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Maximize Your Social Security Benefits

Posted on: February 9th, 2019 by Lawrence A. Friedman

The Social Security Administration administers several programs. Supplemental Security Income or SSI is a financial need based benefit to help people who can’t earn enough to get by due to disabilities or old age. Old age, survivors, and disability insurance (OASDI) is the official name for Social Security’s insurance programs. This article discusses options to increase benefits under the Social Security Administration’s OASDI program, which often is called simply Social Security.

OASDI is a comprehensive program that provides benefits to retirees, disabled people, spouses, divorced former spouses, surviving spouses, and children. Unlike Supplemental Security Income, Social Security is an insurance program that bases Social Security benefits on your work history or the work history of your spouse, divorced spouse, deceased spouse, parent, or deceased parent.

Social Security OASDI benefits are based on a primary insurance amount (PIA). The Social Security primary insurance amount is based on age, work history, and earnings that were taxed to fund Social Security or Railroad Retirement Benefits.

When an individual elects to start Social Security at his or her full retirement age (also called normal retirement age), Social Security Administration pays a monthly Social Security benefit equal to the PIA rounded down to a whole dollar amount. An individual who starts Social Security before or after reaching normal retirement age receives an adjusted PIA. Your benefit may be further reduced if it is based on the work history of a parent or current or former spouse rather than your own work history.

Originally, Social Security started at age 65. Eventually, Congress provided options to start an adjusted Social Security benefit anywhere from age 62 on up. However, Social Security benefits that start before normal retirement age are reduced while benefits that start after full retirement age increase up to age 70.

Originally age 65, Congress eventually increased Social Security normal retirement age to preserve the Social Security trust fund. For people born before 1938, Social Security full retirement age is still 65. However, full retirement age of folks born after 1937 ranges from 65 and two months to 67.

When benefits start before reaching full retirement age, the PIA is reduced 5/9 of one percent for each of the first 36 months before full retirement age plus 5/12 of one percent for each of the remaining months until normal retirement age. For example, where benefits start 60 months before reaching full retirement age, the benefit is reduced by 30 percent– 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.

On the other hand, when starting benefits after full retirement age, the monthly benefit equals the PIA plus delayed retirement credits of 8% per year if born after 1942. The delayed retirement credit is lower for folks born before 1943.

Obviously, Social Security benefits can vary dramatically depending on when you choose to start benefits. In addition, you may have options to take Social Security benefits on the work record of a current or former spouse rather than your own record. Your choice of Social Security start date also can affect how much Social Security your young or disabled children can receive because children also may be entitled to Social Security based on the work record of a parent who is receiving Social Security. Furthermore, Social Security benefits taken before full retirement age may be recaptured when earnings are high, and high earners also may pay more tax on Social Security.

You have the option to start Social Security anytime from age 62 on, but starting before full retirement age triggers reductions in Social Security. By the same token, delaying Social Security until after reaching Social Security normal retirement age results in a larger benefit. (However, there is no point to delaying Social Security beyond age 70 because the monthly Social Security benefit does not increase beyond age 70.)

Waiting until age 70 to start Social Security can result in substantially more lifetime Social Security benefits if you live a long time. However, for people who die comparatively young overall benefits will be higher if you start Social Security at age 62. In addition to life expectancy, spousal Social Security options, tax brackets, and other factors can impact when to start Social Security in order to maximize lifetime Social Security benefits. Depending on when spouses were born, it can make sense for one spouse to collect a spousal benefit while delaying his or her own benefit to age 70, but this may not be an option for younger people due to recent law.

Clearly, many factors play into the decision of when to start Social Security, and errors can leave thousands of dollars (or more) on the table. With so many variables at play it is hard to imagine seat of the pants evaluations being very accurate. Working with a nationally recognized Social Security expert and sophisticated software, FriedmanLaw can evaluate options and help you develop a Social Security benefit strategy that meets your needs.

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