Re-think Social Security: FAQs

A: The demise of Social Security has been predicted ever since the program began. The fact is, however, that this is an extremely important social program that is currently paying benefits to more than 60 million Americans.¹

It’s true that the 2015 Annual Report of the Social Security Trustees projects that, unless changes are made, benefits will have to be reduced by about 21% in 2034.2 The key is that we have nearly two decades to fix this. If the long-term shortfall were addressed solely by raising the payroll tax, Social Security’s funding gap could be solved by having employers and employees each contribute about 1.3% more — roughly $13.00 for every $1,000 in annual earnings. This would fix the program’s finances for the next 75 years.

The last major steps to shore up Social Security’s long-term financial outlook occurred in 1983. In the 30 years since then, America has experienced significant demographic changes: There’s been a slight decline in the birthrate since the Baby Boom and people are living longer. These are the largest factors affecting Social Security’s finances. We are simply at another point in time where we need to make adjustments to the program.

A: Full Retirement Age is the age at which you are eligible to receive:

• 100% of the retirement benefit you personally earned through working
• The maximum spousal benefit of 50%
• The maximum divorced spouse benefit of 50%
• A 100% widow/widower’s or surviving divorced spouse benefit
   

When Social Security began, the Full Retirement Age was set at 65. Starting with those born in 1938, it gradually increases and for anyone born from 1943-1954, Full Retirement Age is 66. As you can see on the nearby chart, Full Retirement Age begins to increase again for those born in 1955, reaching 67 for those born in 1960 or later.

Knowing your Full Retirement Age is important because if you begin any type of Social Security benefits prior to Full Retirement Age, the amount you receive is generally permanently reduced.

A: The longer you can delay the start of benefits, the bigger your monthly check. But that doesn’t mean everyone should wait as long as possible. The “best” age to file is when you need the income. Because of retirement accounts and other income sources, some people can afford to delay claiming. On the other hand, those who don't have other potential sources of retirement income might need to file earlier.

A: If they are married, don’t need the additional income and are the spouse who has earned the higher benefit, they should consider delaying the start of benefits as long as possible, regardless of their life expectancy. The later they claim, the larger the widow/widower’s benefit their surviving spouse will receive. This can make a significant difference in his or her standard of living.

Keep in mind, if you live longer than you expect, filing “early” means you are locking yourself into a lower benefit for the rest of your life.

A: You receive Delayed Retirement Credits when you postpone taking Social Security at your Full Retirement Age.

The credit increases your benefit by 8% every 12 months. Since Delayed Retirement Credits stop once you reach age 70, there is no benefit in waiting beyond this age to file.

A: No. You only receive Delayed Retirement Credits when you postpone receiving the benefit that you, yourself, earned. Spouse and Widow(er)’s benefits do not earn Delayed Retirement Credits. In other words, you gain nothing by delaying the start of spousal or widow(er)’s benefits past Full Retirement Age.

A: Yes. However, the requirements you have to meet and the steps to take depend upon your age. In addition, if you signed up for Medicare, you need to decide if you wish to continue this coverage and how it might be affected. It is important to recognize that stopping Social Security could also impact anyone else who is receiving a benefit based upon your work history, such as your spouse or children.

See next questions.

A: This is only an option if you have received benefits for less than 12 months.

In addition, you must be prepared to re-pay all of the benefits that you and anyone else has received based upon your record. This includes your spouse, children and money you requested Social Security to withhold from your monthly check and forward to the IRS or Medicare to cover taxes or monthly insurance premiums.

There is no interest charged on the amount you have to re-pay. However, once your application to withdraw is approved, you must send Social Security a check for the entire amount.

1. Fill out and submit Form SSA-521, which can be found on the Social Security website, www.ssa.gov.
2. Anyone receiving a benefit tied to yours (e.g., a spouse) will lose theirs as well and must consent to your request to withdraw.
    

If this process is done correctly, you can re-apply for Social Security at a later date when your benefit will be higher. However, you only have one opportunity to change your mind and start over.

A: At any point between Full Retirement Age and age 70 you can request that Social Security stop sending you your monthly check. From that point on, your suspended benefit will earn Delayed Retirement Credits. However, if you suspend your benefit after April 29, 2016, anyone else getting a benefit that is tied to yours — such as a spouse or dependent — will see their benefit suspended as well.

1. There is no special form to fill out. You can notify Social Security in person, by phone or in writing.
2. Your benefit will earn Delayed Retirement Credits as long as it is suspended.
3. Once you reach age 70, Social Security will automatically resume sending your monthly check.
    

A: This filing strategy is being phased out, due to the Bipartisan Budget Act of 2015.

File-and-restrict comes into play when an individual who is at least Full Retirement Age is entitled to a benefit based upon their own earnings record as well as a benefit based upon their spouse’s record. In general, Social Security automatically pays you whichever benefit is higher (you don’t get both). However, if you were at least age 62 by 1/1/16 and you wait until Full Retirement Age to file, you can specify which benefit — yours or your spousal amount — you wish to receive.

In other words, when you file-and-restrict, you are essentially telling Social Security, “Since I’m entitled to more than one type of benefit, I am choosing to restrict this to just my 50% spousal benefit at this time.” Why would you want to do this? Because when you delay the onset of your own benefit, it will earn Delayed Retirement Credits. At any time up to age 70, you can tell Social Security to turn off your spousal benefit and begin paying you the benefit that you, yourself, earned. Depending upon how long you delay (but not beyond age 70), your own benefit can increase by up to 32% plus any cost of living adjustments.

