Ask Liz Weston

Get smart with your money

Social Security

Q&A: Social Security earning years matter

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Dear Liz: In a recent column, you wrote that Social Security’s estimates of the dollar amount one will receive at various ages — 62, full retirement age of 66 to 67, or 70 — assumes one continues working until one applies. Therefore, one won’t receive the amount posted at full retirement age if one had stopped working at, say, age 62. Aren’t people’s benefits based on their top 35 earning years?

Answer: Yes, which is why I wrote that the benefit may be lower. Social Security assumes you’ll keep earning the same amount you are now. Those assumed future earnings could be high enough to replace one or more of your previous 35 highest-earning years. If that’s the case, your estimated benefit could be somewhat larger than the one you actually receive if you stop work early.

Q&A: Social Security survivor benefits

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Dear Liz: My husband passed away at age 59 last year. He was sick and unable to work the last four years of his life. I will be 56 in October. My understanding is I will not be able to draw his Social Security benefits until I am age 60. Is this correct? I struggle financially and need that money now. Also, could he have drawn his Social Security benefits before he turned 60 since he was unable to work?

Answer: Your husband could not draw retirement benefits before age 62, but he may have been a candidate for Social Security Disability Income or Supplemental Security Income if his condition was severe enough to prevent him from working. SSDI is available to people who have worked long enough to be “insured,” which generally means 10 years in jobs that pay into Social Security. SSI is intended for aged, blind and disabled people with low incomes and few assets.

You won’t be eligible for survivor benefits until you’re 60. If you’re struggling, please visit Benefits.gov to see if you’re eligible for other government programs. You also can call 211 or visit 211.org to see what resources in your community may be available to help you.

Q&A: Social Security isn’t going broke

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Dear Liz: You have addressed Social Security in your column recently and detailed the benefits to waiting until age 70 to take payments. I read that Social Security funds are expected to run out around 2035. At that time I’ll be 76 and would only get six years of benefits versus 13 years if I start at age 62. Do you still think it is wise to wait on benefits as Social Security may go away?

Answer: Social Security isn’t going anywhere. What’s being depleted is its trust fund, which is used to supplement the taxes Social Security collects to pay benefits. This trust fund is scheduled to be out of money in 2031, according to a new Congressional Budget Office estimate that takes into account the effects of the pandemic. Even if the fund is depleted, however, the system will still collect enough in taxes to pay 76% of promised benefits.

So benefits won’t stop, and it’s highly unlikely Congress would allow benefits to be cut for retirees and near retirees. Social Security is a hugely popular program, and such cuts would be politically unpopular, to say the least, which is why most experts predict that lawmakers will fix the system before that happens.

If you allow yourself to be panicked into starting benefits early, on the other hand, you’re permanently reducing your benefit by 30%. If you’re married and are the higher earner, you’d also be locking in a lower survivor benefit. A lower Social Security benefit can have a huge effect on your standard of living in retirement, so make sure you understand the facts about the system before making a decision you may live to regret.

Q&A: A felony doesn’t preclude you from Social Security benefits

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Dear Liz: If someone has a felony, is it true they cannot claim Social Security retirement benefits? If so, what is the best option: a Roth IRA or a brokerage account? How do they get started without a lot of money?

Answer: A felony does not prevent you from claiming Social Security in the future if you work enough years to qualify for benefits. If you were already receiving retirement benefits when you were convicted, your payments would typically be suspended while you were incarcerated but resumed when you got out.

That said, Social Security usually isn’t enough to live on, so you’ll want to have money in retirement accounts as well. An IRA or a Roth IRA are both good options. The IRA reduces your taxes upfront while Roth IRAs reduce your taxes in the future. Low- and moderate-income taxpayers also can get a tax credit, called the Savers Credit, for retirement contributions.

If you don’t have a lot of money to invest, look for brokerages that have low fees and no account minimums, such as Fidelity, ETrade, TD Ameritrade and Charles Schwab, among others.

