By Jill Schlesinger
Tribune Content Agency
To qualify for Social Security retirement benefits, you need to have worked at least 10 years. You can check out where you stand with SSA's easy-to-use online benefits statement, which will provide your estimated monthly payment at your full retirement age (FRA). FRA varies on when you were born: if that was before 1938, your FRA is 65 years old; from 1938 to 1942, your FRA rises by two months for each additional year; between 1943 and 1954, it's 66; from 1955 to 1959, it rises 2 months per year; and from 1960 on, the age is 67.
Although you can claim benefits as early as age 62, if you do so, your benefit will be permanently lower - for some as much as 25 percent less. This may not only be bad news for you, but if your spouse plans to claim one-half of your benefit, he or she also will face a lifetime of lower benefits. Many experts believe that the single worst decision that seniors can make is to claim early. But for those who need income, claiming early is not a choice; it is essential for monthly cash flow.
If the system penalizes you for claiming early, it rewards you for waiting to claim benefits beyond your FRA. For every month you delay, you are entitled to delayed retirement credits, which are worth 0.67 percent per month, for a total of 8 percent per year, until age 70. Of course, you are forgoing the monthly income for those years between FRA and 70, but delaying can add up to big money, provided you live long enough for the trade-off to work. In essence, when to claim is often a bet on life expectancy.
If you do claim benefits early and wish to continue working, you will be subject to an annual earnings test, which for those people reaching FRA after 2015 is $15,720, and for those reaching FRA in 2015 is $41,880. Social Security withholds $1 in benefits for every $2 earned above that year's threshold, until you reach full retirement age. The ratio changes to $1 for every $3 earned during the year you reach full retirement age. The earnings test is why Social Security expert Mary Beth Franklin calls 66 "the magic age," because it is "the age when you can collect your full retirement benefit - even if you continue to work." It's also when you can employ creative strategies that can help maximize benefits.
One of the most popular is "file and suspend," which allows one married spouse to apply for benefits and then immediately suspend collecting. At the same time, the other spouse (or dependent children) can start collecting spousal (or dependent) benefits. Here's the best part: The first spouse can wait to claim benefits until age 70, which increases the future value of his or her benefit.
File and suspend can be useful for some married couples, especially where one spouse has earned significantly more than the other during their careers. Before pulling the trigger, you need to review the numbers and take into account the health of both spouses. According to Franklin, file and suspend can also be used as an insurance policy: "Those who file and suspend benefits have the right to request a lump sum payment during the suspension period but forfeit any delayed retirement credits earned during that period. This is particularly valuable for those who need a lump sum payment now rather than a bigger monthly payment later."
In the next column, we will dive deeper into Social Security, including how divorced spouses can maximize the system and why some workers are shut out completely.
Contact Jill Schlesinger, senior business analyst for CBS News, at askjill@JillonMoney.com.
(c) 2015 JILL SCHLESINGER
DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC
This article was printed in the October 4, 2015 - October 17, 2015 edition.