Jim Sutton’s Weblog

My wife and I visited the local Social Security office.

Hint: get an appointment first, that way you can get a case-worker who really understands Social Security rather than the generalists who work the counter.

The main point of interest was whether either one of us (or both) should take early retirement, wait until full retirement age, or even wait until some later age to begin drawing benefits.

We still work part time, so we have some income.  If you choose to retire prior to your “full retirement age” according to Social Security (you can check the table showing your “full retirement age”), your monthly benefits will be reduced and you may run afoul of the income test which would tend to further reduce the yearly benefits to which you are entitled.

One of the unexpected findings (for us) was that you must estimate your income for the year, and then the total amount of benefits to be withheld are simply not paid at the beginning of the year.  So, for example, you may not receive ANY benefits for the first 6 months of the year.

The good news is that withheld benefits are not lost; they are paid later (after you hit fill retirement age).  The bad news is that these benefits lose the “compounding” effect that simply retiring at a later age gives you.  That is, your monthly benefits will be higher if you retire later than if you postpone benefits by working and running into the earnings limit.  The other thing that became obvious is that if your earnings are sufficient to reduce your benefits, the only logical time to start drawing social security benefits is in January.

We were never able to get a good answer as to what happens if you estimate your earnings substantially incorrecty.  Since our earnings are from businesses, and one of them is highly seasonal around the end of the year, it is difficult to predict income.

Also, some financial advisors recommend one spouse take spousal benefits as early as possible and postpone taking their own benefits until at least full retirement age.  We discovered this to be overly simplistic.  First, one cannot take spousal benefits until the spouse begins taking social security benefits.  Secondly, if the spouses have had substantially different earnings and/or work history, the spousal benefits (generally 50% of the other spouse’s benefits) may always be higher than one’s own full retirement age benefits.  That is the case for us.

Also, one’s benefits are calculated by looking back over the entire earnings for the highest 30(?) earning years.  So we had assumed that if we did not take  benefits early, we should attempt to maximize my spouse’s income through full retirement age.  But, that turns out to make no difference in our benefits.  Instead, it is most beneficial to maximize my income, which will both raise my full retirement social security benefit and, concomitantly, raise my spouse’s benefit, since she gets a higher benefit by taking her “spousal benefit” (i.e., based on my benefits) than by taking her own benefit.

Who woulda guessed?

You should apply for Social Security benefits in the month you wish to receive them.  However, you should remember that you always should apply for Medicare benefits about 2 months before your 65th birthday so that you have those benefits as soon as you turn 65.  Failing to apply for Medicare before your 65th birthday can be very expensive over the rest of your retired life.