retirement and financial plan to start taking social security earlier to allow you to do more things while you are younger, more mobile, more healthy, more active. So that’s more of a lifestyle consideration, but that’s another thing that I think is important to consider when you’re thinking about social security in the context of your lifestyle, your financial plan, your overall retirement picture. It’s not a black and white issue. I have software tools. In fact, if you want to reach out to me and would be interested in sharing your social security information with me, I can run a social security analysis for you. I’d be happy to do so. So if that’s something you’re interested in, reach out to me and let me know.
But that’s basically going to take your information and say to get the most money from social security, you should do X, Y, and Z. And odds are it’s going to say that you should defer your benefits until age 70 and not start social security until age 70 and for some people that’s great and that makes perfect sense for their health, their lifestyle, their goals, that works perfectly. What I want to caution you about is not making decisions based on a calculator or a piece of software or, or just running a simple calculation, because there are many other factors that go into designing your unique personal retirement plan, your unique personal financial plan. And it’s much more involved and much more nuanced than any simple social security calculator or other software analysis can provide.
And so I think there’s a lot of value in thinking expansively and strategically about social security. Again, in the context of your overall retirement plan, your overall financial plan, and frankly your overall lifestyle. So hopefully this is helpful. We covered a lot. We talked a little bit about the history of social security. We talked about what it is, how it works. We talked about for retirement age, based on your date of birth, we talked about different benefits amounts depending on when you start taking them, as early as 62 as late as age 70. We talked about some special rules that are available to spouses and ex spouses to widows and and some other considerations.
Social security is a complex topic and so it’s well beyond the scope of this or any single conversation to cover all of the moving parts and all of the decision points and considerations that go into planning your social security. The goal of this episode however, was just to give you a brief overview, highlight a couple of the key points and give you some things to think about. So I hope you found this helpful. Again, if you have any questions about social security, retirement planning or anything else related to your financial plan, please get in touch and let me know. I’d be happy to discuss that with you. And until then, I look forward to speaking with you on the next episode of the Women’s Retirement Radio Podcast.
Hey, it’s Russ again. Before I go, some quick disclosure language. You should consult a financial advisor familiar with the specific circumstances of your unique financial situation before making any financial decisions. Nothing in this broadcast constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. I’m a Financial Advisor, a Certified Divorce Financial Analyst, and an Investment Advisor Representative of Wealthcare Capital Management LLC, an SEC Registered Investment Advisor based in Richmond, Virginia. The views discussed in this podcast are my own and may not be consistent with or represent those of Wealthcare Capital Management.