Whether you're single or married, waiting to claim your benefits -- even by a year or two -- is likely to pay off in higher benefits over your lifetime. In today's low-interest-rate-environment, you'll generally earn a bigger return by delaying benefits than you are on your safe investments. But before you can make your own calculations, you need to understand the basics.
Editor Susan Garland and Managing Editor Rachel Sheedy of Kiplinger's Retirement Report took your questions about Social Security and how to maximize your benefits on Thursday, January 17. You can read the transcript below.
Welcome to today’s live chat about how to maximize Social Security benefits! We look forward to answering your questions.
Joining us is editor Susan Garland and managing editor Rachel Sheedy of Kiplinger's Retirement Report.
hello all...looking forward to your questions!
Thank you for joining us.
It seems more and more experts are recommending that people wait to claim their benefits -- even by a year or two. Rachel and Susan, what are some of the benefits in doing so?
Namely, for each year you wait to claim beyond full retirement age up until age 70, you earn 8% a year on your benefit...that can add up to tens of thousands of dollars over a lifetime.
Also for couples, if the high earner delays his benefit, but then dies first, the lower-earner, surviving spouse can switch to a higher survivor benefit -- the survivor benefit equals up to 100% of the higher earner's benefit at the time he died if the surviving spouse takes it at her full retirement age or beyond.
Rachel, how does average life expectancy play into this?
Also, most people claim at the early age of 62. But your benefit will be reduced by 25% from what you would get if you waited to your full retirement age of 66 or so. Add the 8% yearly delayed retirement credits that Rachel mentioned plus accumulated cost-of-living adjustments, and you really can boost your income by delaying.
Thanks, Rachel and Susan. Particularly in today's low-interest rate environment, that extra income can make a big difference.
Here's a rule of thumb for couples, according to recent research: If just one spouse in a married couple is expected to live well beyond 80, the cumulative lifetime benefits will usually be highest if the higher earner delays claiming until 70.
The big X factor is no one knows how long they will live, and people tend to live longer these days. The biggest danger in retirement planning is living too long, not dying too young -- you don't want to outlive your savings. Using strategies to boost your Social Security benefits is one way to help ensure that you have the income you need when you are not in a position to go back to work.
Interesting. Thanks, Susan. Definitely something to keep in mind.
That being said, if you really need the money--or you think you will die relatively early in life, take the money.
Singles also need to really mull how long to delay. Couples have strategies they can use that singles can't.
Absolutely, Rachel. Thanks.
Alright, let's go ahead and take our first question from Anna
Social Security benefits are based on your top 35 years of earnings. So say if you only have 30 years of earnings, five years of zero earnings will be factored in, which will lower your benefit. Any year in which you earn even a little bit of money would replace a zero year.
If you have 35 years of earnings, continuing to work would affect your benefit to the extent that if that year of work had higher earnings than one of the 35 years currently being factored in it would replace one of those 35 years.
I'd like to address the singles question that Rachel raised. Even if you live to an average life expectancy, today's low interest rates make delaying one worthwhile. That's because when interest rates are close to 0% after inflation, as they are now, the value of future benefits is considerably higher than what you can receive if you placed the money in safe investments or an immediate annuity.
Alright, here is our next question from Stephanie.
You would be able to take your first husband's survivor benefits. Actually, if you stayed married to your second husband for more than 10 years, you can choose between a widow's benefit on your first husband and a spousal benefit on your second husband (if you second husband dies, you can opt for his survivor benefit instead--whichever is higher.)
To clarify, you cannot claim a widow's benefit on your first husband as long as you are married to your current husband--because you married before age 60. You can choose only if you get divorced or your second husband dies and you were married to him for 10 years.
Alright, let's go ahead and move on to our next question from Marilyn.
Up to 85% of Social Security benefits are taxed by Uncle Sam, and the threshold for benefits getting socked by taxes is very low. If you take Social Security benefits now while working, you likely would get hit with tax on the benefits. But depending on your income sources in retirement that could happen a couple years down the line too. I would project your taxes under both scenarios--taking benefits now with earned income and delaying benefits until you are drawing retirement income. Your tax bill in retirement is likely to be higher than you think.
And keep in mind that by taking benefits now, you give up two years' worth of delayed retirement credits.
Thanks, Rachel. Sometimes these Social Security taxes can come as quite a surprise.
It would be a good idea to have your accountant run through the numbers for you. The link to the story that Rachel just sent will show you how much of your benefits go into the formula that determines if your benefits will be taxed.
Alright, Shelly has a questions about SSI
Good advice, Susan. Thanks.
As you know, the SSI program will provide payments if you have a disability and a low income.
The site is www.ssa.gov/ssi
Thanks, Rachel and Susan.
Alright, our next question is from Don about the fiscal cliff