At last! After researching and writing about Social Security for years, my husband and I are finally in our prize lap. As enticing as it would be to turn on the spigot, we will wait until age 70 to collect benefits. I believe and trust that the system will continue to work reasonably well through our senior years.

Social Security is the workers’ long-despised paycheck-eater which suddenly becomes your best friend. Ninety-seven percent of seniors aged 60-89 do or will collect Social Security. The benefit replaces 35-40% of the average worker’s prior earnings, a percentage slightly lower than the average of western countries. You provide the rest by some combination of savings, pensions, lower expenses, or luck (like winning the lottery). 

How do you actually switch from paycheck deductions to benefit deposits?

FAMILIAR WITH THESE BENEFITS?

• As long as you are receiving wages, you pay Social Security tax—even if you are receiving Social Security income. Social Security recipients who are still working and under their full retirement age (FRA)—between 66 and 67 depending on your birth year—collect reduced benefits. However, those lost benefits are figured into their full benefit when they reach FRA.

• The start date for Social Security benefits depends on your circumstances. The youngest Social Security recipients are children who have lost a parent. Until they are 18, children can collect a check depending on how much the deceased parent contributed and for how long they paid into the system.

• Disability benefits are also provided through the Social Security program. The definition of disability is stricter than for most private insurance companies, requiring an applicant to be unable to perform any substantial gainful activity. Together, survivor and dependent benefits comprise about one-fifth of Social Security beneficiaries.

• Widows and widowers can collect a reduced survivor’s benefit as early as age 60. However, surviving spouses should understand how to maximize their income by considering the timing of the survivor versus their own benefit.

• Divorced spouses have these same options as long as the marriage lasted at least 10 years. The benefits paid to an ex-spouse do not affect any benefit due a subsequent spouse. After age 60 (or age 50 if disabled), a divorced or widowed spouse can remarry and choose the highest benefit available.

• If wages, savings and pensions can cover your expenses, your best bet is to delay starting Social Security until age 70. The benefit rises 8% per year from FRA to age 70—an unheard-of return for a low-risk investment. The File and Suspend loophole is now gone, but seniors born before January 2, 1954 can still collect spousal benefits, allowing their own benefit to grow until they reach age 70. The spouse must be currently collecting Social Security.

NOW FOR THE MONEY STUFF

Receiving your first check can be pretty easy in theory. You can apply online or go to your local Social Security office up to three months before you plan to collect. Understand the benefits reported in your SSA online account. 

If you believe there’s an error, be prepared to defend with work evidence from your previous employers. This will take patience and fortitude.

Each year since 1975, Social Security payments have risen by the Consumer Price Index (CPI-W). A zero adjustment accompanies low inflation years like 2009 and 2010. The 2022 increase was 8.7%.

However nice the increase is to receive, this amount may not accurately reflect the average increase in cost of living for seniors. We spend more on average for medical care and for housing than is assumed in the “market basket” that defines the CPI-W. (The W stands for Urban Wage Earner.) 

Seniors groups advocate for using the CPI-E, which better reflects the increased costs for elders. The CPI-E index could increase payments as much as 0.25% per year more than CPI-W. Over the 20-year average collection period, it could result in a payment 4% higher or more.

Remember that your Medicare insurance coverage is deducted from your Social Security check. Medicare insurance increases will eat into your Social Security benefit increases. If the Medicare cost increase surpasses your Social Security benefit increase, your benefit stays the same.

Social Security rules and regs are arcane but important in the details. Become familiar with SSA.gov and the tools it offers. If your situation is atypical, seek advice from a financial planner.

Do you need Social Security?

I knew a minister who opted out of Social Security. It was one of the biggest mistakes of his life. Read More »