Hosted by Kevin J. Zywna, CFP® and Allison K. Dubreuil, CFP®
Allison Dubreuil, Wealthway Financial Advisors: Tonight, I want to talk about one of my favorite topics. If you listen to this show over a long period of time, you’ll know that Social Security is near and dear to my heart, because it affects every one of us at some point. And there are so many intricacies to it. So many different claiming strategies, options and pitfalls. You can certainly make a mistake when it comes to claiming Social Security. So we’re going to talk about some social security do overs tonight. If you claim in a way that you regret, there are a few ways you can get a do over – but they come with a lot of rules. So we’ll talk about what those do overs are and the ins and outs of how to go about them.
When Can You Claim Social Security Retirement Benefits?
So just real general about Social Security, you can claim a Social Security retirement benefit as early as age 62. It’d be a reduced benefit depending on your full retirement age. If you claim early, your benefit would be reduced by 25 to 30%, claiming at 62. Most of us nowadays, our full retirement age is 67. For some people it’s 66 and a few months. You have to look up your full retirement age. But once you hit your full retirement age, you can get your “full retirement benefit.” Or you can delay claiming. You can hold off and not claim your benefit. Then your benefit will increase by 8% per year all the way out to age 70. That means by delaying, your retirement benefit would be 124% of what your regular full retirement age benefit is. You can claim early, at 62, for a reduced amount. Claim your full retirement age, or get an increased amount by claiming at 70. Those are the basics on when you can claim. There’s a lot of ins and outs that we’re going to get to tonight.
Can You Increase Social Security Benefits?
But first, we’re going to go out to Elizabeth City to talk to Jim. Jim, welcome to the program.
Caller: Yes, I think you just started touching on what I heard advertised back to the show tonight. My basic question is, if you touch on this later, let me know. I’m 75. And I’ve already begun my Social Security for 10 years. Is there anything I could do now to increase it? Or change it?
Allison Dubreuil, Wealthway Financial Advisors: Okay, so you’re 75 now and you said you claimed 10 years ago when you were 65? Right?
Allison Dubreuil, Wealthway Financial Advisors: Okay. And are you married, Jim? Or is it just you and your benefit?
Caller: Yes, yes, me right now,
Allison Dubreuil, Wealthway Financial Advisors: Just you, okay. At this point, because you claimed 10 years ago, the window of opportunity to make any changes or get a do over has closed. So unfortunately, there are some do over options that I’m going to talk about, but they need to be done pretty shortly after you claim or before age 70. So at this point, you probably have the maximum benefit that you’re going to get.
Caller: Yes, I’m still working. I’m still paying into Social Security. My benefit is actually going up.
Allison Dubreuil, Wealthway Financial Advisors: Yes, good question. So if you’re still working, even while you’re on Social Security, while you’re receiving a check, your earnings do count towards your earnings history. So it could slightly increase your benefit each year that you continue to work.
Caller: Well, how would you find out about that?
Allison Dubreuil, Wealthway Financial Advisors: Well, your Social Security benefit is based on your top 35 earning years. For someone who has claimed Social Security and continues working, it will really only impact your benefit if you’re still in a high earning situation. If you’re claiming Social Security and working part time, it’s not likely that it will have a significant impact on your benefits. You can go on your Social Security account on www.ssa.gov and see a whole listing of your earnings history. And if what you’re currently earning still fits in the top 35 years, then you might see little incremental raises from year to year, even while you’re claiming the benefit. That is one good thing. While you’re working, you might still get a little increase.
And then, of course, you’ll be granted cost of living increases, which were quite significant for the first time in a while last year. Beneficiaries saw a big jump in their cost of living increase in Social Security. I think the average over a really long period of time, though, is something like two and a half percent annual increase for Social Security benefits. Take that one year at a time.
Social Security Do-Over #1: Withdraw Your Application
But back to do overs. We talked about claiming early, claiming your full retirement age, or delaying for an increased benefit. Well, what if selected a claiming strategy and now you have regrets? Maybe you claimed early, and you’re getting a reduced monthly benefit? And you decided to rather hold out and get a bigger check. Or maybe you waited longer than you should have to claim your benefit. And now you’re wondering if there’s any way you can go back. Or maybe you just are looking for an emergency infusion of cash and you’re kind of in a rough spot and you’re looking for a way to get a lump sum payout. We’ve got three little do over options that we’ll talk about tonight.
