Full retirement age (FRA) is based on your year and day of birth—which means not everyone has the same FRA. Younger people have a higher full retirement age than those already claiming—or near claiming—Social Security. Your FRA determines when you are eligible for your full benefit amount or primary insurance amount. If you begin benefits before your FRA, you will have to take a reduced benefit, and if you begin benefits after your FRA, you become eligible for delayed retirement credits. It’s also important to note that there is a different FRA schedule for your retirement benefits than there is for widow/widower benefits. Before you head to your nearest Social Security office to apply, evaluate all your options. Starting Social Security is almost a permanent decision—once you start collecting Social Security, you can only stop benefits if you are within the first 12 months after starting. And, in that case, you will have to repay what you received before ending your collection. Your other option for pausing the collection of retirement benefits is when you are over your full retirement age, you can suspend benefits—sometimes called a voluntary suspension. Claiming early benefits has consequences; if you are married, you are forever reducing the survivor benefit available to your spouse (if your benefit amount is greater than theirs). Another consequence of taking early Social Security is the way any additional earned income you have might affect your benefits. We cover that in the next step. The longer you wait, the higher your check up to a certain age limit. Often, it’s best to wait as long as you can up to age 70. If you wait until age 70, you get 132% of your full amount! The benefits reduction is based on your earnings. Your earnings can’t be over the Social Security earnings limit. The good news is investment income does not count toward the annual earnings limit. Only the income you earn by working counts. Some 62-year-old retirees start benefits unaware of this rule. They keep working or go back to work a year later. Then when they file their tax return, if their earnings are over the limit, they will receive a demand letter from SSA to pay back the required amount. The formula is based on requiring you to pay back up to $1 for every $2 that you earn over the limit. Once you reach your full retirement age, you can make any amount, and no reduction applies. If you’re going to work, often it’s best to wait to start benefits. If you have sources of income in addition to Social Security, then you may have to pay taxes on your Social Security benefits. The break-point is if your earnings are above $25,000 for individuals—$32,000 for married couples filing jointly. The additional sources of income that Social Security looks at include items such as wages, self-employment income, interest and dividends, and pension income. Pension income can include military retirement payments. There is a formula used to determine the benefit amount subject to taxation. It depends on your marital status and how much other income you have. Many retirees find out about this taxation only after they start pensions or begin IRA withdrawals. At that point, their “other income” goes up, and thus, some or more of their Social Security becomes taxable. They are often shocked at the increase in their tax liability. If your spouse did work—and is eligible for their benefits—but on average was the lower earner between the two of you, then it may still make sense for them to claim a spousal benefit for a few years. Afterward, they can switch to their benefit amount when they reach age 70. If you are divorced but you were married over ten years, and you are currently not married, you can still be eligible for a spousal benefit on an ex’s record—even if they are deceased. Taking this benefit does not affect your former spouse’s benefit or their current spouse’s benefit if they remarried. If you are married, it is especially important to understand how a spousal benefit will be affected if you take early Social Security benefits. By doing so, you may forever reduce the survivor benefits amount available to your spouse. Too many couples make their Social Security claiming decisions independently of one another and miss out by not understanding how they could have taken advantage of these spousal benefits.
