One of the most asked-about topics that people need to understand but often don’t is Social Security. There are over 2,700 rules in the Social Security handbook, making answers hard to find. 

Financial Advisor columnist Dan Moisand recently shared several surprising things about Social Security that most people aren’t aware of. 

  1. You can receive your retirement benefit at full retirement age, or you can receive a spousal benefit equal to half of your spouse’s retirement benefit, whichever is larger. Most people don’t realize that in order to claim the spousal benefit, the spouse on whose record the 50% payment is based must either be receiving or have suspended retirement benefits. 
  2. Many taxpayers are interested in the “restricted application” or “file and suspend” strategy to maximize the amount of lifetime benefits paid to married couples. These are good options, but they only exist at full retirement age.
  3. If your spouse applies for retirement benefits early and you’re receiving disability benefits, your spouse will be considered to be applying for a spousal supplement, and he or she will be subject to the reduction that goes along with starting it early.
  4. An exception to the reduction if you start retirement early is if you’re caring for dependent children under the age of 16—in that case, you can get a spousal benefit regardless of your age. Your spouse will still need to have claimed his or her retirement benefits.
  5. If you start your retirement early and your spouse hasn’t yet claimed or has suspended his or her retirement benefit, you can’t get a spousal supplement until the time of filling.
  6. If you claim your retirement benefit early, and then your spouse files for retirement when you reach your full retirement age, you won’t receive 50% if you switch to spousal benefit. Instead, the formula is (A-B)+C Where A=½ the worker’s Primary Insurance Amount (PIA, their benefit at their FRA), B= 100 percent of the spouse’s PIA, and C= the spouse’s EARLY retirement benefit. Since starting early means C is less than B, the total is less than 50%. You only receive half of your spouse’s benefit if the spousal benefit is claimed at FRA.
  7. Spousal benefits don’t receive delayed credits. 
  8. Widow/widower benefits can be started early as well, but there’s no benefit to delaying past full retirement age since there are no delayed credits. 
  9. If your income is low, you’ll need to take care with what form of tax planning you use, since some can result in paying higher than necessary taxes. Many retirees will make distributions from IRAs or qualified retirement plans prior to age 70½ to have a low tax rate applied. Roth conversions are often done for the same reason. A relatively small amount of taxable income can cause up to 85% of Social Security payments to become taxable.
  10. For lower income households, an increase in taxable income can also cause a reduction or elimination of subsidies. 
  11. If you’ve worked at a job and earned a pension benefit that wasn’t subject to withholding for Social Security and worked another job that was subject to Social Security taxes, your benefits may be reduced.
  12. If you “file and suspend,” your Medicare premiums can’t be paid automatically from Social Security and will need to be paid directly to the Center for Medicare & Medicaid Services. (If it is not paid timely, you can lose your Medicare Part B coverage.)
  13. Increases in Medicare Part B premiums are capped to the same rate of increase of your retirement benefits under a “hold harmless” provision. Note that this is tied to actual receipts, so while delaying past your FRA earns you delayed credits, there is no cap on the Medicare increases. Worse, the uncapped increase is locked into every future premium. This hold harmless quirk is not relevant to high income taxpayers, since hold harmless does not apply to high income taxpayers paying income-related Medicare B premiums.
  14. If you take your retirement early, your benefits are reduced as well as the benefits for your survivor, since they’re based on that permanently reduced amount.
  15. Income thresholds that determine how much of your Social Security is taxable are not indexed for inflation, so over time more of the benefits become taxable.
  16. In order to be eligible to receive a spousal benefit off a former spouse’s record, you need to have been married to that ex-spouse for at least 10 years immediately before a divorce is final. 
  17. If you remarry, you’re no longer eligible for a spousal benefit on  your ex-spouse’s record. If you’re over 60 when you get remarried, you’ll still be able to claim survivor benefits on your ex-spouse, however.
  18. You can no longer change your mind about starting retirement benefits early, unless you withdraw your claim and pay back received benefits within 12 months of your early start date. After 12 months, you’re stuck until  your full retirement age, when you can suspend and earn delayed credits up to age 70.  

Planning when and how to take your Social Security benefit is important because small actions can have such large implications. If you’d like to talk through tax strategies with Social Security, give me a call at(864) 836-3136 and we’ll schedule an appointment.