The first one is the do over that involves withdrawing your application. There are specific rules around all of these do overs. I’m going to give you general information tonight. But of course, you always want to reach out to the Social Security Administration to confirm your specific personal situation. But if you claimed early, and you decided you really didn’t want to. It was a mistake. You didn’t want your benefit. You want to let it grow so that it’s not reduced. You can withdraw your application within the first 12 months of claiming your benefit. Jim’s question earlier on, he said, I claimed my benefit 10 years ago, is there any do over option? No, not in his case, because you can only withdraw your application if it’s within the first 12 months of claiming your benefit.
There’s a catch, of course. They don’t just let you withdraw your application. You have to repay your benefits. Any benefits that you have received within that time period, including benefits that any family members might have received based on your earnings record. That could be most likely a spouse. Sometimes it could be a minor child. If you withdraw your application, you can only do this once. You only get one do over. You have to repay your benefits. But then your benefit will start accruing. It will start growing again. And you can apply for your benefits at a later time when your benefit is larger. Now, this can get a little complicated if you are on Medicare. If you’re enrolled in Medicare and you’re having your Medicare premiums deducted from your Social Security benefit, then you’ll need to make sure you set up direct Medicare premium benefits so that you don’t have any lapse in coverage and Medicare. So we talked about the first do over meaning you claim. You wish you didn’t. You want to withdraw your application and let your benefit grow. You have 12 months to make that decision and you can only do it one time. So there’s your very first do over option.
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How Are Social Security Benefits Impacted If Claiming While Continuing To Work?
Allison Dubreuil, Wealthway Financial Advisors: We’re talking about Social Security claiming do overs. I think these are little known loopholes. I don’t know if there are loopholes. But do overs really is the best word if you claim Social Security and you have regrets then here are a couple of ways you might be able to rectify the situation. But they come with some specific rules and restrictions that may not be very exciting to everyone. So very basic overview. You can claim at your full retirement age, you can claim a reduced benefit at age 62. Or you can wait all the way until age 70 for an increased benefit. So what happens if you claim and you regret it, we already talked about the first do over being you can withdraw your application within the first 12 months of claiming. But it’s not a free do over you have to repay any benefits that you received or anyone else received on your work record. Once you withdraw your application, your benefit will then continue to increase to accrue what they call delayed retirement benefits. And then you can claim at a later date and your benefit will be larger. So that could be a good situation for people that made a quick decision without being fully educated on all of the strategies or tradeoffs. So you have 12 months to fix that.
We’re going to head out to Chesapeake and speak with Steve. Welcome to the program, Steve, what can I do for you?
Caller: Good afternoon, ma’am. Quick question for you. I’m taking full retirement age Social Security in November, but I’m continuing to work. Does my Social Security benefit continue to increase?
Allison Dubreuil, Wealthway Financial Advisors: Yes, good question, Steve. So we talked about this a little bit with the past caller, Jim, as well. It will continue to increase. It depends on your earnings, though. You said you’re already past your full retirement age?
Caller: I will be in November,
Allison Dubreuil, Wealthway Financial Advisors: In November. When did you claim Social Security?
Caller: I will in November.
Allison Dubreuil, Wealthway Financial Advisors: Okay, so you’re going to wait.
Allison Dubreuil, Wealthway Financial Advisors: Okay. And are you still in high earning years? Or are you kind of cutting back going part time just working a little bit?
Caller: No, I’m actually being paid more now that I’ve retired once.
Allison Dubreuil, Wealthway Financial Advisors: Okay. Does that include pension? Or is that all just earned income that’s higher.
Caller: This is just earned income. I have VRS as a pension.
Allison Dubreuil, Wealthway Financial Advisors: Okay. So then it sounds like if you’re still in high or peak earning years, that would contribute to your top 35 years of earnings that count towards your Social Security benefit and would ultimately increase your benefit. But let me ask you this, do you have a need or reason to claim right now while you’re still working?
Caller: Yes. I would like to have the cash flow coming in.
