CRPC | Making the Most of Social Security Retirement Benefits

Social Security began as a program to provide retirement income, but has been expanded to provide all of the following income except

Answer D: A) survivor benefits to children under age 19. B) disability. C) survivor benefits to spouses at age 60-61. D) survivor benefits to spouse caring for a child under Survivor benefits are provided to a spouse caring for a child under 16 or disabled. Sixteen is not "sweet 16" for the spouse caring for the deceased worker's child. If there is more than one child, the youngest child turning 16 would mean the surviving providing care would lose benefits.

Henry and his wife Etta will both reach their FRAs this month, and they both plan to begin receiving Social Security benefits next month. Etta's primary insurance amount (PIA) is $1,900; Henry's PIA is $975. What will their maximum Social Security benefit be?

They will both receive their respective PIAs. They will both receive their respective PIAs. Henry would receive 50% of Etta's PIA only if his PIA was less than 50% of Etta's PIA. The family maximum benefit for a couple with no ancillary beneficiaries does not apply when both are receiving benefits based on their own earnings histories.

Ann has reached her full retirement age (FRA) of 66 in 2020. She can elect to receive $1,000 now, or delay receipt by two years. She expects to live until age 90. Ignoring outside factors, when should she begin her benefits?

Two years from now. By delaying two years, her benefit will increase 16%, to $1,160. Forfeiting: $1,000 24 months = $24,000 Gaining: $160/month 24,000 / $160 = 150 months or 12.5 years 66 + 12.5 = Ann would need to live until 78 to "break even." Because she is expecting to live until age 90, she should opt to delay receipt of benefits.

Michael, a 62-year-old single man, is considering beginning his Social Security benefits to supplement his income of $14,000 per year. How much will he lose in Social Security benefits due to the earned income restrictions?

$0 Because his earned income is below the $18,240 (2020) earnings cap for singles, he will not be impacted by the earned income benefit reduction.

Jill and Mark are celebrating their 20th wedding anniversary, receiving a 20-year watch from their employer, and reaching FRA all on the same day with a trip to the beach. Which of the following statements correctly describe the Social Security benefit Jill is eligible to receive?

100% of her own benefit Currently, the spouse of a Social Security recipient is entitled to 50% of the recipient's primary insurance amount (PIA), subject to a family maximum, as long as the spouse is of full retirement age (FRA) or between age 62 and FRA for reduced benefits. The spouse will take the greater of either 100% of their own benefit or 50% of their spouse's benefit.

Tammy doesn't begin her Social Security benefit at FRA (age 66), instead opting to delay while collecting delayed retirement credits. When she reaches age 68, however, she encounters financial difficulty and must file for her benefits. How much will her payment have increased?

16% Tammy will receive two years of delayed retirement credits. Each year she will accrue an 8% payment increase, for a total of a 16% increase. The delayed retirement credit is 8/12th of 1% for each month past FRA until ending when the person reaches 70.

Brent and Carol are married and file jointly. They have an AGI of $50,000 and they receive a combined Social Security benefit of $15,000. They have no tax-exempt income. What is the maximum percentage of their Social Security benefit that will be subject to taxation?

85% Provisional income = $57,500. This is over the $44,000 threshold so 85% of their Social Security benefit will be the maximum amount subject to taxation.

Carl is going to reach FRA later in the current year. He has begun Social Security benefits but is still working. His Social Security benefits will

be reduced $1 for every $3 earned above the earnings cap. Compensation for work received in the year you obtain FRA will be reduced $1 for every $3 earned above the earnings cap until the first of the month in which you will obtain your FRA.

A worker's primary insurance amount (PIA) is the amount they receive from Social Security

if he or she began payments at full retirement age. The PIA is the amount the worker would receive if he or she began payments at full retirement age.

Higher income earners will have an income replacement ratio that is

lower than low income earners. Replacement rates, or the amount of one's paycheck that is replaced by Social Security, favor lower earners by replacing about 90% of their (very low) earnings. Higher earners will see only a 26% replacement. In other words, higher earners receive more dollars from Social Security, but lower earners receive higher replacement rates.

Social Security payments are

taxable if your provisional income exceeds the applicable threshold. Social Security payments are taxable if your provisional income exceeds the applicable threshold. This is the case regardless of your age or if you are still employed.

Jeff and Betsy both attained their FRA in time to employ the "restricted application for spouses" strategy. Jeff's PIA at his FRA was $2,000 and Betsy's was $1,200. If they employ the "restricted application for spouses" strategy, Betsy will begin receiving $_____ per month.

