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Retirement Planning > Social Security

An overview of Social Security

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Social Security is a federal program of benefits that was developed in 1935 as part of President Franklin D. Roosevelt’s New Deal plan. One of the primary benefits provided by the Social Security system is that of retirement income.

The program, funded through payroll taxes, is managed by the government. Payments received today by recipients are taken from current payroll contributions that are made by today’s workers.

Age eligibility for social security retirement benefits

For many years, the “normal” Social Security retirement age was 65. However, the retirement age has since changed and is now based on what year the recipient was born. Full retirement benefits may now be received when a recipient reaches age 67 if they were born in the year 1960 or later, provided other criteria are met.

Paying back benefits and starting over

There is a way to make changes with Social Security retirement benefits. In this case, if a benefit recipient begins collecting at age 62, they have the option of changing their minds and starting over in the future, and thus reaping the higher benefit payments that would have been received by waiting until age 70.

In order to do so, the retiree has to file a withdrawal application and then repay what they had collected so far – plus any additional funds that were withheld for Medicare premiums. In addition, the retiree is even allowed to deduct this repayment or take an income tax credit for the taxes they paid on the benefit amount.

For example, a married couple who are both age 70 and began collecting Social Security retirement benefits at age 62, could actually raise their standard of living by roughly 20 percent by taking advantage of this technique.

It is important to really weigh the consequences of this strategy, though. If a retiree lives for many years beyond age 70, then this could be a great way to receive increased benefits for many years. If, however, the retiree passes away soon after using this techniques, they will have lost all of the benefits that they paid back – those received between age 62 and age 70 – in return for an increased monthly benefit, but for just a very short period of time.

Waiting to receive benefits

Although many individuals opt to begin receiving their Social Security retirement benefits at or before their normal retirement age, there are others who decide to wait and receive their benefits at a later time.

In fact, those who wait to begin receiving their Social Security retirement benefits may actually help themselves financially in the long run. In some cases, the difference between starting benefits at age 62 versus age 70 may be close to double.

For example, a man born in 1948, who earned $80,000 per year can expect a monthly Social Security retirement check of $2,157 if he begins taking benefits at his normal retirement age of 66. If he were to begin his benefits at age 62, his monthly check would only be $1,458. However, if he waits until he reaches age 70 to begin receiving benefits, his monthly Social Security retirement benefit would rise to $3,303. This is more than double the amount he would have received per month had he started taking his benefits at age 62.

The social security earnings penalty

In addition, waiting to receive Social Security retirement benefits can also help retirees to avoid the Social Security earnings penalty if they work while retired. For example, in 2010, if someone receives their Social Security retirement benefits before reaching their full retirement age, then they must temporarily forfeit $1 in benefits for every $2 they earn over $14,160.

If a retiree reaches their full retirement age in 2010, then Social Security will hold back $1 for every $3 that is earned over $37,680. And, if someone who has not reached full retirement age earns over $42,960 in 2010, they cannot collect any Social Security retirement benefits.*

Considering a spouse’s social security benefits

Married couples have several considerations to make when deciding when to begin taking their Social Security retirement benefits. These determinations should include the fact that:

  • The maximum spousal Social Security retirement benefit amount is 50% of what the other spouse will receive;
  • Spouses cannot collect their own benefit and their spouse’s benefit at the same time. If both spouses are entitled to benefits and are under full retirement age, then they will always receive the larger of the two benefits;
  • One spouse cannot apply for the Social Security spousal benefit until the other spouse has filed for Social Security.

Some married couples use a technique called the 62/70 strategy in order to help maximize their Social Security benefits over the long term. With this strategy, the lower earning spouse will file for their Social Security retirement benefits at age 62, and then the higher earning spouse will delay taking their benefits until they reach age 70. This allows the couple to receive the maximum amount of benefit without being penalized.

About the Author

Steve Delott has been in the insurance industry for over 35 years, is a national speaker, and provides annuity sales training and life insurance training for agents throughout the country. He was also Senior Market Advisor’s 2006 Advior of the Year. For more information, go to


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