Social Security is an absolutely crucial element of many retirement plans across the United States. Understandably, people want to know how to maximize their earnings, but wading through the dense rules and regulations can be overwhelming. I wanted to cut through the red tape and get some straight answers, so I brought in a ringer.
Mary Beth Franklin is one of the country’s foremost voices on Social Security. An award-winning journalist and CERTIFIED FINANCIAL PLANNER™, she’s literally written the book on Social Security.
Let’s dig into a few key takeaways in this first installment of Maximizing with Mary Beth.
Is Social Security Going To Run Out?
Mary Beth doesn’t think so, at least not soon. There probably will be modifications, she says, but not for folks in or near retirement. She points to history as a guide, saying Congress is much more likely to enact changes for folks more than a decade away from full retirement age.
What would those adjustments be? She believes some form of Social Security payroll tax increase. That could mean an increase in the percentage rate that both employees and employers pay or an increase to the maximum amount of wages that can be taxed. She says the sooner the right combination of tweaks is enacted, the better. “Social Security is the most popular, most successful federal program in history, and Americans, regardless of their income, really care about it. Does Congress really want to tick off 70 million voters by saying, ‘I’m going to cut your benefits?’ I don’t think so. But the sooner they act, the less drastic the changes will have to be.”
Is The Spousal Switch Still A Thing?
Yes, but not everyone can do it.
In the past, there were opportunities, particularly for married couples, or in some cases, divorced spouses who had been married for at least ten years, to employ clever claiming strategies. Once reaching full retirement age, a person could file specifically to trigger benefits for their spouse, effectively suspending their own benefits so their spouse would receive them. This option disappeared in 2016.
There is another opportunity for people who were born before 1954. If one spouse claims the benefit, the other, born before 1954, can tell the Social Security Administration to “Only pay me as a spouse.” This means receiving half of the spouse’s full retirement age benefit while their own continues to grow. Then, at age 70, they could switch to their own maximum benefit.
Mary gives an example from her situation to further illustrate. “I was born in 1954, so I couldn’t do anything. But my husband is two years older. He was born in 1952. So when I reached my full retirement age of 66 a few years ago, I actually filed for my Social Security benefits for two reasons. One, once I reached my full retirement age, I would get that full benefit that I was promised even if I continued to work, which of course, I was, because any earnings restrictions go away once you reach your full retirement age. And because my husband was older than I, once I claimed my Social Security, he then filed a restricted claim for spousal benefits, collected the equivalent of half of my full retirement age benefits for two years until he turned 70, and then he switched to his maximum benefit.”
But again, she adds, anyone turning 70 later than 2023 can no longer take advantage of this option. However, there are some exceptions for survivor benefits.
Should A Single Person Take Social Security At 62? Or Wait Until 67?
Your Social Security benefit is based on average lifetime earnings—your top 35 years—and the age when you claim your benefits. It’s pretty straightforward for single people: Mary Beth’s number one rule is that if you’re still working full time, don’t claim Social Security. If you continue to earn from a job or self-employment and claim Social Security before full retirement age, you’ll lose some or possibly all of your benefits because of the earnings cap.
Under current law, if you make more than about $22,000 a year, you trigger the cap and could lose $1 in benefits for every $2 over that limit. Mary Beth says people who make $60,000 yearly or more won’t receive any benefits if they claim now. She also made it clear that the Social Security Administration will notice because it crosschecks against your tax records. “They might send you a letter that says, ‘Oops, looks like we overpaid you $30,000. We’d like that back right now as a lump sum.’ You really don’t want to get into that situation, so avoid it in the first place.”
What’s A Fun Fact About Social Security That Most People Don’t Know?
As stated, Social Security benefits are based on a person’s top 35 years of earnings. But folks may not know that any year counts, regardless of age, even if you’re already receiving benefits. Hypothetically, if a person had her biggest earning year when she was 100, that would be added to her work history, boost the formula, and potentially increase Social Security benefits. And this process is automatic, meaning she wouldn’t have to apply for the increase.
In other words, that 100-year-old would get a raise! Cheers to that.
We’ll have more Mary Beth maximizations in the future, so keep your eyes peeled and your questions ready. Until then, check out her latest episode of my Retire Sooner podcast to quench your Social Security thirst.
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.
