How Social Security Is Calculated
You can start Social Security as early as age 62, although researchers have found that most people are better off waiting at least until their full retirement ages. Each year you delay could add up to 8% to your benefit until age 70, when benefits max out. Most people will live beyond the break-even age, when the larger checks from delaying more than make up for the smaller checks they passed up.
Typically, one member of a couple needs to be receiving Social Security before the other can apply for spousal benefits. Social Security will calculate your own retirement benefit, based on your 35 highest-earning years, and then calculate your spousal benefit, based on your partners 35 highest-earning years. If your spousal benefit is greater, Social Security will pay you your benefit first and then add the amount necessary to match your spousal benefit.
In other words, both benefits are compared and you get the larger of the two amounts. This is why you typically cant switch from a spousal benefit to your own later, because youre already receiving your own . There are a few exceptions, which are covered below.
Social Security spousal benefits dont reduce the higher earners benefit. Spousal benefits may, however, be sharply reduced if either person starts early.
Which Do You Listen To
The two free calculators pretty much agree in all these relatively straight forward cases. I like the compare alternative feature in Open Social Security. We see in one case a difference of 5 years in the claiming timing makes little difference in total lifetime benefits. So as long as you go toward the right direction, you dont have to be very exact in the actual timing.
Besides the two free calculators, there are also two paid calculators Social Security Solutions and Maximize My Social Security. If you have complex situations such as previous marriages, childrens benefits, disability benefits, etc., maybe the paid calculators will give you something different. If you have straight forward cases, I think the free calculators will do just fine. That said, for a one-time cost of $50 or so, even if you waste it just because you want a second, third, or fourth opinion, it still wouldnt be a big deal.
Finally we need to keep in mind that all calculators make assumptions and projections on longevity, which will not match your actual longevity. We can only make the best educated guesses. A 1% difference in total lifetime benefits according to the assumptions and projections of a calculator can very well be within the margin of error in real life.
Can I Collect Survivors Benefits After Claiming Early Retirement Or Dependents Benefits
Some spouses claim early retirement or early spousal retirement benefits but can then switch to higher survivors benefits when their spouse dies.
Claiming your early retirement or spousal retirement benefits doesn’t affect the amount of your survivors benefits . If you have a considerably older spouse who has a higher earnings record, or your higher-earning spouse is in poor health, you could claim your early retirement or spousal retirement benefit, relying on the fact that you will be able to switch to full survivors benefits in the not-too-distant future.
Note that if your spouse claims early retirement benefits, however, your eventual survivors benefit will be reduced. The amount of the reduction depends on how early your spouse claims their retirement benefits.
This article was excerpted from Social Security, Medicare & Government Pensions, by Joseph Matthews .
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When Is The Best Time To Claim Social Security Benefits
Mike Piper is the author of the book Social Security Made Simple. In addition to explaining how Social Security works, he recently created an interactive calculator, Open Social Security, to help you figure out when is the best time to claim Social Security benefits.
I test-drove it with some hypothetical cases. I also ran the same cases through another free calculator by Financial Engines. Both calculators offer some advanced options. I left everything at the default settings.
Case 1
This simplest case involves a single person who has never married.
Assumptions: Female, single, never married, born in April 1958. Estimated benefit is $2,500/month at Full Retirement Age.
Open Social Security: Start at age 69 and 4 months.
Financial Engines: Start at age 70.
Although Open Social Security suggested a slightly different starting date, it also shows if she starts at age 70 as suggested by the Financial Engines calculator, the total benefits are only 0.15% less in her lifetime. I wouldnt lose sleep over whether the best time to start should really be 69 and 4 months or 70. Starting somewhere between 69 and 70 would be good.
Case 2
Case 2 involves a married couple with similar ages and earnings history.
Assumptions: Husband was born in April 1954, wife in April 1957. Estimated benefit is $2,000 a month for both at Full Retirement Age.
Open Social Security: Wife starts at age 62 and 1 month. Husband starts at age 70.
Case 3
Financial Engines: The same.
Case 4
Early retirement
Why A Retirement Calculator For Couples Can Really Help You
If you are in a relationship, you are familiar with two important concepts: compromise and communication.
Even so, a survey by Fidelity Investments discovered that many married couples have an extremely difficult time discussing retirement planning and other financial planning subjects. In fact, the survey found that:
- Only a small percentage of respondents expressed confidence in their partners abilities to manage their finances.
- Less than half of couples make routine financial decisions together, such as budgeting and paying bills.
- Only 38 percent jointly discuss their investment and savings strategies for retirement.
