Retirement: Focus on Social Security

One big question about Social Security is “When should you start taking Social Security retirement benefits?” As with most everything in the realm of financial planning, the answer depends on your family’s particular situation. Consider all aspects of your family’s financial circumstances and your retirement planning prior to making any final decisions and be sure to discuss with your spouse and a financial planner before you take the plunge.

Workers normally qualify for Social Security benefits once they have worked for 40 quarters — typically 10 years of employment — and benefits are calculated using the highest 35 years of earnings. Deciding when to access these benefits can drastically affect the quality of your retirement years. You can get both your pension and Social Security benefits. Ask a military financial counselor if you have any questions.

Social Security and Your Future

While you may claim your Social Security benefits any time between the ages of 62 and 70, the Social Security Administration defines Full Retirement Age (FRA) as being between the ages of 66 and 67 depending on your year of birth. For example, the FRA for anyone born in 1960 or later is 67 years old. This creates three choices for claiming Social Security: take it early, at, or after you reach your FRA.

Claiming Social Security benefits early, before you reach your FRA, will permanently reduce your benefits by a percentage per year. Delaying your claim until after your FRA will increase benefits by 8% per year, maxing out at age 70. Your family’s financial situation, structure, and dependencies will determine whether it makes more sense for a worker to delay or claim their benefits early. Social security benefits are designed to be “actuarily equivalent,” meaning if the worker survives to normal life expectancy, their cumulative benefit payments would be the same regardless of their original claim age. That said, those that are expected to live longer than average or have a spouse who is significantly younger and/or lower earning, should thoroughly evaluate a potential delayed claim.

Keep in mind as well that up to 85% of your Social Security benefits may be included in Adjusted Gross Income subject to federal taxation. State income tax regulations for Social Security vary by state, so be sure to look up the regulations for the state where you plan to reside in retirement. Unless changes to the system are adopted, most actuaries also predict a 23% reduction in benefits for everyone starting their claim in or after 2033, so if you are under age 59 right now, this prediction may affect you.

Military Service and Social Security Planning

Servicemembers, depending on when they served, may be entitled to extra Social Security benefits for veterans. According to a publication distributed by the Social Security Administration, under certain circumstances, special earnings may be credited to your military pay record for Social Security if you actively served during certain periods from 1957 through 2001. When planning out when you will file for benefits and determining how much you will receive, check to see if your military service and Social Security situation meet the criteria for special earnings.

Some examples include:

• Serving on active duty from 1957 through 1977: you will be credited with $300 additional earnings for each calendar quarter in which you received active-duty basic pay.
• Serving on active duty from 1978 through 2001: for every $300 of active duty basic pay you earned, you are credited with an additional $100 (up to a maximum of $1,200 a year).
  Note: Those enlisted after September 7, 1980 who served less than 24 months of active duty or their full tour may not be eligible for additional earnings.
• Serving on active duty from 1940 through 1956: even though you did not pay Social Security taxes, the Social Security Administration has given you and other servicemembers special credit for some of their service.

For information or questions regarding your specific Social Security benefits, please visit the Social Security Administration website at www.ssa.gov or call 800-772-1213.

Receipt of survivor benefits will not be affected by Social Security benefits: the surviving spouse of a military retiree can receive both a Survivor Benefit Plan annuity and a retiree’s Social Security.

Other Considerations

Other questions to keep in mind when planning include:

• How long does each beneficiary (worker or spouse) expect to live? Consider your current health and biological parents/grandparents longevity.
• What retirement income level exists while both spouses are living vs. just one survivor?
• Do you or your spouse plan to keep working in retirement?
• Would a delay in claiming benefits (and the related potential increase in taxable income) enable tax efficient options for traditional pre-taxed retirement account balance conversion to ROTH accounts?
• Is your retirement income level at age 63+ high enough to be impacted by Income Related Monthly Adjustment Amount (IRMAA) surcharges associated with Medicare part B and D premium requirements? If so, this is another factor that might justify a Social Security claim delay.

While conducting your retirement income planning, remember that, at your passing, your spouse is eligible to receive a percentage of your Social Security benefits if they are also at full retirement age. If you haven’t already, create an account with the Social Security Administration so you can review your work history earning record for accuracy, check your projected benefit amount, and confirm what constitutes full retirement age for you.

Retirement planning is not one size fits all. Different financial situations call for different solutions, both for Social Security and life insurance. By answering the questions above and knowing about extra Social Security benefits for veterans and what options for life insurance are available to you, you and your spouse can start to make informed decisions about funding your retirement.