What are Delayed Retirement Credits and how do Delayed Retirement Credits affect my retirement benefit?

They are additions to benefits if retirement is delayed beyond full retirement age. Delayed credits may accrue up to age 70. The Delayed Retirement Credit provisions allow for any month for which a worker was at least full retirement age, was insured for retirement benefits, and did not receive retirement benefits. The amount of the delayed retirement credit depends on when you where born, currently anyone born after 1-1-1943, receive a monthly credit of 2/3% or .0066667. That’s equates to a yearly credit of 8%.

Yearly credit of 8%!  That is found money assuming you life a long life and the plan doesn’t change.  If you do have family history of long life expectancy and your in good health then delaying could be very significant boost to your retirement plan.  There are several strategies and do not expect to get numbers run at the Social Security Office as they are not allowed to provide you planning just information you request.  If you do not know how to ask and what you are trying to accomplish then you will be like the ship at sea without a route or port of call then let the wind push you where it is going.  What would you do with an extra $200 or more per month?  Live more, give more, or simply feel less pressure?

Are retirement benefits guaranteed to keep up with the cost of inflation?

Yes, Congress enacted the cost of living adjustment or COLA provision in 1972. This provision provided for automatic cost of living adjustments if there was an increase in the Consumer Price Index for Workers of at least 3%. In 1986, Congress eliminated the three percent requirement due to waning inflation. Currently there is a cost of living adjustment if there is an increase in the average consumer price index for workers. If however, the increase is by less than .05 percent or there is a decrease there will not be an adjustment for that year.

Here the definition of inflation is of course different than what you will experience at the gas pump or next time you fill a prescription.  Why in 1994 the President adjusted the basket of goods and services to reflect less of energy and medical and more on housing.  What has happened to your energy costs and medical bills over the last 17 years?  Compare those costs to housing and you can better understand COLA is not in touch with reality.  What do you think about this?  Guess what in 2000 there was announced a surplus of $1 Trillion in Social Security calculations as a result of the lower COLA over the previous 8 years.  Good for the system and bad for the retirees cash flow.  If you wanted to run some calculations on your own where would you go?  Here is a site that you may find helpful for both calculations and educational materials Social Security Timing.

What are Survivor Benefits?

Survivor benefits are benefits that are payable to a spouse of a deceased worker. The spouse is eligible for survivor benefits after reaching age 62 and they are not entitled to a retirement benefit that meets or exceeds the survivor benefit. These benefits can be received as early as age 60 unless disabled then as early as age 50. Taking survivors benefits before full retirement age will result in a reduction of benefits. A divorced spouse is also able to file for these benefits if they were married to the worker for more than 10 years.

What if I do not have enough work credits, can I still qualify for retirement benefits?

No, if you do not have enough work credits you are not fully insured and therefore do not qualify to receive retirement benefits based on your own earnings. However, if you are married, widowed, or divorced in certain situations you may qualify for spousal or survivors benefits which would be based on a qualifying spouse.

Does a spouse still qualify for survivor benefits if the worker passes on before electing Social Security benefits?

Yes, a spouse will qualify for widow’s benefits assuming that the deceased spouse is fully insured and the widow qualifies for benefits. The spouse must have been married to the worker not less than 9 months immediately prior to the day of death, has attained age 60, or is in the care of a child under the age of 16. (There are many exceptions to these basic requirements.)

The surviving spouse’s age will determine the benefit amount. If the widow is of full retirement age, 100% of the deceased spouse’s benefit will be available to the surviving spouse. Any age less than full retirement age will reduce the benefit based on the age or situation.

Visit the Social Security official site at www.socialsecurity.gov

If you are inclined to read and learn and run some numbers there is a good resource called Social Security Timing Calculator and free to use online by respected non governmental group.

How much will my Social Security Retirement Benefits be reduced if electing early?

If you elect your retirement benefits early they will be reduced by 5/9 of 1% for the first 36 months prior to full retirement age. Any month in excess of 36 months will be reduced by 20%, which is the total reduction for the first 36, plus 5/12 of 1% for each month in excess. For example, if full retirement age is 66 and you elect benefits at 62 then your benefits will be reduced by 20% for the first 36 months and 5% for the 12 month after, for a 25% reduction for electing early. Once you elect reduced benefits you will receive a reduced benefit for the entire time you collect Social Security.

