<p>After tackling Medicare on another thread, I am onto learning about the ins and outs of Social Security.</p>
<p>I am astounded by all the little ‘tricks’ you can use when applying. Here are some things I’ve heard - are these correct?</p>
<ol>
<li><p>Apply for benefits at age 66, but suspend the benefit. You do this to wait until you are 70 to collect the increased monthly check. BUT, say at age 69, you become very ill or disabled, you can file and receive all the money they would have paid you between the age of 66 to the date you ‘unsuspend’ your benefits.</p></li>
<li><p>If you apply for benefits at age 66 and suspend them, you can still apply for benefits based on your spouse who is receiving a benefit and receive a check each month that is a percentage of his/her check.</p></li>
<li><p>Take benefits starting at age 66. Don’t spend the benefits, but put them in a savings account. Then at age 70, return the benefits to SS and file for the larger monthly payment amounts. You can keep the interest earned. Not sure how much one would profit from this at today’s low rates. Plus you have to pay tax on the benefits collected.</p></li>
</ol>
<p>In our case, DH benefit would be $2,555 a month at age 66 and $3,421 a month at age 70. It is a roll of the dice as to whether you will live long enough to earn back the difference. Unless my math is way off, it would take DH @ 11 years (so to age 81) to recoup the $120,000+ from the benefits from ages 66-70 he didn’t receive by waiting and taking the larger monthly payout at age 70. I always thought it was a no-brainer to just wait and get the higher benefit, but… DH lost his mother at age 74 and his father at age 93. I have a similar circumstance - lost father at age 66, mother still alive at age 94. Makes you think!!</p>
<p>Does anyone else have any pearls of wisdom they have learned along the way about Social Security??</p>
Although I have a little while to go before I need to think about it too much, I’ve considered this question of 66 vs 70 for receiving benefits. I think one way I’ll look at it is not to try to figure out how to collect the most money with one vs the other, since I’m sure SSA have already spent a lot of time on this and the actuarials probably come down to them being fairly even, but whether the money is needed in the first years or not. If people have money from 401K, savings, etc. that can support them fine for the first years and would essentially just be putting the SS money in the bank, then why not postpone the receipt of the SS money until the max/month payout? That way, on the off chance one lives longer than the actuaries predict, they’ll have more money available to support themselves longer than they may have planned (and in the end collect more money). If they don’t live long enough to collect more, then it doesn’t really matter since they don’t need the money anymore anyway.</p>
<p>The other factor is taxability. If you’re still working at age 66, or collecting severance pay, or have other income for whatever reason, the Social Security is likely to end up being taxable. This is another reason why Roth IRA and 401K plans (if your employer offers them, most don’t yet) are a good idea. No, you don’t get to deduct them now, but you don’t pay tax on them later, which doesn’t push your SS income into the taxable range.</p>
<p>You’re better off taking larger distributions from the 401K early, and higher SS later, because the 401k will be taxable whenever you take it.</p>
On the other hand, there’s a good chance one’s income level, and thereby tax bracket, is much higher when they’re working than when they retire so they may end up paying a higher tax rate on that income if they choose the Roth option than they would later at a lower rate. Of course, who knows what the income tax rate will be x years from now?</p>
<p>Yes, the tax rate could be different, which is why I run a few scenarios with my clients whenever they are offered new options from HR. There’s also considerations on phaseout of various tax breaks too. There is no one best answer for everyone.</p>
<p>One more consideration regarding the Roth vs. Regular IRA and 401k. During the college tuition years, any taxes paid become an allowance when calculating EFC. The way I see it, that means the tax I pay then is effectively cut in half, because the deduction doesn’t help with the EFC calculation.</p>
<p>If I put $1,000 into my Roth IRA, and pay 30% tax ($300), my parent contribution will be reduced by 47% of that, or $141. If I’m in the 15% tax bracket when I take the money out, I’m still even, plus it’s less likely to make the SS payments taxable, depending on other income (or to push them into a higher tax bracket). Roth is less favorable while the kids are not in college, or if Income is high enough the EFC is already higher than COA.</p>
