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All Contents © 2020The Kiplinger Washington Editors
By the Editors of Kiplinger's Retirement Report
| May 16, 2018
What's the best age to claim Social Security benefits? Do you need to pay taxes on Social Security? What's a delayed retirement credit? Is a spousal benefit the same as a survivor benefit? Social Security can be confusing, so whether you're already a retiree or just someone planning for retirement, you naturally have questions.
And you should be asking questions. Social Security is a critical component of a well-rounded retirement income plan that might also include savings in IRAs, 401(k)s and similar accounts, a part-time job or second act, a pension or an annuity. The average monthly Social Security check received by a retired worker totals about $1,400. Read on to see common Social Security questions answered by the experts at Kiplinger's Retirement Report. Your retirement nest egg will be all the better for it.
How do I figure out whether I should have income taxes withheld from my Social Security benefits, and what steps would
I take to do that? I am doing some consulting work and receive some freelance income, in addition to my Social Security benefits.
You aren’t required to have taxes withheld from your Social Security benefits, but the voluntary withholding can be one way to cover any taxes due on your freelance income and Social Security benefits. A portion of your Social Security benefits will be taxable if your income (such as from freelancing, a taxable pension and IRA withdrawals, as well as nontaxable interest), plus half of your Social Security benefits is more than $25,000 if single or $32,000 if married filing jointly.
There are several ways to pay the taxes throughout the year and avoid an underpayment penalty. You can file Form W-4V with the Social Security Administration requesting to have 7%, 10%, 12% or 22% of your monthly benefit withheld for taxes. Or you can have taxes withheld from other income, such as an IRA withdrawal or a pension, or send the IRS quarterly
estimated tax payments with Form 1040-ES.
You can avoid an underpayment penalty if withholding or estimated payments equal at least 90% of your tax liability for the current year, or 100% of your tax liability for the previous year (or 110% if your income was more than $150,000).
I will turn 70 in June and have not yet started taking Social Security so that I could accrue delayed-retirement credits. I did file and suspend my benefit at age 66 so my wife could get a spousal benefit, when that strategy was still available. Will Social Security automatically start sending me checks when I turn 70, or do I need to contact someone?
Your benefits will be reinstated automatically the month you reach age 70. The first benefit will be paid the following month. Because payments are made electronically to your bank account, you should check your My Social Security account or call 800-772-1213 to be sure the agency has accurate direct-deposit information.
I will turn 66 shortly and plan to file a restricted application to claim Social Security spousal benefits on my ex-wife’s record. Can I do this even though my benefit amount is more than the spousal benefit amount?
Yes. That’s the point of the restricted application. Generally, when you apply for benefits, the Social Security Administration will pay you the highest benefit for which you qualify. But filing a restricted application for spousal benefits only—a strategy open only to those born before January 2, 1954, and only once they reach age 66—lets you claim the smaller spousal benefit. You can collect that amount while your own benefit grows at a rate of 8% a year thanks to delayed-retirement credits until as late as age 70. (You could also switch to your own benefit at an earlier time if you choose.)
To qualify for benefits on an ex-spouse’s record, your marriage must have lasted at least 10 years; you must not have remarried (unless that marriage has ended); and if your ex qualifies for benefits but has not yet claimed them, you must have been divorced for at least two years.
I claimed Social Security at age 62, accepting the 25% reduction from my full-retirement-age benefit. Then, at 66, I followed your advice to suspend my benefit so I could earn delayed-retirement credits. Now I’m approaching 70. Will the 32% increase from the delayed-retirement credits be applied to my age 62 benefit, to what I was receiving when I suspended at age 66 or what?
Great question. We turned to Robin Brewton, vice president of client services for Social Security Solutions, a firm that helps clients get the most out of Social Security, for the answer: Your age 62 benefit was your “primary insurance amount”—the benefit due at age 66—reduced by 25%. Each year you received benefits, Social Security added accumulating cost-of-living adjustments to your original PIA and reduced the result by 25% to get that year’s benefit. To figure your benefit at age 70, Social Security will add to your PIA the COLAs for each year after you turned age 62 (there was no COLA in 2011 or 2016) and reduce the total by 25% because of your early claim. That result will then be boosted by 32% to account for your four years of delayed-retirement credits.
When I was 66, I filed for my Social Security benefits and immediately suspended my claim, so my wife could collect spousal benefits and my own benefit would grow with delayed retirement credits, when that strategy was still available. I planned to work until age 70, but now I think I’ll retire and claim my benefit at 69½. How will that affect my delayed retirement credits?
Delayed retirement credits accrue at a rate of 2/3 of 1% a month, totaling 8% a year. You’ll get credit for every month you delay past your full retirement age of 66. If you claim after delaying for 42 months (3½ years), your benefit will be 28% higher than had you claimed at 66. The full amount won’t show up right away, though. If you claim before 70, any credits earned during this calendar year won’t apply until next January.
My wife and I were both receiving Social Security when she died at age 80. I am 85. Am I entitled to some of her benefit?
First, our condolences. If your wife’s benefit was higher than your own, you can switch to a survivor benefit equal to 100% of what she was receiving. If her benefit was less than yours, you continue to receive your own benefit and hers stops. Contact Social Security if you think you are entitled to a higher survivor benefit.
If I receive $1,700 a month in Social Security benefits, how much additional income can I earn without my benefits being taxed?
Social Security benefits become taxable when the recipient’s “provisional income” exceeds $25,000 for single taxpayers or $32,000 for married couples filing a joint return. For this purpose, income is defined as your income from taxable sources, any tax-free interest on municipal bonds plus 50% of your benefits, which would be $10,200 a year in your example. Subtracting that amount from $25,000 or $32,000 tells you how much other income you could earn. Depending on how far your income exceeds the threshold amounts, up to 85% of your benefits could be taxed.
You’ve written that a Social Security survivor benefit is the full benefit of the deceased spouse. I thought it was limited to 50% of that amount. Who’s right?
We’re happy to say we are. While a lower-earning spouse’s spousal benefit is 50% of the higher earner’s full retirement age benefit (if the spousal benefit is claimed at full retirement age), the survivor benefit is 100% of the higher earner’s benefit, including any delayed-retirement credits (if claimed at or beyond full retirement age). When the first spouse dies, the smaller of the two Social Security benefits ends, but the higher one continues for as long as the survivor lives. You may be thinking of a joint-and-50% survivor annuity. With such an investment, payments are cut in half when the first spouse dies.