Once you open the account, you’ll need to figure out how to invest.

If you’re new to investing, consider using target date funds. These investments are labeled by year, and you pick the year that’s closest to your future retirement. The fund does the rest of the work such as picking the stocks and bonds, rebalancing the mix and getting more conservative as the retirement date approaches.

Robo-advisors such as Betterment or SoFi are another low-cost solution that does most of the work for you.

Q&A: Why it makes sense to play the Social Security waiting game

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Dear Liz: I’m concerned that you don’t make it clear that in order for a Social Security benefit to grow, a person needs to keep working and earning the same income that they’ve been making. I’ve retired recently and am lucky enough to have a pension to live on. I talked to someone at the Social Security office recently. She recommended that I go ahead and start drawing my benefits now because there will be minimal growth for the next seven years if I’m not working. She says lots of people think that they should wait, no matter what. However, she says it doesn’t make sense if you’re not working. Even my personal financial advisor was recommending that I wait, but the person at the Social Security office convinced me otherwise. When you go on Social Security’s website to check your benefits, all the estimates are based on continued employment at your current salary. There’s no way to check and see what your estimates are if you are working less or not at all. I think it’s important to give the whole story.

Answer: Yes, it is, and you didn’t get the whole story — or even correct information — from the Social Security employee who convinced you to ignore your financial advisor.

Benefits grow by 5% to 7% each year you delay starting between age 62 and your full retirement age, which is between 66 and 67, depending on the year you were born. After your full retirement age, your benefit grows by 8% each year you delay until age 70, when it maxes out. That guaranteed growth happens regardless of whether you continue working or not.

You are correct that Social Security’s estimates of the dollar amount you’ll receive assume you will continue working until you apply, so it’s possible that your benefit will be somewhat lower when the agency actually calculates your first check. But that doesn’t mean you won’t benefit from the delay — you just won’t benefit quite as much as they’re estimating.

If you want to get a better idea of what your benefit will look like without additional earnings, you can use an online tool like Social Security Solutions or MaximizeMySocialSecurity.

Your financial advisor probably has access to similar tools, as well as a wealth of research about the best claiming strategies that make it clear most people are better off delaying. Plus, your advisor knows the details of your personal financial situation.

The woman at the Social Security office did not. Even if she had her facts straight, she should not have been giving you advice about maximizing your benefits.

You may still have time to rectify this mistake. You can withdraw your application within 12 months and pay back the money you received to reset the clock on your benefits. If it’s been longer than 12 months, you can suspend your benefit once you reach your full retirement age and at least get the 8% delayed retirement credits for a few years.

Q&A: Social Security ‘child benefit’ math

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Dear Liz: I just turned 62 and I have 3 children, ages 11, 13 and 15. I understand that starting Social Security now means my benefit is permanently reduced. Should I delay or take it now, since my children could get benefits?

Answer: The so-called “child benefit” complicates the math that usually favors delaying the start of Social Security.

Each of your children could get a monthly check equal to half your benefit because they’re under 18 and presumably unmarried. (Unmarried children who are under 19 but still in high school, or 18 or older with a disability that began before age 22, also can qualify.) There’s a family maximum that limits the total that can be paid to any household, which ranges from 150% to 180% of the parent’s full benefit amount.

Your kids can’t receive these benefits unless you’re receiving yours, however. Applying before your own full retirement age, which is 66 years and 8 months, permanently shrinks your check and subjects the family benefits to the earnings test if you’re still working. The earnings test reduces your benefit by $1 for every $2 you make over a certain limit, which this year is $18,240. The earnings test goes away after you reach full retirement age.

If you’re married, your claiming strategy also needs to consider your spouse. A reduced benefit could affect the survivor benefit one of you will have to live on when the other dies.

With so many variables to consider, you’d be smart to consult a Social Security claiming strategy site such as MaximizeMySocialSecurity or Social Security Solutions. These services aren’t free, but an investment of $20 to $50 could result in thousands more over your lifetime.