Social Security - Part 2
This is Part 2 on last month's edition on Social Security. We covered a number of issues in Part 1 so be sure you check that out prior to reading this. Keep in mind you should always contact the Social Security Administration for more information and visit their website at www.ssa.gov.
Spousal Benefits (Divorced) - getting divorced can impact your spousal benefit options to a certain degree. You are still entitled to spousal benefits if you become divorced if the marriage lasted at least 10 years and you are currently unmarried. Age 62 is the earliest you can apply but your benefits will be reduced based on the actuarial reduction.
If it has been more than 2 years since your divorce, your ex (if eligible and 62 or older) does not need to apply in order for you to qualify and receive your benefits. You must show proof you were married to your ex and have enough information to give to the SSA so they can find the appropriate records. Once your status has been determined, you will know the amount you are entitled to receive.
Survivor Benefits (Widows) - benefits for survivors can be received as early as age 60 (50 if disabled). Benefits equal 100% of your spouse's benefits if they were receiving prior to their death but will be reduced if taken before age 66 based on the actuarial reduction.
You are not entitled to a survivor's benefit plus your own benefit so important to determine and take the higher amount. If both of you were taking your own benefits prior to death, the deceased spouse's benefits will stop and then you are allowed to switch over to the survivor's benefit if that amount is higher. For those that remarry, survivor benefits go away unless you remarry at age 60 or older (50 if disabled).
Working while receiving Social Security - what happens to your benefits if you continue to work while receiving them? If you are still working, receiving benefits, and under your full retirement age, some of your benefits may be withheld. The earnings test comes into play in this situation which stipulates that for every $2 you earn over the earnings test amount (2013 = $15,120), $1 in benefits will be withheld.
Once full retirement age is reached, the benefit amount is recalculated leaving out the months in which benefits were being withheld. At full retirement age, no benefits will be withheld regardless of how much is earned. A special earnings test rule applies in the months leading up to your full retirement age so please check with the SSA on this. You can use their Retirement Earnings Test Calculator at www.ssa.gov/OACT/COLA/RTeffect.html.
The impact of pension income on Social Security - any pension received from a former employer as well as other forms of retirement income including distributions from 401(k)s and IRAs does not affect your benefits. If you worked in a job that was not covered by Social Security however, you will be subject to the Windfall Elimination Provision which restricts individuals from collecting both Social Security and a pension.
Taxation of Social Security benefits - benefits may be taxable depending upon your income. This includes all earned income including pensions and all investments. If your modified adjusted gross income (AGI) plus 1/2 of your combined SS benefits plus any tax-exempt interest received exceeds $32,000 (married filing jointly) or $25,000 (single), up to 50% of benefits will be taxed.
If this number is more than $44,000 (married filing jointly) or $34,000 (single), 85% of benefits will be taxed. Those filing married filing separately, 85% of benefits will be taxed regardless of income. These amounts were set in the year 1983 and have not been adjusted for inflation.
In order to minimize the taxes on your benefits, you have to reduce your other income. This may be very hard to do as one third of all recipients pay income tax on their benefits.
Social Security can be a much more complicated issue than you might think! For more detailed information please do the following:
- Visit the SSA website at www.socialsecurity.gov
- Call by phone at 800-772-1213.
- Visit in person at a local Social Security office.
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Are you looking for more information about this article on Social Security - Part 2? Would you like a second opinion on having someone go over your own unique retirement situation?
If so - please email me at carleton@mchenrycapital.com or call me at 888-968-9815 and I would be happy to tell you more and/or discuss your own situation in more detail.
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