Allison Dubreuil, Wealthway Financial Advisors: Okay. Well, that can be a really good reason to claim if you have cashflow needs. That’s what Social Security is there for. It’s a future income stream. It’s just also a good idea to weigh the strategy of delaying your benefit. Because if you delay past your full retirement age, your benefit will increase by 8% per year up until 70. And that’s for the rest of your life, your benefit would be bigger. So oftentimes, there’s kind of a break even age that sometimes is used to help people make that decision. If you are in good health and you think you can reasonably live to your mid 80s, then sometimes it makes sense to delay claiming because while you’re foregoing your benefit right now for a few years, you’ll be getting a bigger benefit for many years if you live into your 80s
Caller: at 8% more a year? So that’s kind of like making money at 8%.
Allison Dubreuil, Wealthway Financial Advisors: It is right? Yes, it is. It’s simple. So it doesn’t compound but it is a guaranteed 8% which you can’t get in a lot of places these days.
Caller: Okay. So it’s the thought.
Allison Dubreuil, Wealthway Financial Advisors: Food for thought. Yes. And are you married Steve? Yes, ma’am. Okay, so that’s something else to consider, you know, how old your wife is and what her benefit would be. And if she’s claiming on your record, that would impact your decision as well – which can get kind of complicated. More things to explore and think about.
Caller: Yes, she took retirement at 62. And she was a school teacher for 35 years, and she needed to retire. Okay, so I would I think that she gets a bump up based on the amount of money that I will be making from Social Security compared to what she’s paid.
Allison Dubreuil, Wealthway Financial Advisors: Well, if she already claimed her benefit she’s probably getting the benefit that she will get for the long term.
Caller: Okay, she does not get a spousal bump up?
Allison Dubreuil, Wealthway Financial Advisors: It depends on her birthday. When was she born before?
Allison Dubreuil, Wealthway Financial Advisors: Then no, she wouldn’t. Unfortunately, Steve, I can’t dig into this more deeply with you. I’d love to. You can call our office at 757-456-2200.
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Social Security Do-Over #2: Suspend Your Social Security Benefit
We’re talking about Social Security do overs tonight. Little known ways that you can try to correct a mistake or find another way to put into play a different strategy. If you already claimed earlier reduced benefit, what can you do? We talked about withdrawing your application within the first 12 months. But that means you have to repay your benefit. Which if you’ve been receiving your benefit for that period of time, those 12 months, that might be a bit of a hardship. If that is too much to swallow, there’s a second due over option.
You have to wait though, until you reach your full retirement age. Once you reach your full retirement age, you can suspend your Social Security benefit. The good news is that people who suspend their benefits don’t have to repay anything. The bad news is that if you suspend your Social Security benefits, that’s going to suspend the benefits of any other family members that are getting benefits on your record. Most of the time, that’s going to be your spouse, your current spouse. Ex-spouses aren’t impacted. You can’t do that just to spite your ex-spouse. Unfortunately, during the time your benefit is suspended, it will earn delayed retirement credits, so it will increase by 8% per year, up until age 70. And then your benefits will automatically resume at age 70. Or you could choose to resume your benefits earlier, if you want to. You just only get the delayed retirement credits for the period of time that your benefit was suspended.
So let’s say you are at your full retirement age. But you claimed at 62. If you claim early, I mentioned at the top of the show that your benefit is going to be reduced somewhere between 25 to 30% if you claim at age 62. If you receive your benefits from 62, to your full retirement age, and then suspend your benefits, your monthly benefits stop. But then they start earning delayed retirement credits of up to 32%. So at 70, if you do the math, your benefits could be worth almost, it’s about 99% of what they would have been at your full retirement age.
This is a really good do over option. This is a way to kind of make yourself whole if you made a decision that you regret about Social Security. It’s another way to increase widow benefits. I had mentioned with the previous caller, we were talking about his Social Security claiming strategy and why he may want to or may not want to claim. But for married couples, it’s not just about the one person it’s about both spouses and what their individual records are, or what their spousal benefits would be. Equally as important – what the widow benefits would be. If the higher earning spouse passes away, then the surviving spouse will claim the deceased spouse’s widow benefit. It’s 100% of what the deceased spouse was earning. So sometimes, it makes sense to try to maximize the higher benefit. The higher earning spouse may want to maximize their benefit to provide for their surviving spouse in the case that they predecease them.
It gets really complicated. We can’t just boil it down — to do this, do that. There are some basics we can cover here tonight. But you can already tell that depending on your marital situation, the earnings records of both of you, your current income situation, your health, your life expectancy, all of those factors are going to contribute to your claiming decision.
