Social Security Part II - Hilton Head Monthly, August 2009
Social Security Pt 2
In our article last month we reviewed some general Social Security information as well as FAQs on rules and eligibility. In the second of this two part series we will explore some lesser known strategies and situations that can impact your lifetime Social Security benefits.
Check your Data
Make sure your Social Security record shows your correct name, birth date and earnings record. Employers report your earnings under the name you supply, so whenever you change your name, make sure you notify Social Security. Otherwise, your earnings may not be recorded properly and you may not receive all the benefits you’ve earned.
Government Pension Offset
Civil Service Retirement System employees understand and expect that they will not receive Social Security in addition to their Civil Service Pension. However, they are often surprised that their own Social Security spousal and surviving spouse benefits, based upon their partners Social Security record, could be eliminated or severely reduced as well.
If you receive a pension under the Civil Service Retirement System, (from which Social Security taxes were not withheld,) Social Security benefits you would normally be entitled to as a spouse, divorced spouse, or surviving spouse are affected by government pension offset rules. These rules require that you calculate your options by taking two thirds of your government pension, comparing it with the Social Security survivor’s benefit, and choosing between the two.
Consider this example. Mary retired with a civil service pension of $2,500 monthly and was expecting to receive a $1,000 monthly widow’s benefit from her deceased husband’s Social Security.
CSRS retirement benefit: $2,500/month
Social Security widow’s benefit: $1,000/month
GPO computation: 2/3 x $2,500 = $1,666/month
Since $1,666 is more than $1,000, Mary’s Social Security widow’s benefit is eliminated.
Currently, more than 250,000 government retirees (about two thirds of them women), have had their Social Security spousal benefits fully or partially offset due to the effects of the GPO. If you served in the military, however, you are probably eligible for both Social Security and military retirement benefits, since there is no offset of Social Security benefits based upon military retirement. You will get your full Social Security or spousal benefit based on your earnings.
Claim and Suspend
Many retirees are returning to the workplace; some by choice, some out of necessity. If you are working, and between your full retirement age and age 70, you may consider suspending Social Security benefits during the time of your employment, thereby locking in a larger monthly payment in the future when you stop working and reinstate. For every year a recipient defers their payment they will receive an 8% increase. This can also translate to a significant increase for a surviving spouse who outlives you and receives your benefit.
A seldom used but interesting option is to take benefits at full retirement age but save the payments. Upon reaching 69 or 70 and still in good health, the total of the benefits received is paid back to Social Security (without penalty or interest) and reapplication is made, securing a higher benefit for the rest of your life. Social Security Form 521 “Request for Withdrawal of Application” must be filled out and submitted with full repayment of all Social Security received.
A married couple is looking forward to retirement, one spouse with a large social security benefit and the other spouse with a substantially lower benefit. If affordable, they can take only the smaller social security payment, deferring the higher payment benefit until age 70. This strategy not only maximizes the benefit for the higher paid spouse, but ultimately the spouse with the lower benefit may opt for one half the higher spouse’s benefit if it is larger than their own. As cost of living adjustments are applied to the large payment both husband and wife have larger increases; the lifetime survivor’s benefit will be higher as well.
For example, John and Gloria are a healthy couple expecting to live a long life. John has paid in the maximum Social Security most of his working career; Gloria has only worked part time. At age 66 Gloria claims her smaller benefit and John (age 67) claims a spousal benefit of ½ Gloria’s payment. John does not start his Social Security benefits until age 70 when payments reach their maximum. At that time he claims his own large benefit and Gloria claims ½ John’s large payment as her spousal benefit. This strategy leaves both John and Gloria with larger payments and larger cost of living adjustments for the rest of their life. If Gloria survives John her survivor’s benefit would be significantly greater as well.
Consult with your financial advisor and make sure you understand all your options prior to making any Social Security and pension decisions that can impact the rest of your life. A good general resource is the Social Security Administration website, www.socialsecurity.gov. Contact the SSA’s Wilkes Barre Data Operations Center (PO Box 7004, Wilkes Barre, PA 18767) for an updated earnings and benefit estimate statement. You can also make use of the experience and expertise of SSA employees and schedule an interview with a local Social Security office representative by telephone (1-800-772-1213, TTY1-800-325-0778) or in person, to verify your information and obtain assistance with your decision making process.