Social Security
From wikiSenior
Picking Your Start Date
There are three big questions about Social Security.
1. How long is the program expected to last?
- Social Security started as a retirement program, but now includes payments for Medicare, disability, and survivor benefits. Via our FICA deduction, practically all US citizens, and their companies, have been paying into Social Security throughout their working lives. As of 2008, Social Security is currently funded through 2041. Although it is widely recognized that changes must be made to extend that date, no actual legislation has been passed.
2. How much money will I receive?
- How large a payment you can expect to receive from Social Security depends upon -
- how much money (FICA) you have paid into the program over the years,
- if you are married, how much your spouse has paid into the program, and
- your age at the date that you start taking benefits.
- The size of your benefit is based upon an actuarial formula used by Social Security that isn’t simple. This formula includes up to 35 or more years of earnings, the FICA payments made, changes in general wage levels, and your age at the time that benefit payments begin.
- If you have your full earnings history, the calculator on the Social Security Website will provide you with an estimate of your projected benefit. If not, some general guidelines can be helpful.
- Social Security will send you a copy of their records of your earnings history before you eligibility date.
- The maximum benefit available to those reaching full retirement age in 2008, who have paid the maximum FICA for 35+ years, is $2,185 per month.
- Spouses with lower earnings are paid based upon their own earning level or one-half of their spouse’s benefit, whichever is greater.
3. When should I enroll?
- This is the fundamental question. At this point, no one is going to change their work history. The gut issue is, "At what age should I start taking this benefit?" The real answer is, "It depends upon how long you are going to live." Obviously, no one knows that answer, but you are the one that has to make the bet.
- Although your birth year creates certain variations, if you and your family history indicate that you are going to live past your mid-80’s, you should delay your start date until full retirement age or later.
- The blunt reality is that we are all living longer and must support ourselves for many more years after our retirement.
- As of 2008, full retirement age is 66. You can start taking payments at age 62, but this will forever reduce the amount of your payments by 25%. While this will give you cash sooner, it will leave you to face the later years with lower payments.
- Although there are annual cost-of-living increases in Social Security payments, these never quite keep up with the cash register at the supermarket.
- Although no one can predict the future, it is best to delay your start date as long as you can if you believe you will live past 83. How you orchestrate that start can vary - as is mentioned in the Wall Street Journal article noted below.
4. Can you take a Do-over?
This is a new one on me. I always thought that the start date for Social Security was final. Once you made your choice of a start date you were locked into that decision forever.
Apparently, that is not the case. Just like the kids playing a game or weekend golfers, you do have the opportunity for a do-over. During the past year, 71 people restarted their Social Security benefits clock. It may have cost them a worthy sum, but they were actually able to do it.
Don’t rush out to your social security office just yet. The nasty fly in the ointment is that you first have to write a check out to Social Security for the total of all of the benefits you have received to date. No wonder only 71 people made the choice.
But it may be worth going through the exercise just to see what would be involved. Here is the drill.
- Go through your records and calculate the total amount you have received from Social Security to date. That amount includes all benefits, including those deducted for Medicare.
- Calculate how much additional you would receive from Social Security if your start date was two or three months from now. The Social Security web site does not disclose specific rates but does explain how rates are adjusted for different start dates.
- For comparison purposes, calculate what the relative interest rate would be to achieve a similar return on that total amount of money you would have to pay. If it seems to make sense for you, then the next steps apply.
- Download Form 521, Request for Withdrawal of Application, from the Social Security web site and fill it out.
- Visit your local Social Security office in person. The web site also will give you the location of the local office.
- Social Security will process your request, and -
- your benefits will stop almost immediately,
- you will receive a statement from them specifying the amount you will have to repay,
- you will wait 2-3 months for the higher benefits to start being paid.
Obviously, this deal is not for many people. However, if you have some cash available, it may be worth reviewing the option. There is an good article in Kiplinger’s Personal Finance that describes the process in greater detail. It may not be a deal for many people, but it is nice to know it’s possible.
