Many retirees depend on Social Security for much of their retirement income, yet there are many features and options that individuals don’t know much about. Unfortunately, the employees of the Social Security Administration (SSA) designated to guide beneficiaries often don’t seem to be much better informed.
I recently called SSA to clarify a few issues but gave up after being told the waiting time would be an hour. I called later in the week, and after I waited for a half-hour, the representative was unable to answer all my questions. I was able to obtain answers by contacting Andy Landis, the author of Social Security, The Inside Story (2012 edition), an excellent, comprehensive book that I recommend (available online at www.andylandis.biz).
Having read Landis’ book, I thought it might be interesting to compose a pop quiz for readers. Hopefully, it will alert you to what you don’t know — which can cost you money.
Q: Once you start receiving monthly Social Security payments, you can change your mind and elect to receive higher benefits later. True or false?
A: True, in some circumstances. You can change your mind, as long as you do it within a year after you start receiving benefits and you repay all the income you received. You may do this only once. This may be beneficial if your financial situation changes suddenly (e.g., you get a new job) and you prefer to postpone benefits for higher income later.
Q: If you apply for Social Security prior to your full retirement age (FRA), and are penalized because you earned more than the earnings limit ($15,480 in 2014), you can never recover the lost income. True or false?
A: False. After you reach FRA, the SSA will adjust your penalty, and you will receive a higher payment. For example, if you lost 12 months of income because of above-limit earnings, the SSA will adjust your penalty (by the one year you did not receive payments).
Q: If you delay receiving benefits past your FRA (up to age 70), in order to receive an extra 8 percent per year in SSA benefits, your spouse must also delay claiming spousal benefits. True or false?
A: False. After you reach your FRA, you can “claim and suspend” up to age 70, and you will accrue an additional 8 percent benefit annually. Meanwhile, your spouse can claim spousal benefits as early as age 62 (up to 50 percent of your Primary Insurance Amount when he/she reaches FRA) without affecting your benefit bonus.
Q: If your spouse is eligible for Social Security benefits based on his/her work record, he/she should always file for benefits based on his/her work record when he/she reaches FRA. True or false?
A: False. There are circumstances when filing for benefits at FRA on the basis of work record can result in thousands of dollars of potential lost benefits. Consider this hypothetical case: A husband is eligible for $1,000 per month benefits at FRA (age 66) and his wife is eligible for $600 per month. The wife could file for spousal benefits and receive $500 per month. By delaying benefits based on her work record, her benefit amount will increase 8 percent for every year she waits. At age 70, she can then file for benefits based on her work record and receive an additional $2,304 year (132 percent of $600 per month) for the rest of her life.
Q: If you use the “claim and suspend” option, you can never change your mind, and receive income that you lost between FRA and age 70. True or false?
A: False. You may change your mind and “unsuspend.” You can unsuspend any time before age 70, and elect a lump sum for any or all of the months subsequent to when you elected to suspend. Assume you suspended at age 66 after reaching your FRA, with a Primary Insurance Amount of $1,500 per month. Just before you reach age 70, you unsuspend and request a lump sum for all payments you missed. You would receive a lump sum of approximately $72,000. If you execute this option, you would only receive $1,500 per month from then on, surrendering the 8 percent per year bonus. You could also take a lump sum payment for part of that period and a benefit bonus for the rest. For example, you might take a lump sum for two years, which would allow you to receive an additional benefit $240 per month ($2,800 per year) for the rest of your life.
If you answered all the questions right, congratulations. You are better informed than the SSA representative I talked to. If you answered one or more incorrectly, consider reading Landis’ book. Poor decisions can cost you thousands of dollars. If you are exploring special claiming options, make sure your SSA representative is well versed.
Elliot Raphaelson may be contacted at email@example.com.