A retirement calculator can actually help you to have a meaningful discussion about your finances in an organized and unemotional way. The good calculators will ask you important questions and guide you through the process. Retirement calculators can be a great thing to use as a couple.
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Social Security Factors For Married Couples
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Married couples often make a big mistake when it comes to deciding when to start taking their Social Security benefits. They view the decision as if they were single, which means that the main factor they consider is their break-even age. Instead, they should be looking at the joint life expectancy of both partners. For married people, only considering monthly checks in terms of a single life expectancy can become a very costly mistake, and one that you can’t alter after it’s been made.
Can Both Spouses Collect Social Security At The Same Time
Both spouses in a married couple can get full Social Security benefits, at the same time. Married couples get two separate Social Security checks, and there is no “marriage penalty” for Social Security benefits. The maximum Social Security benefit for an individual is $3,345, so the maximum Social Security benefits for a married couple is $6,690, but very few people get benefits anywhere close to the maximum.
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Can I Use The Calculator To Figure Out Social Security Disability Insurance And Supplemental Security Income
No. SSDI is aimed at people who cant work because they have a medical condition expected to last a year or more or result in death. Your SSDI benefits last only as long as you suffer from a significant medical impairment while not earning significant other income.
SSI is a separate program for people with little or no income or assets who are 65 or older, as well as for those of any age, including children, who are blind or who have disabilities. The maximum monthly SSI payment for 2022 is $841 for a single person and $1,261 for a couple. But some states add to that payment, and you may receive less than the maximum if you or your family has other income. Get more information about SSDI and SSI from the Social Security Administration.
Also of Interest
How Couples Can Use A Retirement Calculator
To get started, couples might want to use a comprehensive and detailed retirement calculator on their own and then go through the results together. The NewRetirement Retirement Planner is one of the only tools that saves your information for you so you can easily log in and look over the results together and then play with ways you can improve your plan.
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Who Is Eligible To Collect Social Security Retirement Benefits
Workers who are at least age 62 and who have worked at least 10 combined years at jobs for which they paid Social Security taxes are eligible for Social Security retirement benefits. In many cases, spouses, widows and divorcees are eligible for Social Security retirement benefits based on a spouses or ex-spouses earnings history. Unmarried children 18 and younger can also get survivors benefits. You must be a U.S. citizen or lawful alien to collect benefits.
Please Answer A Few Questions To Help Us Determine Your Eligibility
For a number of years, married couples nearing retirement were able to cleverly strategize the timing of their Social Security retirement benefits to get higher lifetime benefits for one or both spouses. The Social Security Administration has put an end to some of the strategies that married couples had used in the past, but spouses nearing retirement age still have many questions about how to get the highest possible joint Social Security benefits. Here are some answers to your questions and a few tips on how to avoid mistakes that could reduce your benefits.
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What Happens When A Spouse Dies
When a spouse dies, several people may be entitled to their Social Security benefits including their current spouse, their surviving children, and their former spouses. If a former spouse was married to the deceased for at least 10 years, is at least 60 years of age or 50 if disabled, has not remarried prior to age 60, or is caring for children of the deceased who are under 16 or disabled, they may be eligible for benefits. This does not decrease the benefits of the surviving spouse. Even if the spouse or former spouse was born after January 2, 1954, they can apply for survivor benefits without applying for their own Social Security insurance benefit.
A widow or widower at full retirement age or older can receive 100 percent of the deceased workers benefit amount from age 60 to full retirement age they can receive from 71 to 99 percent of the deceased workers basic amount if they are disabled, aged 50 through 59 they can receive about 71 percent and if they are caring for a child under age 16 they receive 75 percent.
When a person dies, the funeral home will often report the death to Social Security. Survivors must apply for benefits or report the death by calling 1-800-772-1213(TTY 1-800-325-0778between 7 a.m. and 7 p.m. Monday through Friday. Or you can also visit your local Social Security office. Appointments are not required but may reduce waiting time.
Is There A Maximum Benefit
Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2022, itâs $4,194/month for those who retire at age 70 . Multiply that by 12 to get $50,328 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.
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Think About These Concerns Before Using A Retirement Calculator For Couples
Before sitting down to do a retirement calculator, you might want to first discuss your goals for retirement.
My husband and I were recently at a dinner party. The conversation turned to thinking about the future. I announced that I intend to buy a small resort on a tropical island for retirement. He laughed and declared that we would be spending too much on airfare and maintaining two households since he is planning to move to a small town in Colorado or Idaho.
The good news is that we are now trying out both scenarios in the retirement planner and discussing the pros and cons of each option.
