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Examples Help Clarify Confusing Rules
I've recently had several email exchanges with confused readers. The topics varied, but I found that the readers tended to be confused until I gave them an example. Here are a couple of examples of ... well ... my examples!
Hank wrote to tell me that he was surprised by a recent column in which I explained that a woman who took reduced benefits on her own record could later switch to full benefits on her husband's record — assuming he does not file for benefits himself until later on.
He was surprised because I have been preaching for years that, unless you are a widow or widower, you usually can NOT file for reduced benefits on one record and later switch to full benefits on another record. The law says that if you are under age 66, you must file for any and all benefits you are eligible for at that time.
But in that recent column, I was making the point that if a woman files for her own reduced benefits and her husband is not yet getting Social Security, then she could later switch to benefits on his account once he files.
Hank said his wife, Angie, is about to turn 62. Hank is also 62, but he is not going to file for his Social Security until age 66. Hank said he will get a very high benefit and Angie will get a very low benefit. Based on my last column, Hank wrote to say he saw no reason for Angie not to file for benefits now because she would be switched to half of his at age 66. I told him there would be a possible disadvantage. He didn't understand what I was saying until I gave this example.
Let's say Angie's full retirement benefit is $700 per month and Hank's is $2,600 per month. Assuming Hank is going to wait until age 66 to file, Angie has two options for taking her own benefits.
Option A: Angie waits until age 66 to file for any Social Security benefits. At age 66, she would get her full retirement rate of $700. And assuming Hank also files for his full age-66 benefit of $2,600, Angie could file for wife's benefits. She would get her $700 benefit supplemented up to half of Frank's rate. So she'd get $700 in retirement benefit and $600 in spousal benefits for a total of $1,300 per month.
Option B: Angie files for reduced benefits now at age 62. She would get 75 percent of her full retirement rate or $525 per month. Then when she turns 66, and assuming that Hank also files for his retirement when he is 66, then Angie would file for wife's benefits. Here is how they would figure her spousal rate. They would take her age 66 rate, or $700, (even thought she took benefits at 62) and subtract that from one half of Hank's age 66 rate, or $1,300. The difference, or $600, would be added to Angie's reduced retirement benefit of $525. In other words, from age 66 on, Angie would start getting $1,125.
In Option B, Angie gets four years worth of Social Security checks she wouldn't get in Option A.
But in Option A, beginning at age 66, she starts getting $1,300 per month as opposed to Option B's age 66 rate of $1,125. So she gets an extra $175 per month from age 66 on in Option A. If she chose Option A, it would take her 144 months, or 12 years, to get back the money she foregoes by not taking Option B.
So Angie's decision is this: does she want more money up front (Option B) or more money in the long range (Option A).
Here is another example of ... well ...an example that helped someone understand Social Security's rules.
Suzanne was 62 in January and filed for her Social Security to begin that month. She is still working, but does not anticipate making more than the Social Security earnings limit of $15,720 in 2015. But she said there is a chance she could go over that amount depending on how much work she gets this summer, when she makes most of her money. She said she could make as much as $3,000 to $5,000 in both June and July, but much less in other months. She told me she heard that a there was a special monthly income rule that was going to penalize her.
I explained to her that the monthly rule only kicks in if she exceeds the yearly limit, and that the rule was intended to help her. She was still confused, until I offered this example.
Suzanne's Social Security check is $1,000 per month. Suzanne earns $800 per month at her job, except in June and July, when she makes $3,000 per month. So her total income for the year is $14,000. The law says that because her total income for the year is under the $15,720 threshold, she will get all of her Social Security benefits for the year, even for those high-earning months like June and July.
But let's say that June and July are exceptional months for Suzanne, and she actually earns $7,000 in each of those months. Now her total 2015 income will be $22,000. That is $6,280 over Social Security's $15,720 threshold. The law says that half of that, or $3,140, must be withheld from her 2015 Social Security benefits. Because her benefit rate is $1,000 monthly, that normally would mean they have to hold back three full benefit checks, and $140 from a fourth check.
But here is where the monthly rule kicks in. That rule says that in your first year of retirement (2015 for Suzanne), she is due her full Social Security check for any month she earns under a special monthly threshold. The 2015 monthly limit is $1,310, or one-twelfth of the yearly limit ($15,720 divided by 12 is $1,310).
The only months in 2015 when Suanne made more than $1,310 are June and July. So Social Security can only hold back her checks for those two months, for a total of $2,000. The government just has to eat the other $1,140 she normally would have to repay.
In other words, the monthly rule is designed to help Suzanne, not hurt her as she originally thought.
If you have a Social Security question, Tom Margenau has the answer. Contact him at firstname.lastname@example.org. To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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