Tax & Assurance Guidance

Maximizing Social Security Benefits

Posted on August 27, 2015 by

Margaret Amsden

Margaret Amsden

Share This

Share on facebook
Share on twitter
Share on linkedin
Share on email

When contemplating retirement, due consideration must be given to the potential Social Security benefit that may be claimed. This benefit is determined based on the individual’s earnings record and full retirement age (FRA). FRA is defined as the age a person can receive full benefits when first applying for Social Security.

Individuals and their spouses have several choices regarding how and when to start claiming their monthly benefits. In simple terms:

  • Workers who take their benefits at FRA receive full Social Security benefits,
  • Those receiving benefits before FRA receive reduced benefits, and
  • Workers who wait until after their FRA to receive benefits receive increased benefits.

Claiming Early

In general, the earliest age an eligible individual can begin collecting a check is 62. When claiming early, an individual permanently reduces the monthly benefit they are qualified to receive based on a percentage of their potential full benefit. Additionally, if an individual is claiming benefits before FRA, the benefit amount will be reduced if the individual has earned income (wages, salaries, commissions, etc.) in excess of $15,720.

If one or both parents are retired (between ages 62 and 66) and have a child that is 18 years old or younger, the family may qualify to receive additional benefits for their child by claiming early. Within a family, a child may receive up to one-half of the parent’s full benefit; however there is a limit to the amount of money that can be claimed by a family. This increased benefit will stop when the child reaches age 18 unless the child is a student or disabled.

Waiting to collect

Those who are eligible for benefits can defer collection and receive a larger monthly benefit for life. Those who are the higher, or sole, earners in their family and those with a longer life expectancy should strongly consider this strategy. For every year an individual defers collecting, their benefit will increase between 5 and 8 percent until reaching age 70. If an individual is married, there are several strategies that can be used in order to take advantage of the increased monthly benefit resulting from deferring collection. These three strategies involve a claim for spousal benefits and are outlined below.

File and Suspend

A spouse is entitled to an amount equal to one-half of the individual’s full benefit amount. In general, in order to receive a spousal benefit, the spouse must be at least 62 years old and the individual must have filed for Social Security benefits; however, they do not need to be receiving benefits. In order to take advantage of the increased monthly benefit for life, an individual who has reached FRA:

  • Needs to file for benefits so the spouse can collect based on the individual’s earnings record.
  • The individual can then immediately suspend their benefits and delay claiming until the benefits are worth more at an older age and the spouse can claim spousal benefits based on the individual’s full benefit amount. The spousal benefit may be reduced if the spouse has not reached FRA, regardless of the age of the filing individual.

Claim Now and Later

If both spouses work and qualify for social security based on their own earnings record, there is an opportunity to take advantage of the spousal benefit while deferring the spouse’s own benefit until an older age.

  • If a married individual files and starts collecting benefits at FRA, once the spouse reaches FRA, the spouse can apply for spousal benefits only and delay taking their own benefit in order to receive a higher monthly benefit at age 70.
  • This will allow the spouse to receive a benefit equal to one half of the individual’s monthly benefit for the period of time from when the spouse reaches FRA until age 70 at which point they can switch to collecting their own benefit which is now increased due to the deferral.

Hybrid Strategy

If the situation is right, couples may be able to take advantage of both the file and suspend strategy as well as the claim now and later strategy. If both members of the couple are close in age, have reached FRA, and can claim benefits on their own earnings record, this strategy may be useful. To utilize this strategy:

  • The older spouse needs to file for their benefits and immediately suspend them, allowing their benefits to grow.
  • As soon as the younger spouse reaches FRA, they can file for a spousal benefit only and allow their benefits to grow as well.
  • When both spouses turn 70, they can then file for their own retirement benefits, which have been maximized.

Make a Plan

It’s important to remember that each individual/family should take the time to create a plan to reach their retirement goals. The strategies to maximize one’s social security benefit are just one tool that, if used properly, can help to reach those goals, but should not be considered the only way to do so. Individuals should also look to other retirement vehicles to maximize the effectiveness of the overall plan as well as the tax consequences that result.

Margaret Amsden

Shareholder

Leading the firm’s private client services group, Margaret’s strategic & educational approach fosters a culture of learning among clients and colleagues.

Related Insights

Tax & Assurance Guidance

Foreign Tax Withholding: What You Need to Know

Posted on April 26, 2022 by

Rob Cheyne
Making service payments to a foreign person is a common cross-border transaction. U.S. taxpayers need to be aware of the applicability of withholding tax and related reporting requirements to ensure they comply and avoid unintended consequences. A U.S. payor must collect withholding tax and remit it to the IRS in the case it is applicable.

Tax & Assurance Guidance

SALT Relief for Partners and S Corps

Posted on February 23, 2022 by

Miroslav Georgiev
With small businesses supporting nearly 47% of U.S. employees, states have been advocating for pass-through entities, operating partnerships and S corporations that have been harshly impacted by the Tax Cuts and Job Act ‘s state and local taxes deduction limit. Recent legislative activity is finally providing relief for many of these businesses. 

Tax & Assurance Guidance

IRS Provides Relief on K-2 and K-3

Posted on February 17, 2022 by

Margaret Amsden
In an attempt to provide more transparency with regard to reporting of foreign activity and/or information to foreign owners, the IRS came out with two new forms: Schedule K-2 (an addendum to the Schedule K) and Schedule K-3 (an addendum to the Schedule K-1). Learn about the latest K-2 and K-3 reporting requirements issued by the IRS.

Sign up for our newsletters

Get general business and industry-specific news and knowledge straight from our accounting specialists.

The Sound of Automation Podcast

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Insights & Perspectives

The Sound of Automation: Looking ahead to CSIA 2022

In this episode we talk with Lisa Richter, Director of Industry Outreach and Growth at Control System Integrators Association (CSIA) . Lisa and Bryan look ahead to the CSIA Executive conference taking place in Denver, CO on June 27-30, 2022 and share with listeners what to expect, who will be there, and the discussion panel topics focusing on this years’ theme “The Future of Work”. 

Read More

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content