How To Claim Spousal Benefits
There are many variables about how and when one can apply for a spousal benefit. If you were born before Jan. 2, 1954, you can apply for a spousal benefit without applying for your own benefit, thus allowing your own benefit to continue to accrue. If you were born after that date, you must apply for both benefits at the same time because of a 2015 change in the law.
If you are within three months of 62, or older,you can apply for spousal benefits online. If not you must call the national toll-free service at 1-800-772-1213 orvisit your local Social Security office. Appointments are not required, but may make waiting times shorter.
Among the documents you may be asked to bring are:
- Birth certificate or other proof of birth
- Proof of U.S. citizenship or lawful alien status if you were not born in the U.S.
- U.S. military discharge paper if you had military service before 1968
- W-2 forms and/or self-employment tax returns for last year
- Final divorce decree, if applying as a divorced spouse and
For many of these, such as birth certificates, originals are required. If you dont have access to them, Social Security will help you acquire them. They also may askmany other questions about your history.
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How To Calculate The Impact Of A Benefit Cut
Covisum, a provider of Social Security claiming software, recently updated its calculator to reflect the Social Security trustees’ latest projections. That includes a free version for consumers and a more complex paid version for financial advisors.
Another product, Maximize My Social Security, lets consumers evaluate which claiming strategy might best suit them for a $40 annual fee. It also has a separate version for financial advisors.
The free Covisum calculator can help individuals do a quick calculation based on their benefits alone and some key facts year of birth, full retirement age benefit amount, percentage of the benefit cut and the year that benefit cut occurs.
So someone turning their full retirement age this year, for example, can calculate the effect of a 23% reduction in benefits starting in 2034, as well as the effect of no benefit cut.For each scenario, the calculator will show the value of claiming either at age 65 or age 70, and when beneficiaries stand to get the maximum amount possible from the program.As beneficiaries live longer, the value of waiting to claim until 70 goes up, as demonstrated in the difference in total benefits per the tool’s calculations.
To be sure, the free calculator is just a starting point when it comes to getting a sense of the trade-offs when claiming Social Security, according to Joe Elsasser, founder and president of Covisum.
Impact Of Higher Vs Lower Earning Spouse
Social Security retirement benefits replace a percentage of a workers pre-retirement income based on their lifetime earnings. Thisranges from as much as 75 percent for very low earners to 27 percent for high earners. The more you earn, the greater your benefit.
Spouses who earn less than their partners, who are at least 62 years of age, may qualify for a spousal benefit: a monthly Social Security payment which can be as high as 50 percent of the spouses benefit amount. The higher earner will still get 100 percent of their benefit amount, even if the lower earner also receives benefits from their earnings. Generally speaking, the Social Security Administration will first pay an individual their own benefit. But if the amount they would receive as a spouse is higher, they will augment that benefit amount up to the amount of the higher spousal benefit.
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What Does Aarps Social Security Calculator Do
The calculator provides an estimate of your Social Security benefits, based on your earnings history and age. Our tool also helps you see what percentage of daily expenses your payments can cover, and how you can increase your benefits by waiting to collect. It can also tell you how your retirement earnings will be affected if you keep working after you claim your Social Security benefit.
They Range From Simple To Sophisticated
Social Security is a government program serving about 65 million people, so you might use one word to describe it: complicated. Hats off to the Social Security Administration , though. It produces one of the best government websites, using plain English to explain its rules. It also has plenty of calculators and worksheets to help.
We pulled together some of our favorites. Keep this list handy next time youre sifting through the maze of Social Security rules and regulations. You won’t need all 11, but some of them will likely help answer some of your questions as you start to plan.
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Find Agreement With Your Spouse On These Retirement Questions:
Some calculators will touch on goal setting, but most do not. You will want to agree to some kind of plan with your partner about:
Where: Where you want to live? Housing is likely going to be your biggest expense and your most valuable asset. So, where you live is a hugely important question. Not to mention that your community is a huge factor on your quality of life.
What? How you want to spend your time and with whom?
Spending: How much money you are willing to spend? This can be a big area of contention. Some people want to dramatically cut expenses and retire earlier. Others want to worry less about what they spend and are willing to save more or work longer to reduce financial anxiety.
Healthcare: How much money do you want to set aside for healthcare?
Care giving: What are each of your expectations if one of you have a long term care need? How do you want to be cared for and by whom?
Priorities: What is really important to each of you individually and as a couple for this long, last stage of life
Legacy: Is leaving a financial legacy for your heirs important to both of you?
Planning your retirement involves more than finances and your lifestyle decisions will impact your financial health. As such, it is important to look for retirement calculators that go beyond just savings and investments. The NewRetirement Retirement Planner helps you assess your Social Security, downsizing, and healthcare decisions, among others.