$1,200 Betsy, the spouse with the lower Social Security benefit, will take her own $1,200 benefit. Jeff, the spouse with the higher Social Security benefit, will receive a $600 spousal benefit, deferring receipt of his own benefit until age 70. The plan is for Jeff to receive the delayed retirement credit. This will increase his monthly benefit and it will also increase the survivor benefit for Betsy. The "restricted application for spousal benefits only" was available to people born on or before Jan 2, 1954 and who has achieved their FRA. Thus, it is no longer possible for anyone to initiate this strategy as of Jan 3, 2020. However, retirement planners need to understand this strategy because many people have implemented it.

Mary is 69 years old. She is receiving $1,800 per month in Social Security. Her husband Ralph, age 67, who has not worked enough quarters outside the home to be covered in his own right, receives 50% of what Mary receives each month ($900). Assume that Mary dies tomorrow. What will Ralph's Social Security benefit be? Assume he has reached his survivor FRA.

$1,800 The $900 spousal benefit stops, and Ralph will begin receiving 100% of Mary's old-age Social Security benefit. The survivor benefit is a two-step calculation. First, the surviving spouse gets whatever check the deceased worker was receiving. The deceased worker might have been receiving a smaller check for starting earlier than the deceased worker's FRA or the deceased worker may have received delayed retirement credits. No matter what, the first step is that the surviving spouse starts by receiving whatever check the worker was receiving or was entitled to receive. The second step is to check if the surviving spouse is starting survivor benefits earlier that the surviving spouse's survivor FRA. The surviving spouse's survivor FRA is a schedule that is two years behind the worker's FRA. If the surviving spouse has not yet achieved the survivor's FRA, then the amount the deceased worker was receiving is reduced 25/36th of 1% for the first 36 months and 5/12th of 1% for all months in excess of 36 months. Note that the surviving spouse having filed early for his or her Social Security benefits does not impact the survivor benefit. For example, if Ralph would have been able to file for Social Security benefits at age 62, but Mary does not die until after Ralph achieved his survivor FRA, then Ralph's early benefits under another aspect of Social Security would not harm his survivor benefits.

Gary reached FRA this year (2020) and filed for his Social Security benefits. His wife, Mary, is 62 and wishes to file for spousal benefits when she turns 63 later in 2020. If Gary's full benefit is $2,000, what will Mary's benefit be?

$725 The first thing to do is to determine Mary's FRA. She will turn 63 in 2020. Thus, she was born in 1957. FRA for someone born in 1957 is 66 + 6 months. Mary is entitled to 50% of Gary's full benefit amount as her full spousal benefit at her FRA. By filing early, Mary will receive a reduced benefit. If she files at age 63, she will be three years and six months early. This is 42 months early. The reduction for the first 36 months is 25/36 of 1%, which equates to a 25% reduction. The remaining six months are reduced by 5/12 of 1% per month. This is an additional 2.5% (6 5/12% = 1.67%). Thus, the total reduction will be 27.5% for starting at age 63 (42 months prior to age 66 + 6 months). So, her reduction will be 27.5% of Mary's spousal benefit of $1,000. $1,000 0.275 = $275.00. Thus her final spousal benefit for starting at 63 will be $725 ($1,000 - $275). This question goes into more detail that is testable but it shows the actual calculation required for a client situation.

On average, Social Security represents ______ of the income of the elderly.

33% On average, Social Security represents 33% of the income of seniors according to ssa.gov's Fast Facts for the most recent year reported (2015). See page 6 of the Module for the graph. 2015 is the latest edition of this report because Social Security is reconsidering the methodology it uses.

Spousal retirement benefits can be claimed as early as age ______.

62 Spousal retirement benefits can begin as early as age 62, assuming that the worker spouse has filed to collect his or her own benefit.

Jerry was born in 1954. What age does Social Security consider to be his full retirement age (FRA)?

66 Persons born in 1943-1954 would have an FRA of 66. A person can begin receiving early Social Security retirement benefits at age 62, but with a reduction from what would be received at FRA. 2020 is the last year that people reach FRA at age 66. For the next six years FRA will be increasing by two months/year. In 2027, FRA will be 67 because under the current law, those born in 1960 or later must be age 67 to achieve their FRA.

For a worker whose full retirement age is 66 or later, the annual delayed retirement credit percentage for the years you delay receipt of benefits beyond (FRA) is

8%. For those whose full retirement age is 66, they will receive an 8% "raise" for each year they delay filing after FRA, up until a maximum age of 70. This equals to a total increase of 32% above their primary insurance amount (PIA). The delayed retirement credit is accrued 8/12th of a percent per month for each month the worker delays starting Social Security retirement benefits based on their own record. This increase in the worker's benefit also increases the spouse's survivor benefit if the worker predeceases the spouse.

If provisional income exceeds all the thresholds given, then a maximum of ___________ of Social Security benefits are subject to taxation.

