socialsecuritytrap

The Social Security Trap

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Sandy Botkin
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Little known trap for Social Security:

Most people are aware that you can start Social Security as young as age 62 or wait until you are age 70. If you take your monthly benefit, however, before you reach your normal retirement age, which is age 66 for baby boomers, you lose 8% of the benefit that you are getting before age 66. Thus, if you would normally receive $1,000 per month at full retirement age (which is age 66 for baby boomers and age 67 for GenerationX’ers), but start your benefits as early as age 62, you would only receive about $700 per month.

I should note that your spouse can start receiving “Spousal Benefits,” which is as much as 50% of what the older wage earner would have gotten at full retirement age. However, like the normal benefit, if they start receiving Spousal Benefits, they also take reduction in benefits of 8% for each year that they started their benefits before normal retirement age,which is usually age 66.

There is, however, one more hidden trap that I myself almost fell into. If you or your spouse take their benefits before normal retirement age, there could be an elimination of benefits if the spouse receiving the benefits is still working. The rules are that if you are receiving benefits before your normal retirement age (which is age 66 for baby boomers and 67 for GenerationX’ers) and earn over $15,720, for every two dollars that you earn over this amount, one dollar of Social Security gets suspended.

Example: Sam starts her social security at age 62 ( which is four years before her normal retirement age) and receives $1,000 per month, if Sam continues to work and earns over $17,720, she doesn’t receive her benefits because they are suspended due to excess earnings.

This suspension of benefits due to earnings only applies if you start receiving benefits before your full retirement age.

The trap that almost affected me and isn’t shown on the Social Security web site is that this also applies to Spousal Benefits too. My wife is working. I was going to elect and suspend my benefits so that she could start receiving Spousal benefits. However, if she continues to work and receive benefits as a spouse, her benefit will be eliminated until she reaches age 66. Thus, receiving benefits early wouldn’t benefit us.

This is NOT a well known issue particularly with regard to Spousal Benefits. You won’t find this on the Social Security web site. Please share this with your friends, family and parents.

Author of “Lower Your Taxes: Big Time” and “Achieve Financial Freedom: Big Time” and “Real Estate Tax Secrets of the Rich.”


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