Will Social Security be there when I Retire?
If you are like me, you have worked in corporate for many years and now you are starting a sideline business (or as Dorie Clark likes to call it “a Side Hustle”). You’ve paid into social security for many years and would like to have receive everything coming to you. In the last blog post, Your Social Security could be in Jeopardy , I said Social Security is unfunded and in the years to come there will be a financial crisis concerning social security. So, will there be social security money when you retire? If you are retiring in the next 10-15 years, you should be fine.
But I have questions concerning my social security and you may have them as well. How much money am I eligible for? When can I start receiving it? Do I have choice as to when to start receiving social security? Are there limitations or rules in how much I receive? Are there actions I could take to maximize my social security benefit?
Learn from the social security expert, Faye Sykes
I needed to get answers. That’s why I turned to the expert for this blog post, Faye Sykes, CEO of Social Security Benefits Planners, https://socialsecuritybp.com/.
Alan: Faye, thanks for taking the time to talk to me today.
Faye: Glad to, I enjoy discussing social security benefits.
Alan: What is the biggest mistake people make concerning their social security?
Faye: Not doing planning when it comes to social security retirement income. It takes planning to maximize your benefits and not doing so can cost you thousands and thousands of dollars. Once you fill out your paperwork to receive social security, you’ve have committed to receiving social security and there is no changing it. You must do it right the first time. The average person relies on social security for 40% to 60% of their retirement income.
Alan: I’ll admit, I don’t understand social security. In some countries, what you pay into a retirement program, is what you get out. But that’s not the case in US, is it?
Faye: No, it’s not. There are over 2700 regulations that oversee social security. There are a lot of factors that come into you play concerning you benefits.
Alan: Wow! That’s is a lot of regulations.
Faye: It is, and infuriately, if you don’t plan and take the necessary actions needed to maximize your benefit it will greatly impact what dollars you will receive each month on social security. Bad planning can cost 30% or more in benefits!
Alan: Okay, so what are the major factors in determining how much I will receive each month?
Faye: Two items. The first is, your Full Retirement Age (FRA) and the second is Your Primary Insurance Amount (PIA). Your birth year is used for FRA and is the age at which you get full benefits, if you retire earlier than you FRA, the monthly amount you receive on social security is reduced by 23% to 30%. Waiting past your FRA until age 70 raises it by 8% a year.
The PIA is based on what you paid into social security with your top 35 earning years.
So how much you paid in and at what age you decide to take social security will greatly affect your monthly income.
Alan: What is the maximum amount I can receive from social security?
Faye: $2788 at your FRA- it can be higher if you delay until age 70.
Alan: What are common mistakes you see with business owners and their social security?
Faye: They don’t pay themselves enough.
Alan: What do you mean?
Faye: Often business owners pay themselves very little, so they pay little FICA. They put the money back into the business or spend it on lifestyle expenses. If they pay themselves only a $1000, then they haven’t paid in sufficient money to FICA to gain their 4 “credits” for the year according to the Social Security Administration. You’ll need to pay yourself a minimum of $5280 as of 2018. The few dollars that are saved on FICA by paying themselves is less than $5280 is insignificant compared to what is lost by not paying at least $5280.
This also can affect social security disability as they require over the $5,280 five out of the last ten years of work history.
Alan: What is someone has a business and their spouse works in the business. Should they be employees?
Faye: Yes, they should be. Have them work in the business and pay them over the $5,280 – this adds more planning options when ready to receive social security benefits. Once you get to retirement age it’s too late, but for those that are in their 20’s, 30’s, 40’s or even 50’s there’s still time to let these efforts build future benefits.
To fully vest you need to earn 40 credit hours, with a maximum of 4 credits per year at $1220 per credit or the $5280. Spouses who are not vested can still pull a half benefit from their working spouse’s retirement benefit (or ex-spouse’s, if married over 10 years).