Again, this strategy is only an option if you were at least age 62 as of 1/1/16. This includes divorced spouses.

A: Social Security benefits were tax-free up until 1983 when Congress passed a major overhaul of the program in an attempt to shore up Social Security’s long-term financial outlook. Whether your benefits are subject to income tax depends upon two things: your filing status (e.g., single, married filing jointly, or married filing separately) and your “provisional income.”⁴ Provisional income is determined by adding:

If your provisional income exceeds a certain amount, then a portion of your Social Security benefits is taxable as ordinary income.

The instructions to IRS Form 1040 include a worksheet that walks you through how to determine how much of your Social Security income might be subject to income tax. You can get more details in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

A: Yes, if you meet the criteria. You must have been married for at least 10 years and be at least 62 years old. In addition, the amount of your Divorced Spouse benefit must be more than what you would get based upon your own work history; you can’t receive both. If you meet these criteria and your former spouse has filed for Social Security benefits, you can apply for a “Divorced Spouse” benefit immediately. If he or she has not filed yet, then you must be divorced a minimum of two years before you can receive a benefit. If you have remarried, you may no longer be eligible for a divorced spouse benefit.

For a list of the documentation you might have to provide, visit www.ssa.gov/forms/ssa-2.html.

A: Typically, no. Furthermore, it will not affect the benefit your ex-spouse is entitled to. If s/he has re-married, it will also have no impact on the benefit their new spouse will receive.

A: Your Social Security benefit might be reduced if you are receiving Social Security and income from a job (government benefits, pensions, annuities or investment income do not count). This is due to something called the “Earnings Limit,” which is adjusted annually for inflation.

If you are not turning Full Retirement Age in 2016: The limit applies once you reach $15,720 in gross earnings. For every $2 above this amount, Social Security will withhold $1 in benefits. Thus, if your earnings are fairly high, your entire Social Security benefit could be withheld. By law, if you know you are going to be working, you must notify Social Security and provide an estimate of your expected earnings. They will adjust the payments they send you. (If you over- or under-estimate your earnings, this can be corrected later.)

If you are turning Full Retirement Age in 2016: A different earnings limit applies. Your gross earnings can be as much as $41,880 up until the month you turn 66 before there is any reduction in your benefit. However, for every $3 in earnings above this amount, Social Security will reduce your benefit by $1. Once you reach Full Retirement Age, the earnings limit no longer applies.Important! Benefits that Social Security withholds due to the earnings limit are credited to your account. You do not “lose” this money. Once you reach Full Retirement Age your benefit will be increased to account for benefits withheld prior to that point.

In fact, if your recent earnings are higher than those in previous years, your monthly benefit could increase even more.

A: There is a special rule for this exact situation. It is only relevant if you are not turning Full Retirement Age in the year you leave your primary job.

Provided your earnings from your new job do not exceed $1,310/month, you can request that Social Security not apply the annual earnings limit for this particular year. For Social Security purposes you will be considered “retired” and will receive 100% of your monthly benefit for any full months that you earn $1,310⁸ or less. (If your earnings are higher than this amount, you will not get any Social Security benefit for that month.) The next year the annual earnings limit will apply.

Although you can choose when you want this one-time exception to apply, this option is usually most beneficial in the year that you retire from your primary job.

A: Provided they were married in the United States or in a foreign jurisdiction that recognizes same-sex marriage, these individuals are eligible for the same rights and benefits as heterosexual couples.

A: Because life is complicated! People get married, divorced, they re-marry, they die, they have children, they adopt children, they get injured, they lose a job, find a new job, etc. Over the past 80 years, Congress has passed legislation so that Social Security can adapt to our changing society. The most recent example is the extension of benefits to same-sex couples.

In addition, Congress has made a number of significant changes to Social Security — adding new benefits, such as “early” retirement at age 62 and expanding existing benefits, such as enlarging the definition of “disability” to include mental/emotional conditions which impede someone’s ability to hold down a job.

With each change or addition, potentially hundreds of rules and regulations have to be reviewed and updated.

A: The “Windfall Elimination Provision” (WEP) reduces your Social Security benefit if you: 1) are entitled to a pension from a government job that did not deduct Social Security tax from your paychecks, and 2) also worked in jobs where you contributed to Social Security. The aim of the WEP is to adjust your benefit so that you are not awarded a large amount even though you only contributed to the program for a relatively short period of time.

The reduction in your benefit depends upon the year you reach age 62, your annual private sector earnings and how many years you paid Social Security (payroll) tax. There is no reduction in your benefit if you have 30 or more years of “substantial” earnings under Social Security.

For instance, if you turned 62 in 2016 and had fewer than 20 years of “substantial” income from private sector jobs, your Social Security check could be reduced as much as $428/month or 50% of your government pension – whichever is less. For more information, see www.ssa.gov/planners/retire/wep-chart.html.

A: If you are eligible for a benefit as a current, divorced or surviving spouse, Social Security will reduce your benefit by two-thirds of the amount of your public pension. This could result in you receiving no spousal benefit at all. For instance, say your pension is $1,200/month and your Social Security benefit as a current spouse is $800/month. Since two-thirds of your pension amount equals $800, you would not receive any spousal benefit. For more information, see www.socialsecurity.gov/pubs/EN-05-10007.pdf.