Several times every week, someone makes a comment similar to this one, which I found in today’s email inbox: “It’s so hard to stay current with Social Security because the rules are changing constantly!”
I guess I can understand why someone who is not familiar with Social Security but suddenly takes an interest because he or she is approaching retirement age might think that. But in fact, with one exception, there have not been any major changes to Social Security since 1983. In other words, for about 34 years now, we’ve been operating with essentially the same Social Security rules.
The rules for retirement benefits are fairly cut and dried. Your benefit rate is a percentage of your average monthly wage using a 35-year base of inflation-indexed earnings. The percentage is about 40 percent for people with average earnings. It’s a lower percentage for higher-income wage earners, and it’s a higher percentage for people with low incomes. (That’s one of the “social” parts of Social Security.) Using that formula, you come up with your primary insurance amount, or PIA. (I normally do not like to use jargon, but I’m going to keep referring to the PIA throughout this column, so please indulge me this one bit of government-ese.)
If you wait until your full retirement age to start your benefits, you will get 100 percent of your PIA in the form of a Social Security benefit. If you start benefits before your FRA, they are reduced by roughly 0.5 percent for each month a benefit is taken, down to 75 percent for people who take Social Security at 62 (the earliest possible retirement age). If you delay the start of your benefits after FRA, you get a 0.67 percent increase added to your PIA for each month you wait. That comes out to a 32 percent bonus if you don’t start your retirement benefits until age 70 (the latest possible start date).
The rules for spousal benefits are also pretty simple. Usually, you will be paid your own Social Security benefit first. Only after that benefit is paid will the Social Security Administration look to a spouse’s Social Security record to see whether you can get any additional benefits from a husband or wife’s Social Security account.
The spousal rate is 50 percent of the husband or wife’s PIA if you wait until your full retirement age to collect benefits. As with retirement benefits, there is a reduction if you take benefits before FRA. It is roughly 0.5 percent for each month. That comes out to about 30 percent of the spouse’s PIA if benefits are taken at 62.
What all that means is that if you have worked and earned your own Social Security benefit, it is unlikely you will be due any benefits on a spouse’s record while your spouse is alive. To put that another way, your own Social Security retirement benefit is likely to be more than 30 or 50 percent of your spouse’s Social Security amount. It’s a different story for widows and widowers, and that is explained a little later in the column.
If you are divorced and if you were married to your ex for more than 10 years and if you are currently unmarried, you could get benefits from your ex — but again, only if that 30 to 50 percent spousal rate would pay more than your own benefit.
Earlier, I mentioned that there is one exception to the fact that Social Security rules haven’t changed in more than 30 years. That exception is the loophole that I’ve discussed over and over again that allows some seniors to collect spousal benefits while delaying their own retirement benefits until age 70. But that loophole is being closed in a couple of years. In a nutshell, the loophole says that if you will turn 66 before January 2020 and if you wait until age 66 to file for benefits, you can claim 50 percent of your spouse’s PIA (assuming he or she has filed for his or her own Social Security) and then, at 70, switch to 132 percent of your own retirement PIA.
Benefits for widows (and a few widowers) are another big part of Social Security that has not changed in decades. To avoid a lot of “his/her” and “he/she” pronouns, I’m going to address this part of the column to women because statistics show that more than 90 percent of survivor benefits are paid to women. Having said that, Social Security rules are gender-neutral, so if you are involved in a marriage in which the wife made more money than the husband and thus gets a higher Social Security benefit — and if the wife dies first — the surviving husband could get widower’s benefits.
Anyway, in most cases, a husband dies first — and usually after both he and his wife have been getting Social Security for a while. In other words, they are in their 70s, 80s or beyond. When that happens, the widow will almost always start getting what the husband was getting — less her own retirement benefit, if she is getting one.
If the husband dies while his wife is in her early to mid-60s and before she has started collecting her own Social Security benefits, then she has some options. For example, she could start out collecting reduced widow’s benefits and then, at 66, switch to 100 percent of her retirement PIA, or she could wait until 70 to make the switch and then collect 132 percent of her PIA. Sometimes (depending on the money amounts involved), it works better for the widow to take reduced retirement benefits and then, at 66, switch to a full widow’s rate, i.e.,100 percent of her deceased husband’s PIA.
The earliest a woman can start widow’s benefits is age 60, when she would usually get about 71 percent of her husband’s PIA. In rare cases, a disabled widow can start getting a benefit as early as age 50. A widow, no matter what her age, with minor children at home can collect up to 75 percent of her deceased husband’s PIA.
The other major part of Social Security is disability benefits. The rules for those benefits also haven’t really changed in three or four decades. But that program is way too complex to even summarize at the tail end of this column. I have explained the rules for disability benefits in many past columns and will certainly do so again in a future column.