Alan: What if I am 62 and want to retire from corporate, start taking social security, and then start a business?
Faye: That would be a bad idea. First, retiring and starting to draw from social security at 62 permanently reduces your benefit. Almost 50% of US retirees opt to take Social Security at age 62 leaving 23% to 30% of retirement income permanently off the table. This also means smaller Cost of Living Adjustments (COLA) increases throughout retirement. Let’s use an example. Let’s say you are 62 and you qualify for the maximum of $2788 a month and you live to age 85. You would receive 70% of your benefit (100% – 30%) or $1951.60. You would receive this amount for 23 years (age 62-85) or 276 months. However, if your retirement age is 67 (for those born in 1960 or later), and you decide to wait to retire at age 67 and you live till age 85, you’ll receive more money. See the numbers below.
| Retirement Age | 62 | 67 | 70 |
| Age of Death | 85 | 85 | 85 |
| Months of Income* | 276 | 216 | 180 |
| Monthly Income | $1,951.60 | $2,788.00 | $2,788.00 |
| Total Income | $756,915 | $878,138 | $955,152 |
| Difference | $ -198,237 | $-77,014 | |
| * Total benefit depends on what month you retire and the month of your death |
Another issue that needs to be considered, is if you are drawing income from social security and generating income from your business or part-time job.
So, in the example of a 62-year-old that starts drawing social security, but their Full Retirement Age is 67 and they make over $17,040 a year, the amount they receive from social security can be reduce by $1 for every $2 made over $17,040.
If you’re under your FRA and make over $17,040 per year your benefits can be reduced $1 for every $2 over. But then, in the year of you turn 67, you can earn up $45,360 with no reduction – if earn move than $45,360. Then for every $3 over that amount, social security takes $1 away. This goes away after you turn your FRA. And thereafter, there is no reduction in social security benefit.
Alan: So, let me get this straight. If I start claiming social security at age 62 and my FRA is 67, I can have my benefit reduced by as much as 30%.
Faye: Correct.
Alan: In addition, if my business earns more than $17,040 each year between the age of 62 and 66, then that amount gets reduced by $1 for every $2 I earn over $17,040 in a year.
Faye: That’s correct. The limit goes up the year you turn your FRA but if you’re making a decent salary- delay your social security as long as possible.
Alan: Is there anything else we need to be aware of?
Faye: There are over 2700 regulations. There are a lot of other factors that can impact your benefit. Some factors take away some portion of the benefit and some add additional dollars. To name a few:
- Divorce
- Grandparent caring for minor children
- If you retire to a different country
- Widows have special rules
Alan: That is a lot to consider. So how do I know if I need help with my social security planning:
Faye: We identified a few above, but here are the most common situations where you need help planning:
- Individuals with minimal savings, and where a pension is not available.
- When a company/GOV pays into a pension but not SS- a need to understand how Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) will lower benefits (e.g., teachers, firefighters, government and police).
- Individual is widowed either early in life with children, or later in life.
- Individual is divorced after being married over 10 years, whether former spouse is alive or deceased.
- Individual has worked outside the US or is planning on retiring outside the US.
- Grandparents who care full time for minor children and qualify for Social Security benefits.
- Parent, step-parent, full-time care giving grandparents of minor children, and are receiving Social Security benefits, disability income, or one is deceased.
- LGBTQ couples that are married, divorced or widowed, and had either a legally binding domestic partnership agreement or have legally married.
- Individuals who have turned age 62 by 1/1/2016 (grandfathered in under old laws).
Alan: Faye, this information is a major help. I can see where not planning can cost us a lot of money. To get more information, how do our readers get in touch with you?
Faye: They can go to my website at https://socialsecuritybp.com/ I have a wealth of information there. I also wanted to tell you that I’ve set up a special program for your readers. They can enter the coupon bbcashnow to receive $100 off any plan option.
Alan: That is great! I really appreciate you doing that for them. Thanks for talking with us today.