When you start to look into the rules of Social Security, one thing stands out very clearly. This is a federal program; meaning, it can be very complicated and hard to fully understand.
Here are just a few of the common Social Security questions I get asked on a regular basis: How does it work? When should I draw from it? What happens when a spouse dies? How do I collect Social Security disability? Will my Social Security checks go up with inflation?
Most people should start out by talking with the Social Security Administration to get specific numbers for their own situation, and then meet with a qualified planner to go over the different strategies and how to use them effectively.
Here are just a few key points regarding Social Security:
• There are at least three types of retirement income from Social Security; the worker benefit, the spousal benefit, and the survivor benefit.
• No matter which spouse dies first, the smaller benefit is eliminated and the larger benefit continues.
• Two little-known strategies may be available for married couples: the “file and suspend” method, and the filing a “restricted application” method. If both spouses have reached full retirement age, these two strategies could be used by themselves or in combination, with one spouse filing and suspending and the other filing a restricted application for spousal benefits.
• To receive a spousal benefit, the spouse must have filed for their own worker benefits; however, if the spouse has reached full retirement age, they may “file and suspend” and continue to work.
• Prior to reaching full retirement age, if an individual files for one benefit, he is deemed to be filing for all available benefits and cannot choose one type of benefit by use of a “restricted application” (e.g., worker benefit”) over the other (e.g., spousal benefit).
• If an individual starts their worker benefits early, the benefits don’t increase later in the form of a spousal benefit. A spousal benefit may indeed become available later, but the total benefit will always be lower because at least a portion (the worker benefit) started earlier than full retirement age.
• If an individual chooses to file and suspend, they should pay Medicare Part B premiums out-of-pocket. If not, Social Security will pay the premium and treat it as if they are waiving, not suspending their benefits.
Remember that this is a federal program and can/will change at the whims of politicians. This can make long-term planning, in some cases, very difficult so make sure you find a very good financial planner who has a lot of experience in this area. Many planning mistakes in this area are permanent and you can’t go back and change things. So it’s always best to get the planning done correctly before you make a life-long distribution mistake.