85% If provisional income exceeds the stated threshold, a maximum of 85% of the excess amount is taxable as ordinary income.

It is January 15, 2020. Bill and Mary both attained age 66 in 2019. They want to employ the restricted application strategy. Bill is the higher income earner. What can be said about their options?

Bill should file a restricted application for spousal benefits because he is the higher income earner. Because they were 62 by December 31, 2015 (or were born on or before Jan 1, 1954), Bill and Mary are eligible to use the restricted application strategy when they claim their benefits. Since they were 66 in 2019, they were born in 1953. They are late but they can still apply. Bill should file a restricted application for spousal benefits because he is the higher income earner. Mary will need to file an application for her own benefits in order to trigger Bill's spousal benefit. Bill's own benefit will accrue at 8% per year until age 70.

An individual's Social Security payment amount will be adjusted annually to account for increases in inflation as measured by the _____________.

CPI-W An individual's Social Security payment amount will be adjusted annually to account for increases in inflation as measured by the consumer price index Urban Wage Earners and Clerical Workers (CPI-W). Some argue that the inflation rate should be measured by another CPI targeted at the elderly. Many feel using the CPI-W overestimates inflation and thus the COLA by around half a percent/year. On the other hand, some studies find the inflation rate for seniors to be higher than the national average due to rising healthcare costs. This is especially true for older seniors.

Delaying receipt of benefits (for example until age 70) will result in all of the following except

Delaying receipt of benefits will allow you to earn delayed retirement credits, and your future cost-of-living adjustments will be higher because they will be based on a higher base. Also, the increased base will ultimately be used to determine survivor benefits.

Carla is collecting $600 per month from a government pension and is also eligible to receive a Social Security spousal benefit of $1,000 per month. Due to the GPO, her Social Security spousal benefit will be reduced to ____________.

Due to the GPO, her Social Security spousal benefit will be reduced by 2/3 of her state government pension amount, or $400. $1,000 - $400 = $600.

Tom, 59, is a widower and is receiving a widower's benefit on his deceased spouse's record. Tom is considering getting remarried. As a planner, you should suggest which one of the following?

He should wait until age 60 to remarry. If you remarry before the age of 60, your widower's benefit will be terminated. If you are over the age of 60 when you remarry, your marriage will not affect your Social Security widower's benefit.

Which one of the following is a correct statement about old-age Social Security benefits?

Old-age Social Security benefits are not reduced for persons who have attained their Social Security FRA regardless of the amount of earned income received.

David began receiving Social Security benefits in June 2020. He later learned that he should have delayed receipt of his benefits until a later age. He has until _______ to pay back all payments and refile for increase benefits at a future date.

June 2021 Claimants have 12 months from the date they filed their original claim to pay back all payments, and they can then refile for increased benefits at a later date. This strategy can be employed to increase benefits by waiting past FRA and then receiving delayed retirement credits.

Which one of the following counts as "earnings" for the Social Security earnings test?

Self-employment net earnings A) Alimony B) Self-employment net earnings C) Pension income D) Dividends Earned income is defined as wages and net earnings from self-employment; investment income, pensions, capital gains, inheritances, alimony are not.

Margaret is confused about her options and takes a friend's advice to file and begin collecting benefits at age 62. Two years later, she attends one of your seminars on Social Security and realizes that this was a mistake, as she has sufficient personal assets to get her through until at least age 70 and her life expectancy is nearly 100. What can you suggest to her?

She can voluntarily suspend payments, pay back the benefits she has received, and resume payments later at an increased rate. She would only have the option of paying back benefits if she made the election within one year of beginning benefits. The point would be for her to get the delayed retirement credit and thus increase her monthly benefit.

Social Security provides individuals with protection against which of the following risks?

Social Security, for many retirees, is their only source of income that protects against inflation risk, market risk, and longevity risk.

Bob and Helen just won the lottery. The benefit this year will be $50,000, and it will increase over the next 19 years. Bob's monthly Social Security benefit is $1,800; Helen's monthly Social Security benefit is $1,200. Bob is age 68, and Helen is age 69. Which one of the following is a correct statement about Bob and Helen's old-age Social Security benefits?

Up to 85% of their Social Security benefit must be included in gross income. Since Bob and Helen are married, filing jointly, and their gross income exceeds the base amount of $44,000, then up to 85% of their Social Security benefit must be included in gross income, regardless of age. Since Bob and Helen are over Social Security's full retirement age, the Social Security benefit would not be reduced because of additional earned income. Also, lottery winnings are not earned income, but they are taxable income. With $50,000/year of income, they are over the $44,000 limit even before including half their Social Security, so up to 85% of their Social Security benefits will be subject to income taxes.