Social Security Retirement Benefits

My clients frequently ask about the odds of getting Social Security when they are ready to retire. Most assume it will have vanished. With the aid of the American Institute of Certified Public Accountants publication, The CPA’s Guide to Social Security Planning, I address this and other questions. (To keep this article simple, when I use the word “you”, I am referring to the wage earner.)

Should I plan on getting Social Security retirement benefits?

Each person needs to address this question with his or her financial advisor. (If you want referrals for local financial advisors, contact me.) We continue to read much in the press about the viability of a fully funded Social Security program. Of course we cannot know the future, but it is likely that Social Security will provide at least some source of income for Baby Boomers. Your assumptions about the role of Social Security in your retirement planning should be conservative. For example, if you are over age 55, you might include 100% of your estimated benefit. If you are under age 55, consider planning on no more than 75% of the estimated benefit, decreasing the percentage more for even younger workers.

How do I qualify for Social Security retirement benefits?

You must have 40 quarters of employment and have earned a certain minimum dollar amount in each quarter. You may see this called a “QC” for Quarter of Coverage or “Social Security credit” or just “credit”. The minimum dollar amount you must earn each QC changes from year to year. It is recalculated every October. In 2012 it is $1,130 per quarter. So based on the 2012 minimum earnings per quarter amount, you need to earn at least $4,520 per year for the next ten years if you want to qualify in full for Social Security retirement benefits. But remember, the minimum dollar amount resets each year, so the actual total for the next ten years will be greater than $4,520. Past years’ qualifications depend on the annual QC for each of those years.

By the way, you must also have 40 QC to be fully insured for Medicare benefits. For some people, qualifying for Medicare might be more important than qualifying for Social Security retirement benefits. The age at which you qualify for Medicare coverage is 65, independent of Social Security FRA.

What is Full Retirement Age (FRA)?

Full Retirement Age (FRA) is the age when you qualify for “full” Social Security retirement benefits based on your history of earnings. The FRA will vary based on when you were born. (See the chart below.)

How Old Must I Be to Begin My Social Security Retirement Benefits?

Your starting age for Social Security retirement benefits varies. Social Security retirement benefits can start at age 62 or delay until age 70 if you qualify for benefits. If you begin receiving benefits before your FRA, you’ll receive a percentage of the FRA amount.

The following is a chart showing the FRA for various birth years plus the payment reduction percentage if benefits are started at age 62. If you delay receiving benefits after your FRA, those monthly benefits will be greater than the FRA amount.

Social Security Full Retirement Ages

The reduction percentages in the chart apply to both the wage earner’s benefit and the spousal benefit.

What is the spousal benefit?

Assuming you are the “worker spouse” with Social Security benefits, your spouse’s benefit is 50% of the amount you would receive at your FRA. It is also adjusted for your spouse’s age at the time he or she applies for Social Security. It is not based on your age as “worker spouse”, but on your spouse’s age. (These assumptions are based the spouse not having accumulated his/her own qualifying credits for Social Security benefits.)

For example, if you were born after 1943 and your spouse applies for a spousal benefit at age 62, he/she would get 75% of one-half of the benefit you would get if you began at age 66 (your FRA). If your spouse applies for spousal benefit when he/she is age 66 (FRA), the benefit amount would equal one-half of your FRA benefit, even if you began getting your benefits prior to age 66. But your spouse cannot begin collecting his or her spousal benefits until you begin collecting your own benefits. There are some nuances or exceptions to these rules, but there isn’t room to address them here.

Frankly, there is a boatload of other information on Social Security retirement benefits that doesn’t fit this space. I suggest you go to the Social Security website www.ssa.gov and/or visit the local Social Security office in Bryan and/or contact me for referrals to local financial advisors.