Social Security Do-Over #3: Lump Sum Payout Of Retroactive Benefits
If you claimed early, you have the option to withdraw your application, meaning you have to repay your benefits. Or you can wait until your full retirement age and you can suspend your benefits. Those are two do overs for people who claimed and wish they hadn’t. There’s a third do over. This is for people who didn’t claim and wish they did. So the third option involves getting a lump sum payout of up to six months of retroactive benefits. To do this, you must be your full retirement age. And your retroactive benefits can’t begin before your full retirement age. So let’s say your full retirement age is 67. And for some reason, you never thought about Social Security, you woke up at 67 and six months and thought, oh, I should have claimed my Social Security. Well, you can file for your benefits and request a retroactive benefit payment. They will send you (eventually, this will take a while and we’re hearing from people that the Social Security Administration is pretty backed up right now) a lump sum, check for the retroactive benefits. This could make sense if you waited until full retirement, or after full retirement to claim but based on all of your circumstances you looked at it you realize, oh, there really wasn’t a compelling reason to wait. I should just claim.
Another case that this could be a really valuable strategy deals with spousal benefits. So we have had a couple of different callers tonight, asking about their benefits. And then I had asked each of them about their spouse because spousal benefits play a big factor in claiming decisions. If you were born after 1954, the rules have changed so that you are not able to claim on your spouse’s record until your spouse starts their benefit. So if we have a husband and wife, and the wife retires early for whatever reason and wants to claim a spousal benefit on the husband’s record, she can’t do that, until the husband turns on his benefit. That’s new.
You used to have a lot more flexibility that went away with one of the big tax law overhaul changes that occurred a couple of years ago. You used to have more flexibility. But now, a spouse can’t claim a spousal benefit until the worker has turned on their benefit. Well, that’s where this third option can come into play. If you realize you have foregone your spousal benefit for longer than it makes sense, while the worker can claim their benefits – can request a retroactive payment and the spouse can request a retroactive payment. It’s kind of a nifty little way to go back in time just a little bit. You only have six months to do this. Just like the withdrawal do over option, you only have 12 months to do this. So if you’re beyond six to 12 months, you probably don’t have a ton of options. But this is something to keep in mind if you’ve made a decision without looking at all the factors.
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Social Security Benefits And Pension Offset
All right, we are talking about Social Security claiming tonight some little known do over options. We have caller Tom from Virginia Beach. Tom, what can I help you with today?
Caller: Yes, I retired from the railroad and am drawing Railroad Retirement now. But prior to going to work for the railroad, I had 15 years in private industry to include three and a half in the military. When I retired from the railroad in 2001. I ended up going on Railroad Retirement when I turned 62. And since that period of time in 2001. I’ve been in full time ministry and I’m paying Social Security every year on that. So my question is, how do I get to draw a portion of my Social Security in addition to my Railroad Retirement?
Allison Dubreuil, Wealthway Financial Advisors: Good question, Tom. And I I feel like every time we talk about Social Security, we have somebody call in about this very situation. This is the Pension Offset, that’s what you’re referring to. Because you didn’t pay into Social Security during your years at the railroad, it actually reduces your Social Security benefit that you should be owed with your private work when you did pay into the system, right?
Caller: Yes, ma’am. And like I say, I’ve been playing into Social Security since 2001 that I’ve been in full time ministry. So that’s 21 years.
Allison Dubreuil, Wealthway Financial Advisors: Yes. Okay, so you claimed your railroad pension at 62 you said?
Caller: Yes, yes, ma’am. That’s correct.
Allison Dubreuil, Wealthway Financial Advisors: Okay. And have you ever spoken with Social Security about your Social Security benefit?
Caller: I have spoken to them three times, and I still get the same answer. What did they tell me? The same answer is, I’m not eligible to draw that. My Social Security, even though I had 15 years in the private sector and paid it, before I went to work for the railroad. And since I’ve been drawing Railroad Retirement Since I turned 62, which was, oh, goodness, I turned 62. Let’s put it this way, I’ll be 75 the end of this month, okay. And they told me that, I can’t draw it. Or if I did draw it, then my railroad pension would be offset by that much. So I could never draw more than what my railroad pension is now, unless my Social Security benefit would be higher, and then I wouldn’t be able to draw my Railroad Retirement. Now, that I know about the spousal benefit, or Railroad Retirement. But I don’t have a spouse that can draw the railroad and time.
