Maximizing Social Security Benefits: Get the Most Out of Medicare and Pay Less in Taxes: Part 3

This is Part 3, of a 3-part series on Maximizing Social Security Benefits. To start from the beginning, catch up with Parts 1 and Part 2.  

 

As you’ve seen in our previous sections, there’s a lot you need to know and learn about social security. How to impact and maximize the income you receive from it, but also to minimize the tax impact on your social security, other income and Medicare costs.

 

The 4 types of Social Security^[1]https://www.debt.org/retirement/social-security

 

1. Retirement

 

Yes, retirement. It’s likely what you think of first when you’re considering social security. Maybe you’re asking yourself questions like: What will my income look like in retirement? When will I receive benefits? How much will I receive?

 

All good questions but there’s more that goes into your Social Security benefits than just your income alone. If you’re married, you may need to make your Social Security decisions based on the impact it will have on your spouse, what they will receive, and how they can then maximize their income as well as yours. This is called spousal benefits.^[2]https://www.ssa.gov/oact/quickcalc/spouse.html

 

For example, say one spouse has worked fewer years than the other, and thus, theoretically, has contributed less to Social Security. If timed right, and the spouse with the longer working history defers taking benefits until they can receive the maximum amount, then the other spouse is able to take spousal benefits from the higher-earning spouse, as well as their own benefits – up to about half of what your social security benefit is.^[3]https://money.usnews.com/money/retirement/social-security/articles/how-to-maximize-social-security-with-spousal-benefits

 

To put it in dollar signs, if your social security benefits amount to $2,800 a month, for instance, your spouse might be able to get close to $1,400 a month. If the strategy has been well-thought ahead and you do it the right way with advice from a financial advisor. 

 

Can you claim social security if you haven’t worked? 

 

Technically, yes.^[4]https://www.fool.com/investing/2017/04/23/how-to-get-social-security-benefits-if-youve-never.aspx If you claim spousal benefits, clearly, that can be very helpful, but knowing the rules, who can draw, how long you’ve worked, and if you’re married, all these things are interrelated and can have a significant impact on your overall retirement benefits.

 

Now, that’s typical social security income, but let’s say you’re divorced. Are there spousal benefits you can claim? Again, technically, yes.^[5]https://www.ssa.gov/benefits/retirement/planner/applying7.html#h4

 

If you were married at least 10 years, and that spouse is now retirement age and drawing on their social security benefits, even though you are now divorced, you do have the access to draw spousal benefits from your ex-spouse.

 

This is true even if you have been remarried yourself, or even if you’ve been divorced for a long time, as long as you meet those requirements. Another thing to consider is to make sure not to draw on their Social Security benefits if it wouldn’t be an increase to you. For example, if your ex-spouse’s benefits are less than yours, that’s no advantage to that, you would just draw on your own. But taking a close look at the combination should show you the most effective way to maximize your income even though you’re divorced.

 

2. Disability

 

According to the Social Security Administration, over 8 million Americans^[6]https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf are now receiving some kind of disability benefit, or Social Security Disability Insurance (SSDI).^[7]https://www.ssa.gov/benefits/disability/  Along with Social Supplemental Income (SSI)^[8]https://www.ssa.gov/ssi/, it’s the largest assistance program administered under the Social Security umbrella.

 

Understanding when and if you qualify for these benefits can be complicated, and take some time. But, if you are a worthy candidate, it can also be very worthwhile. This is another area where it will likely be beneficial for you to solicit the help of a financial advisor who can cross all the T’s and dot the I’s in a more efficient way. For most of these benefits, you have to meet medical criteria, which can require a lot of paperwork

 

3. Survivor’s Benefit

 

In some cases, someone has worked and qualified for all these social security benefits, but  unfortunately, has passed away. In this situation, their families are considered survivors. 

 

Most commonly, the survivors are the wives or husbands of the now deceased person, but they can also be ex-spouses, children, and a range of other related family members.^[9]https://www.ssa.gov/benefits/survivors/ifyou.html 

 

Anyone who qualifies as a survivor is entitled to benefits from this program, and that can be a big help to the person or people left behind. If you’ve been married for 10 or more years, divorced spouses may be eligible for survivor benefits. Even children of people who have benefits they’re entitled to, but have passed away, the children can then draw on those benefits at a very young age and receive some type of payout.

