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Social Security

Q&A: Clarification on How Social Security Benefit Estimates Are Calculated

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Dear Liz: A while back, you responded to a letter writer that Social Security’s estimates of the amount a person will receive assumes the person will continue working until they apply for benefits. I thought the amount a person receives was based on the average of the highest 30 years’ of earnings over a person’s entire career. Can you please clarify?

Answer: Social Security retirement benefits are based on your 35 highest-earning years. To estimate your future benefit, the agency assumes you will continue working for a similar wage to the one you’re making now, and that you will do so until you apply. The agency compares these projected earnings years with those you’ve already had, and picks the top 35 years to determine your estimate.

Life may not follow this script, of course, so the estimates aren’t guarantees of future benefits. If you spend much time out of the workforce or earn much more or much less than you do now, your actual checks could be quite different from the estimates.

Still, the estimates can give you a starting point for figuring out how much additional income you may need in retirement, which in turn will help you determine how much to save from your current earnings. As you get closer to retirement age, you’ll get a better idea of how much you’re likely to get. You’ll also see how delaying the start of benefits can enhance the amount you get over your remaining lifetime. Once you have a claiming strategy, you can plan your retirement income strategy around that amount.

Q&A: Timing on Social Security survivor benefits depends on dependents

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Dear Liz: My husband and I were married for 23 years before his passing in 2009. I am now 58 and have been told that I can only receive survivor’s benefits at the age of 60. However, an earlier question from a woman stated she and her son received benefits when her husband passed after 13 years of marriage and she was only 34 at the time. I’m aware that the child would receive benefits as he is a dependent but how did she receive benefits also? I’m confused, should I already be receiving as well?

Answer: Only if you’re caring for your husband’s child and the child is a minor or disabled. Surviving spouses can receive Social Security benefits at any age if they are caring for a child under 16 or a child who was disabled before age 22. Otherwise, survivor benefits can begin at age 60, or at age 50 if the survivor is disabled.

Q&A: You can’t spend it when you’re gone, but delaying Social Security payments makes sense

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Dear Liz: I’m a single person with no children. I worked for one private employer for 36 years, retired from there at 54 and am now 57. My home is paid off. I receive a pension of $2,400. I’ve been working a nearly full-time job averaging $3,800 a month with 8% going into a 401(k) and 4% being matched. I have observed many fellow workers wait till 65 to collect Social Security and then die a few years later. I also volunteer at my local VFW and listen to people complain about the lack of money they have, especially the women, who unfortunately relied on their dead husbands. So would it be bad for me to start collecting my Social Security at 63?

I am a very healthy person and longevity is in the family.

Answer: Some people do die shortly after retiring. Most, though, live well past the “break-even” age, when the smaller checks they give up by delaying Social Security are more than made up for by the larger checks they receive by waiting.

And the ones who die early … well, they’re dead. They no longer care about Social Security checks. The ones who care intensely about how much they’re getting are those who survive and run through their savings. Perhaps some of the women at the VFW had husbands who started their retirement benefits early, thus stunting the survivors’ checks their wives are getting. A few years’ delay could have made a huge difference to these women, who may have to live for years or even decades on a too-small benefit.

That’s why it’s so important for the higher earner in a couple to delay starting Social Security as long as possible, preferably to age 70, when their benefit maxes out. That’s also good advice for single folks who haven’t been previously married and don’t have another person’s benefit to supplement their own.

Plus, starting Social Security before your full retirement age of 67 means you’re subject to the earnings test. That test reduces your check by $1 for every $2 you make over a certain amount, which in 2024 is $22,320.

Your good health and family longevity don’t guarantee a long life, but they certainly make it more likely. Maximizing your Social Security benefit is a powerful way to ensure you don’t run short of money in your old age.

Q&A: Beware of penalties that can come with delaying Medicare enrollment

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Dear Liz: I have a high-deductible insurance plan from my employer and I contribute to a Health Savings Account. I understand people on Medicare can’t contribute to an HSA. If I’m still working at full retirement age, can I start my Social Security benefit but avoid enrolling in Medicare?

Answer: No. Once you start Social Security, you’re automatically enrolled in Medicare if you’re 65 or older.

If you delay Social Security and don’t plan to enroll in Medicare at 65, you’ll want to make sure your employer-provided health insurance will allow you to avoid penalties for late enrollment. These penalties, which are permanent, result in higher premiums for Part B (which covers doctor visits) and Part D (which covers prescriptions). You can avoid those penalties if your employer has 20 or more employees and your health insurance provides at least as much coverage as Medicare. Check with your company’s human resources department.

Q&A: In a divorce, are Social Security benefits on the table?

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Dear Liz: Twenty years ago, after 14 years of marriage, a friend divorced her husband. She says that as part of her divorce settlement, she signed a document agreeing not to collect divorced spousal benefits from Social Security. Is that even legal? She’s in her 60s and fears she can never retire because her own Social Security won’t be enough to live on.

Answer: Your friend may well have signed such an agreement, but it doesn’t matter. Federal law — specifically Section 407(a) of the Social Security Act — forbids including Social Security benefits as part of a divorce settlement. In a fact sheet titled “5 Things Every Woman Should Know About Social Security,” the agency notes that some women have signed divorce decrees giving up their rights to divorced spousal benefits, but says such clauses “are worthless and never enforced.”

So if she’s entitled to a bigger benefit from her ex’s record than from her own, she can claim it.

A divorced spousal benefit doesn’t decrease the ex’s benefit, or the benefit of any of the ex’s subsequent spouses. Trying to prevent someone from claiming a divorced spousal benefit is mean-spirited as well as pointless.

Q&A: An ex-husband is delaying his Social Security benefits. Must she wait, too?

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Dear Liz: I read your column about divorced spousal benefits for Social Security. I was divorced as of Jan. 1. My ex-husband will be 65 next year and wants to delay benefits until he’s 67. Must I wait to get spousal benefits until then because of his decision? I also will be 65 next year. We were married 36 years.

Answer: If you were still married, you would have to wait until your husband applied for Social Security before you would be eligible for spousal benefits. Since you’re divorced, you only have to wait until he qualifies to file for retirement benefits to file. (He qualified when he turned 62.)

That doesn’t mean you should rush to file, however. Starting benefits before your own full retirement age means accepting a permanently reduced check. Your benefit also would be subject to the earnings test, which withholds $1 of your benefit for every $2 you earn over a certain limit, which in 2024 is $22,320.

Waiting until full retirement age means both the reduction and the earnings test would disappear. If you were born in 1960, your full retirement age is 67.