<p>BTW, I have every intention of living until 95 or so, so I plan to delay receiving SS until age 70.</p>
<p>I do believe, however, that if I apply at age 66 (I am the older and the higher wage earner in our couple) and suspend the benefit, DH can receive half of my age-66 benefit. When he turns 66, he can suspend the spouse benefit based on my SS and instead start to receive his full SS benefit.</p>
<p>A friend of mine told me that some of her retired friends are taking their SS payments and banking them for their children and grandkids against the likelihood that the younger generation will need the money more than the retiree. Of course, that works if one has a generous pension plan already in place…</p>
<p>Seeking information, please… One spouse is older than the other and is collecting SS benefits. Older spouse dies. Can the younger spouse collect survivor benefits before being age eligible? I’m under the impression younger spouse can’t collect survivor benefits prior to reaching their SS age, regardless.</p>
<p>^^^ at age 60, unless one is disabled, – then it’s 50. If one has children under 18, then one can collect family benefits until the youngest child graduates from high school.</p>
<p>VeryHappy - I’m a tax advisor. I’l well versed in taxes, and starting to get a pretty good grasp of Financial aid, and how it plays into the equations, now that it’s in my own best interest (Oldest is HS Class of 2013).</p>
Except in the cases of disability or children under 18, if the younger spouse starts collecting before they are the required age the benefits will be permanently reduced by a certain % for each year the early claim is made.</p>
<p>One thing that surprised us when my husband started drawing his SS at 62 was that we got additional benefits for me and the kids because they were under 18/still in HS. We had no idea so it was a pleasant surprise.</p>
<p>I believe SS increases 8% a year for every year you wait. So I was thinking I would use my IRA from whenever I retire until I can max out on SS.</p>
<p>Since H has a good pension, we are hoping we will be able to just rely on his pension & his IRAs & ROTH IRAs & defer my SS until I’m 70, so it will be as high as possible. As long as he’s alive, the pension will be as high as possible. Once he dies, it will drop to 55% & I will need whatever I can use to have a higher income. H is significantly older than me. Both my parents are healthy octogenarians & my oldest relative died at 107 or so.</p>
<p>By the way, folks who have had unequal incomes can get spousal benefits if their higher-earning spouse dies, even while they are working. That is helping a friend who is recently widowed and found that her H opted NOT to have any spousal pension. She was a SAHM for much of their long marriage.</p>
<p>MidwestParent, thanks for the link to that article. It is hard to fault people for doing things that are legal to maximize their benefits, but I find it very disturbing that all these options exist and you need a financial consultant (specializing in social security) or a computer program to figure out the best complex strategy. Obviously these complex strategies (such as applying at age 66, immediately suspending benefits, applying for spouse benefits then switching to your own, etc etc) will not be carried out by the average Joe, and certainly not the average lower income Joe. </p>
<p>I think I can also safely say that each of these complex strategies is more of a glitch or loophole in the system rather than a feature that was intentionally designed.</p>
<p>If the government wants to reduce spending in the area of Social Security, they could close these loop holes and save a bundle!</p>
<p>I could also tell them how to save TONS of money in the Medicare area just from the limited exposure I have had to it with the care of my 94 year old mother!</p>
<ol>
<li><p>Medicare pays the fee for a podiatrist to come to the assisted living facility where she lives to trim the toenails of the residents. Should Medicare be paying for what essentially is a pedicure???</p></li>
<li><p>Medicare will buy your shoes if you have certain medical conditions (this one doesn’t apply to my mother, but I have seen it with other residents where she lives). Don’t we all have to have shoes no matter what health conditions we have?? Why is Medicare paying for shoes??</p></li>
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<p>Medicare only pays for a podiatrist to cut toenails if you have diabetes. My 90yo M, who doesn’t have diabetes, pays for the podiatrist to trim her nails out of her own pocket. </p>
<p>OTOH, I do agree with you that there’s alot of waste in Medicare from seeing what tests and procedures are ordered for my M that Medicare automatically covers.</p>