 

You don’t want to leave benefits on the table you and your family can benefit from, but more importantly, are entitled to receive. Knowing the facts and getting the information can mean money that you’re going to likely need and benefit from. 

 

4. Supplemental Security Income (SSI)

 

If you are unable to earn sufficient wages because of a disability or other incapacity, you may be entitled to SSI benefits^[10]https://www.ssa.gov/ssi/. It is designed to help aged, blind, and disabled people, who have little or no income and provides cash to meet basic needs for food, clothing, and shelter.

 

Understand, it’s not a matter of simply applying and receiving. SSA officials will evaluate your disability^[11]https://www.ssa.gov/disability/determination.htm, your location, and your work history. There is a lot of paperwork, some of which has to be done over and over again. If you want to apply and receive these benefits with any amount of expediency, we highly recommend talking to a financial professional.

 

How Often Are Social Security Benefits Updated?

 

For better or worse, changes in Social Security benefits happen every year, and if you’re concerned about how it will impact your retirement income, you really want to have a friend in finance who’s got your back.

 

In 2019, there was a cost-of-living-adjustment (COLA) of 2.8%^[12]https://www.ssa.gov/cola/, but in 2020, it dropped to 1.6% and is projected to drop even lower in 2021 with estimates between 0.44% and 1.3%^[13]https://www.aarp.org/retirement/social-security/info-2020/cola-forecast-2021.html. It’s important to know everyone who is eligible, will receive an adjustment, but an increase is not guaranteed^[14]https://www.usatoday.com/story/money/2020/05/13/social-security-recipients-may-get-no-cost-living-increase-2021/5186524002/. In fact, there were no increases^[15]https://seniorsleague.org/a-coronavirus-caused-recession-could-eliminate-next-years-cola/ in 2010, 2011, or 2016. Fortunately, there are laws in place that guarantee COLA can never be negative^[16]https://www.kiplinger.com/article/retirement/t051-c000-s010-what-is-the-social-security-cola.html, even if inflation falls into that space. These updates are usually released in mid-October.^[17]https://www.ssa.gov/news/cola/

 

Another change that can happen is an increased maximum payout you’ll receive when you hit full retirement age (FRA)^[18]https://www.nasi.org/learn/socialsecurity/retirement-age#:~:text=Currently%2C%20the%20full%20benefit%20age,they%20will%20be%20reduced%20more., which went up in 2020 to $150, making the full maximum somewhere a little over $3,000. Maximum benefits (at FRA) have increased by $324 a month over the past three years ($2,687 in 2017 to $3,011 in 2020), though this mostly benefits higher-income retirees^[19]https://www.fool.com/retirement/2020/08/07/5-possible-social-security-changes-in-2021.aspx. It’s a thing that can change, so it’s worth following, or having a financial advisor who will always be able to tell you where you stand financially. 

 

What is Full Retirement Age (FRA)?

 

You may see we keep referencing “full retirement age” and that’s because it too, continues to change. The earliest possible retirement age to collect Social Security is 62, but know your benefits will be lower at this point, than if you begin drawing at full retirement age.  The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.^[20]https://www.ssa.gov/pubs/EN-05-10035.pdf 

 

The younger you are now, the more likely the full retirement age will be pushed back. These are decisions that stem from a landmark Social Security case in 1983 ^[21]https://www.ssa.gov/history/1983amend.htmlthat established an incremental system depending on when you were born. For example, if you were born in 1956, your FRA is 66 years, 2 months^[22]https://www.cnbc.com/2019/11/13/why-raising-social-securitys-full-retirement-age-wont-be-easy.html. The system essentially stops for anyone born after 1960, with an FRA of 67, so yes, updates should be expected, eventually. 

Connect With a Financial Advisor

At Beacon Capital Management, we help our clients develop financial strategies that cover the most important areas of your life. Our highly-credentialed advisors will guide you through our process to ensure your unique goals and priorities are covered. If maximizing your Social Security benefits is top of mind, we can help.

Schedule a complimentary conversation today and let’s get started building a strategy that puts you first.

 

This is Part 3, of a 3-part series on Maximizing Social Security Benefits, Getting the Most Out of Medicare, and Paying Less in Taxes. To continue learning about how to make the most of your retirement benefits, catch up on Part 1 and Part 2.

 

To learn more about how to integrate Social Security benefits into your retirement income plan, download our FREE Social Security Guide.