My husband and I turned 65 in 2012. We are both still working, but finding it difficult to make ends meet. At age 66, my husband would get about $800 per month in Social Security and I would get about $2,000 per month. Can we both keep working and begin collecting our benefits this year? If so, should we? -- Rebecca, Milford, NJ
Social Security is one of those terms that almost every American has heard but very few fully understand. That’s kind of scary since approximately 35 percent of Americans over 65 depend on Social Security benefits as their only income source, according to the Employee Benefit Research Institute, despite the fact that Social Security was never intended to work that way.
If you are planning to retire soon, deciding when and how to collect Social Security is critical. The good news for you and anyone else still working is that as long as you have reached your full retirement age (FRA), your Social Security benefits will NOT be reduced by earning additional income. Although you want to maximize your benefits, that doesn’t necessarily mean just waiting longer to collect.
While you can begin receiving Social Security as early as 62, your monthly payments will most likely be greater if you wait until your full retirement age (FRA), which for you is 66. Your FRA depends on the year you were born (check out the Social Security Administration’s website for details).
Deferring your Social Security retirement benefits beyond your full retirement age can mean higher payments. Here’s how it works:
- Collect at 62 = 70-75% of your full retirement benefit.
- Collect at FRA = 100% of your full retirement benefit.
- Defer until after your FRA = an 8% credit each year you defer, up to age 70. So at age 70, you can be entitled to up to 132% of your full retirement benefit.
Married couples will typically benefit more from deferring Social Security than a single person, because the number of payments received will depend on the lives of both spouses. If both husband and wife are collecting, upon the death of one, the surviving spouse will inherit the larger of the two individual Social Security benefits.
If one spouse has earned a lot of income during his/her lifetime and the other has not, you might want to consider the “claim-and-suspend” strategy, as long as you have both reached your FRA. With this strategy, the higher earning spouse can claim and immediately suspend his (or her) retirement benefit, allowing it to continue to grow while making available a 50-percent dependent benefit for the lower earning spouse.
In your case, you could claim Social Security at age 66 and immediately suspend benefits. Then your husband, at age 66, could receive a spousal benefit of $1,000 (half of your FRA benefit), while letting his $800 and your $2,000 benefits grow. You both could continue to work, if desired or necessary, and the spousal benefit would not be affected. At age 70, you could then begin collecting your larger benefit of $2,640 and your husband could begin collecting his $1,056 benefit. Pretty cool, huh?
(Keep reading for two red flags to consider.)