Social Security is based on a simple idea: pay for retirement benefits through payroll taxes levied on workers and employers.
But that’s where the simplicity ends. Prospective retirees need to consider how to maximize their benefits and those of their spouses. Even the age when benefits are first collected has a great impact on how much is received each month.
Here are a few tips from the Social Security Administration website and Shepherd Financial Partners, a Winchester, Mass., firm, that spotlight some of the points an advisor needs to communicate to clients planning retirement.
1. Choose a Date
How much a retiree receives each month varies greatly depending on what age Social Security benefits start. The longer one waits, up to age 70, the larger each check will be. The agency says that as a general rule, the total benefits a person receives will be the same no matter what age benefits begin.
2. Partners Count
If a husband or wife applies for benefits, the partner might be eligible for spousal benefits even if he or she never worked a job under Social Security. The rules are complicated, but in some circumstances a couple can draw more money than if each drew their own benefits. It’s worth checking out.
3. The Return of the Ex
And you thought once the divorce papers were signed you were free and clear. A divorced spouse is entitled to benefits if a few conditions are met. Some of those conditions are that the divorced spouse is unmarried, at least 62 and those benefits would be more than the person’s own Social Security payments.
4. Watch Out for the Taxman
George Harrison and The Beatles captured everyone’s disdain for the taxman. Those monthly benefits checks can be subject to taxes. For a couple, taxes are paid on half your Social Security benefits if reported income is between $32,000 and $44,000. Tax is paid on 85% of benefits above $44,000.
5. There Are Limits
If you start collecting benefits before your full retirement age, you might see a reduction in your monthly check if you reach certain earning limits. For this year, the earnings limit is $15,120. A dollar for every $2 you make over the limit will be deducted from your benefits. The earnings limit rises to $15,480 next year.
6. The Kids Are All Right
Children of those who qualify for benefits may be entitled to receive payments. To be eligible they must be unmarried and under 18; or be 18 or 19 and be a full-time student no higher than 12th grade; or be 18 or older and suffering from a disability that began before age 22. The payments do not reduce the primary Social Security beneficiary’s retirement benefit.
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