Allison Dubreuil, Wealthway Financial Advisors: Your ministry income that you have been earning since 2001, you’re having social security withholdings, on that income?
Allison Dubreuil, Wealthway Financial Advisors: And do you log on to Social Security? Or do you see your earnings history being reported and tracked properly?
Caller: They send me a statement each year, telling me what I would be entitled to. Okay. And it includes what I’ve paid the previous year. Matter of fact, it shows me what I’ve paid the previous, I think it’s 17-20 years.
Allison Dubreuil, Wealthway Financial Advisors: Yes. Okay. So that’s really good information, Tom. So there is a calculator on the www.ssa.gov website, where you can go in and you can enter all of your private sector earnings, where you had Social Security withholding taken from and the calculator will then tell you if you wouldn’t be eligible for a Social Security benefit, in addition to your pension. So I heard what you’re saying that they’re telling you, you would never be eligible for both that it’s always an either or? Well, I think technically, there is a calculation that if you reach a certain point, then you may be entitled to a Social Security benefit, in addition to your pension. But I don’t know of anyone who has actually gotten to that point where the numbers have worked out. Okay. But there is a calculator, and you have to go year by year and enter all of your earnings. So you’ll need to take that earnings history that you get sent to you each year and enter that in and that will give you an update.
Caller: Okay, well, I can see why people wouldn’t want to do that, because it would be time consuming. But you’re the first one that has given me any hope.
Allison Dubreuil, Wealthway Financial Advisors: Oh, well, I don’t know if it will be fruitful. But it is worth a try. And it’s worth asking those questions again. And again, because you continue to work you continue to pay in so at some point, it may change. And I know that this is being reexamined often. There are people that very much want to see this offset or this rule change because they feel it’s unfair, because they paid into the system for so long. So at some point, there might be a rule change, you never know.
Caller: Well, something that I guess you could call it frustrates a lot of us railroad retirees. We also get the statement, well, the Railroad Retirement is funded through the federal government. But yet, there are federal employees that are able to draw Social Security benefits, if they went to work for the federal government, prior to 1976, they can still draw their Social Security in addition to their federal pension. And that’s, it seems to be an unfair equity there.
Allison Dubreuil, Wealthway Financial Advisors: I know, with government employees, if you were under the CSRS, and you didn’t pay into Social Security, they are also subject to this Windfall Elimination Provision. And so they’re having the same challenges. But that was changed after a certain period of time, they realize that Social Security was the better deal. So anyone that came in after a certain period of time does get both their pension and their Social Security.
Caller: I’ve got you. well, thank you very much for inviting me tonight. And I will, when I get the time this week, go on the website and use the calculator.
Allison Dubreuil, Wealthway Financial Advisors: Okay, sounds good. Tom, best of luck to you.
Caller: Thank you have a blessed day.
Allison Dubreuil, Wealthway Financial Advisors: You too. All right, we get that question so often. It is unfortunate, and it affects spousal benefits, too. We ran into this with a client where she went to claim a spousal benefit on her husband’s record and found out that because she had a police of millet, Police Retirement Pension, she was not able to get a spousal benefit. So it does affect a lot of people. My understanding is that there are a lot of people that want to have that changed. But change takes a lot of time. And sometimes an act of Congress, and I can’t really talk much about that.
Social Security Do-Over Wrap-Up
The big picture is Social Security is complicated, claiming Social Security is a very big decision. And you should be very careful before you make this decision. We talked about some do overs tonight, but they’re very limited in scope. Very limited in in the timeframe of when you have to use these do over. So be careful when you’re making your claiming decision. Things like your need for income, your health, your longevity, your family situation, your spouse, your dependents, all those factors should be weighed when making a decision about when to claim Social Security. Because this is a really big asset. It’s a future guaranteed lifetime income stream that adds up to hundreds of 1000s of dollars for most people. So ask the questions, do the reading go on www.ssa.gov. A lot of people complain about the Social Security Administration. They do have a pretty good website with a lot of information. All right. I think that is all the time that we have for today. Thank you so much for our callers. Jim, Steve. Tom, we really appreciate you and your questions.
Kevin J. Zywna, CFP®