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Social Security Math - Don't Worry, Be Happy! It's Nickels and Dimes

Feb 14, 2017
How much worry is worth each nickel?

I am always surprised at the number of people who are so darn intent on squeezing every last nickel they can out of their Social Security benefits.

I get that people want to get all the benefits for which they are eligible. But some folks seem absolutely obsessed about the issue. I swear they must lie awake at night, worrying about decisions they think will cost them thousands of dollars in lost benefits, but in reality are usually a matter of nickels and dimes. I've saved up a few emails from some of these readers to share them with you today.

Q: I will turn 70 on April 22, 2017. I want to make sure I get the full 32 percent bonus for delaying my retirement until that age. I'm afraid that if I file for those benefits a little early, like in March, for example, that they will start my checks in March and I will lose my bonus. Should I wait until April 21 to file?

A: It sounds like you think the 32 percent delayed retirement bonus is an all or nothing deal. In other words, you assume you get an extra 32 percent added to your monthly benefits if you wait until exactly age 70 to file. But that is not how it works.

Instead, the delayed retirement credits are calculated this way. You get an extra two-thirds of one percent added to your Social Security benefit rate for each month you delay retirement beyond age 66. That comes out to 8 percent per year, or 32 percent if you wait until age 70 to file.

So, you can file for benefits tomorrow and just tell the Social Security people you want your benefits to start in April when you are 70. And if the worst-case scenario happens, and they start your benefits right away, you would end up getting about a 31 percent bonus instead of 32.

And if that were to happen, you could either keep the extra Social Security check or two that you get, or you could go back to your Social Security office and tell them to change the effective date of your benefits to April.

Q: I will be 63 in June. I want my benefits to begin then. I understand I will get about 80 percent of my benefits if I do that. I don't want to take any more reduction than that. How can I make sure my checks start in June?

A: You can do whatever you want to do, of course. After all, they are your Social Security benefits. So when you fill out your retirement application, just make sure you indicate June 2017 as the month you want your Social Security checks to start.

But frankly, I am a little confused why you are so worried that your benefits start exactly at age 63. Your monthly benefit rate is reduced about one-half of one percent for each month they are taken before age 66. (The reduction rate is actually five-ninths of one percent for some of the months, and five-twelfths of one percent for the other months. That's why I just round it out to about one half of one percent.)

You were right that if you take your benefits at 63, you would get 80 percent. But if, for example, they were to start a couple months earlier, you'd get maybe 78 or 79 percent. In other words, you'd lose a few bucks per month, but you'd gain one or two Social Security checks.

So again, just make sure you indicate June as your starting date when you fill out your retirement application. But if mistakes are made, and you get a couple extra checks with a one or two percent reduction, don't lose too much sleep over it. And go to your local Social Security office to correct things if you want.

Q: I will be 66 next year. I have worked all my life and have always paid taxes on the maximum amount of earnings that could be taxed for Social Security purposes. But my employer just downsized, and I won't make the max this year. So now I won't get the maximum Social Security benefit. I'm just sick over this. I've been waiting for a long time to get this maximum benefit, and now it's gone. Can I pay in the difference myself to get back to the maximum?

A: No, you can't pay the taxes on your own. But there is absolutely nothing special about the so-called "maximum" Social Security benefit. It is not like you get some kind of bonus for reaching that milestone. Like everyone else, you simply get a retirement benefit rate that is based on your highest 35 years of inflation-indexed earnings. So if you come up a little shy of the maximum taxable earnings this year, you might make up for it by having earned the maximum in all those prior years -- especially since those past years are adjusted for inflation. And if you don't end up with the maximum benefit -- so what? What's the big deal if instead of getting $2,687 per month, you start getting $2,685 per month? As I said in the introduction to this column, it's all nickels and dimes.

And I need to make one more important point about this whole maximum retirement benefit business. That $2,687 figure I just quoted is the maximum monthly retirement benefit for 2017.

But that does not mean it is the absolute maximum amount of monthly Social Security benefits that anyone can get from the government. Indeed, there are millions of retirees who get much more than that. $2,687 is the maximum benefit payable to someone turning 66 in 2017 who has paid taxes on maximum Social Security earnings for 35 years.

But there are many seniors who work well beyond age 66. And they get much more than $2,687 per month because of delayed retirement credits paid up until age 70 and because the extra earnings they add to their Social Security account after age 66 will be used to increase their monthly retirement check.

If you have a Social Security question, Tom Margenau has the answer. Contact him at thomas.margenau@comcast.net.

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