By FPA member Jeanne Gibson Sullivan, CFP®

Last Updated: August 12, 2011

August 14 marked the anniversary when President Franklin D. Roosevelt signed the Social Security Act into law in 1935. Much has changed since then. Kurt Czarnowski, now the principal of Czarnowski Consulting, spent 34 years working for Social Security and has lent his expertise to this article. The following are some key issues to consider regarding Social Security retirement benefits:

• How much can I expect to receive? Your benefit is based on a formula that counts the 35 highest wage earning years on an inflation adjusted basis. The maximum benefit for a person at full retirement age is currently $2,366 per month. In past years, Social Security has sent out an annual Earnings Benefit Statement providing an estimate of your future benefit. Beginning in 2011, Earnings Benefit Statements will not be sent through the mail, but you can access an estimate based on your earnings record on the Social Security website. There are also calculators for those covered by state or local pensions that did not withhold Social Security taxes (www.ssa.gov/wep or www.ssa.gov/gpo).
• At what age should I take Social Security? Social Security benefits are designed to be “actuarially neutral” — meaning that if you take a reduced benefit at age 62, you should receive the same total dollars as if you waited and took a higher benefit at full retirement age ASSUMING you live exactly to the age of your average life expectancy (for a 65-year-old man that age is 83 and for a 65-year-old woman that age is 85). If you are healthy and longevity is likely, waiting to take your benefit may be in your best interest if you can afford to do so. For those born from 1943-1954, full retirement age is age 66. Taking a benefit at age 62 means a 25 percent permanent reduction in the monthly benefit. Waiting until age 70 adds an eight percent per year delayed retirement credit to your benefit. For those born in 1960 and after, the full retirement age is 67, yet benefits can still begin at age 62. Consequently, the maximum reduction increases to 30 percent.
• We are a married couple; can both of us collect a benefit? Forty credits are needed to qualify for Social Security Retirement benefits. If both spouses have 40 credits, then both spouses are eligible to collect on their own earnings record. In 2011, you receive one credit for each $1,120 of earnings up to a maximum of four credits per year. For married couples, a spouse is able to collect on the greater amount of either their own benefit or 50 percent of the higher wage earner. If both spouses have earned maximum wages, they can both collect $2,366 in 2011 if they are at full retirement age. When one spouse dies, the surviving spouse only collects one benefit, which will be the higher benefit amount, whether both spouses had their own benefit or if one spouse was collecting the 50 percent spousal benefit.
• What about divorced spouses? As long as the marriage lasted 10 years, you are eligible to collect based on your ex-spouse’s earnings record, providing that both you and your ex are at least 62 years old. Also, if the ex-spouse is not yet collecting, the divorce has to have occurred at least two years ago. If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends.
• What if I want to collect Social Security and I am still working? Before full retirement age, in 2011 you will lose $1 for every $2 in benefits if you earn over $14,160, so it is generally advisable to wait. Once you reach full retirement age, while there is no penalty, you would still be entitled to the eight percent per year delayed retirement credits if you wait to collect benefits between your full retirement age and age 70.
• What is “file and suspend”? Sometimes there are reasons to file for benefits, but then suspend them (not begin collecting). For example, if both spouses reach full retirement age and one wants to commence Social Security and the other wants to wait, the higher wage earner can “file and suspend.” Thus, the lower wage earner can begin collecting half of the higher wage earners benefit and the higher wage earner can wait and take a larger benefit in the future.
• Will Social Security be there for me in the future? Each year Social Security publishes its Trust Fund Solvency report. The most recent edition published in May, explained that presently, with no changes in legislation, Social Security can pay 100 percent of its currently promised benefits until 2036. Beginning in 2037, 77 percent of the promised benefits can be paid. Keep in mind that as long as people are working, they are paying into Social Security and some level of benefits will be available.

Social Security was never intended be the primary source of retirement income. It can and should be considered as just one element in your retirement planning.

FPA member Jeanne Gibson Sullivan, CFP®, is the principal of Financially in Tune in Wakefield, MA and Director of Consumer Awareness for the FPA of Massachusetts. Kurt Czarnowski is a consultant on Social Security after recently retiring from the Social Security Administration. For 19 years through 2010, Czarnowski held the role of Regional Communications Director for Social Security in New England.