How are spousal benefits calculated in the event of early election?

Social Security benefits are reduced by a certain percentage for every month they are elected early. Spousal benefit reductions work the same way–though the factor by which the benefits are reduced is different. Below are the percentages used to calculate spousal benefit and retirement benefit reductions.

Two Spousal Benefit Scenarios

1. First let’s look at a case where the spouse does not have a retirement benefit of his or her own and the primary worker qualifies for $2,000 in retirement benefits. If the spouse waited until 66, he or she would be eligible for 50% of the primary worker’s benefit, so in this case $1,000. However, if the spouse elects at 62 instead of 66, the spousal benefit would be reduced by 30%, making it only $700 instead of $1,000. Here’s how it works:

*$1,000 is reduced by 25/36 of 1% per month for the first 36 months and 5/12 of 1% for each additional month.

2. Now let’s look at a case where the spouse is eligible for his or her own retirement benefit of $500 if taken at age 66. Assuming the primary worker still qualifies for $2,000, the spouse would be eligible to receive his or her own benefit, plus a $500 spousal excess, which is the difference between the spouse’s retirement benefit and 50% of the primary worker’s benefit. ($2,000 x 50%) – $500 = $500 spousal excess.

But what happens if the spouse elects at 62? The spouse’s $500 retirement benefit would be reduced by approximately 25% and the $500 spousal excess would be reduced by approximately 30%. Here’s how it works:

*$500 is reduced by 5/9 of 1% per month for the first 36 months and 5/12 of 1% for each additional month.

*$500 is reduced by 25/36 of 1% per month for the first 36 months and 5/12 of 1% for each additional month.

Here are a couple of helpful links.  Social Security official site and Social Security Timing a private planning site to help.

Let us know if this is helpful and what other retirement questions you might have about Social Security? If the calculations are confusing to my friends that are really good with numbers then I would suspect they are to you as well.  There are some things to keep in mind as you address these issues.  You life expectancy and your spouse’s.  The level on earnings credited and the difference in the two benefits brings up additional planning opportunities for you and your family.

What are spousal benefits?

Spousal benefits are benefits that a workers’ spouse may be eligible for based on the workers’ record. In order to qualify for spousal benefits the spouse must be at least age 62 or have a qualifying child and has been married to the worker for at least one year prior to filing for benefits. Under these circumstances the spouse can receive as much as half of the workers primary insurance amount depending on the age in which they file for benefits or if they have a qualified child in their care. The spouse is not eligible for spousal benefits if they are entitled to a retirement benefit that meets or exceeds one-half of the primary insurance amount of the worker.

Can the higher earning spouse receive benefits on the lower earning spouse’s benefit?

Yes, assuming that the lower earning spouse qualifies and has filed for benefits. If the higher earner files a standard application, he will not qualify for spousal benefits because his benefit would be higher than his spousal benefit. However, if he files a “restricted application” he can access a spousal benefit while still accumulating delayed retirement credits on his own record.  What might this look like? Widow or widower may consider taking the spousal benefit and later elect their own at full benefits or delayed benefits to increase cash flow about 8% a year for each year.  This can be worth hundreds of dollars per month.  Planning is important here.

Can I receive retirement benefits for myself and a benefit under my spouse?

No, when you receive a spousal benefits you will receive half of the primary insurance amount of your spouse. What this means is that if you have a primary insurance amount of $500 and your spouse has a primary insurance amount of $2000, you are entitled to $1000 worth of benefits. You will receive the $500 under your own benefit and $500 under your spouse’s benefit which is equal one half of your spouse’s benefit. If your benefit is equal to or greater than the spousal benefit you do not qualify for spousal benefits. You will not receive your own benefits and half of your spouses benefit. (Example assumes full retirement age.)

Question I received this week: Will it benefit me to delay beyond age 66 for spousal benefits?  The answer is no.  Spousal benefits max out at age 66 and do not accrue delayed retirement credits.  Do not miss this as it will cost you real money.

Here is a site that you you might find helpful as you look at timing and planning of your Social Security decisions by Social Security Timing.