How To Maximize Your Social Security Benefits

This article was written by Paul C. Bennett. Paul is a Certified Financial Planner™ professional (CFP®), Chartered Financial Consultant (ChFC), Accredited Investment Fiduciary™ (AIF®) and Managing Partner of C5 Wealth Management, LLC . He is a featured financial advisor in Boomerater's Great Falls financial advisor directory.

Social Security Quick Facts*
Social Security (SS) will have its 75th anniversary in 2010. Most people are covered by Social Security with the exception of civilian federal employees hired before 1984; retired railroad workers and about one quarter of state/local government employees.

Although most people focus on SS's retirement benefits, SS also pays benefits to those who become disabled and to families of those who die (provided they meet certain eligibility criteria).

Retirement Benefits
If you are age 62 or over, benefits may be paid to you, your spouse or your unmarried child.

Disability Benefits
You are eligible at any age before retirement, your spouse if age 62 or older (or any age if caring for your child) or your unmarried child. Unlike private disability insurance, the SS definition of disability is very broad so meeting eligibility standards is more difficult.

Death Benefits
Your spouse is eligible to receive a death benefit if age 60 or over, 50-59 if disabled and any age if caring for your child. Also, your unmarried child is eligible.


In this article I will focus on retirement benefits and I apologize in advance, but a few acronyms will be used. All SS retirement benefits are determined by your Primary Insurance Amount or PIA. You must be at your Full Retirement Age (FRA) in order to qualify (age 65 for those born before 1938, and increasing to 67 for those born in 1960 and later). You can go to this link and use the Retirement Estimator to determine your benefit amount.

Eligibility
To qualify for retirement benefits you will have needed to work for at least 10 years or 40 quarters of credit. You can delay receiving your benefits until age 70 and will receive Delayed Retirement Credits (DRCs) for doing so. Depending upon your age, you receive 6.5 to 8% per year in increased benefits by delaying.

Income taxes
Most recipients receive benefits tax free, however, those with higher incomes must include up to 85% of their SS benefits in their taxable incomes.

Windfall Elimination Provision (WEP)
PIA calculation is affected when a person is receiving a pension based on their own earnings not covered by SS (this may apply to some government and non-profit organizations). The WEP prevents someone from increasing their PIA even though they have additional pension income from earnings that were not covered under SS. The PIA formula favors low-level wage earners as most of these individuals rely more heavily on SS in retirement. There are several exceptions to the WEP such as military reservist pensions; ministerial pensions and people age 62 before 1986.

Government Pension Offset (GPO)
Spouse, widow or widower benefits can be affected if you worked for a federal, state or local government and you were not covered by Social Security during your last 60 months of employment. The GPO was enacted to level the playing field with other non-governmental employees. There are exceptions to the GPO such as people entitled to SS before December 1977 and people eligible to receive government pensions during December 1982 and June 1983 who were dependent upon their spouses.

Lesser known, but very important SS "factoids"
1) If you are married and your spouse has not earned any SS credits, you can file for SS at FRA so your spouse can collect a spousal benefit. You can then "suspend" your own benefits and earn more DRC's up until age 70. That way, your spouse gets benefits now and your benefits continue to increase both for yourself and your spouse (widow/widower benefit).

2) If you are married and both spouses have earned SS credits, the higher earner should consider delaying receiving SS retirement benefits and the lower earner should consider starting benefits early at age 62. The reason behind this is that the lower earning spouse receives his/her benefits now and would also be eligible for increased benefits should their spouse die. Actuarially this usually makes good financial sense (based on the net present value of total benefits received), however, if there is a family history of poor health or longevity this fact pattern may not be the way to go and a different approach should be taken (i.e. poor health - both should consider taking SS early; good health - both should consider delaying until age 70).

*2009 Guide to Social Security (37th Edition)

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Furthering his commitment to higher education, Mr. Bennett is currently pursuing a Master of Science in Finance from Indiana University, Kelley School of Business. Mr. Bennett specializes in providing creative solutions for families and businesses regarding their investment management and financial planning needs.