Should I file for early retirement to get benefits for my child?

Q: I am near age 62 and have a daughter, age 16. If I start Social Security retirement, can she receive benefits? Is doing this a good idea?

A: If you start Social Security retirement, at age 16 your daughter should be eligible to receive benefits through your record. Information about benefits to children is at www.socialsecurity.gov/pubs/EN-05-10085.pdf.

Deciding whether starting your retirement benefits at age 62 in order for her to be eligible is completely up to you. Are you ready to retire? Does this fit your overall retirement planning?

On the plus side, payment to a child or any other family member does not reduce your own amount. Your amount, based on earnings history and age when starting benefits, is the same whether or not other family members receive through your record. In this situation, your retirement plus a separate benefit for her would be payable. On the negative, starting your Social Security retirement at age 62 or anytime younger than full retirement age (FRA), for you age 66, gives you a permanently reduced benefit amount.

Estimate your own retirement amounts at the Retirement Planner section (www.socialsecurity.gov/retire2/) of the Social Security website. For the following example, assume that your full retirement age amount is $2,000 per month. Starting your benefits when first eligible at 62 reduces this to 75 percent giving you a monthly amount of $1,500. Future cost-of-living increases will increase this but the 25 percent reduction is permanent.

As the only eligible child, your daughter’s benefit amount is one-half of your full retirement amount, not one-half of your actual benefit amount, so she is eligible for $1,000 per month until age 18, perhaps longer if she is still in high school at age 18.

Ideally, you will be enjoying your retirement for many years. Based on your long-term financial plans, is it wise to choose a permanent twenty-five percent reduction in your SSA retirement in order to have your daughter receive benefits for a year or so? If considered as part of your individual retirement financial planning, either starting now or waiting could be good. The choice is yours.

 

Why is school information asked on a disability application?

Q: The online Social Security disability asked for my school background. Why does this matter if my doctor says I am disabled? 

A: There are two basic areas considered when someone applies for Social Security disability. First, they must have worked long enough and recently enough to be insured. Second, they must meet the Social Security definition of disability. Asking about school and work experience helps determine if a person meets the disability definition. 

The definition of disability for Social Security is different than other programs. No benefits are payable for partial or short-term disability. 

The disability definition emphasizes ability to work. In addition to the work requirement, to be found disabled under Social Security rules you cannot do the work that you did before, you cannot adjust to other work because of your medical conditions, and your disability has lasted or is expected to last for at least one year or expected to result in death. Age, work experience and education are considered in the decision.  

You are asked about your work experience and education to help determine your ability to work. Making this decision follows a national step-by-step process. Opinions of your doctor and other medical providers are important but generally only one part of making a decision.  

Broadly speaking, two people with the same medical condition might receive different decisions based on their age, work experience or educational backgrounds. For example, compare someone age 50 having a high school diploma and work experience involving heavy lifting to someone age 30 with a college degree and a desk job. The ability of each to do work previously done, or to adjust to new work, could be very different and result in different decisions for the same medical condition.

This is a broad example. There are injuries and illnesses that are routinely approved based on medical diagnosis alone. 

Learn more or file an application at the Disability section of the Social Security website, www.socialsecurity.gov.  From there, go to the Disability Planner section. 

In the Disability Planner, learn how you qualify for Social Security disability benefits including work requirements, disability definitions and the steps followed in making the decision.   

Completely different from Social Security retirement, survivors and disability programs, Social Security administers the need-based Supplemental Security Income (SSI) program, also having disability benefits.  

You do not need to start SSA retirement when you retire

Q: Do you get full Social Security benefits if you retire early but do not actually start SSA retirement benefits for several years until reaching full retirement age (FRA)? I was born in 1965 so my retirement FRA will be 67, but I have no intention of working that long and plan on not needing those Social Security benefits right away.

A: The amount of your Social Security retirement is partly based on when you start those benefits, not when you stop working. You can retire without starting Social Security. Each month of delay in the start of Social Security retirement, up to age 70, provides a higher amount.  

There is no one best time to start Social Security retirement. Decide when to do so as part of your overall retirement planning. The Social Security Retirement Planner section has lots of information and calculators to help you. 

Much can change in both your life and Social Security legislation by the time you are age 67. Keep informed of future program changes.

Special payments after retirement

Q: I retired in 2014 but expect income in 2015 from work done before I retired. Will this lower my 2015 Social Security benefits?

A: For people younger than full retirement age, the Social Security annual earnings test, also called the retirement test, concerns how much can be earned from wages or self-employment in a calendar year without reducing benefits during that year.

Termed a special payment, money received for work done before retirement is not normally included for the earnings test. Income received after retirement is a special payment if the last thing done to earn it was completed before stopping work. Examples could include accumulated vacation or sick pay, bonuses and sales commissions. If self-employed, net income received after the first year you retire is a special payment if you performed the services to earn the payment before becoming entitled to receive Social Security. 

For example, say a person retired at the end of 2014 and started receiving Social Security retirement as of January 2015. In January, the person receives payment from the former employer for unused vacation time. Since this vacation pay was earned before retirement, it is considered a special payment and not counted towards the 2015 annual earnings limit. 

Two local occupations often receiving special payments for SSA retirement purposes are insurance salespeople and farmers. Insurance commissions for policies sold before retirement but received after the year of retirement are usually special payments. If a farmer fully harvested and stored a crop before or in the month of entitlement to SSA benefits, and then carried it over for sale in the next year, the income will not affect benefits for the year of sale. Keep documentation related to this. 

As always, this is general information.  To learn more, read the SSA publication, Special Payments After Retirement, at www.socialsecurity.gov/pubs/10063.html or contact Social Security.  Annual earnings test information is at www.socialsecurity.gov/retire2/whileworking.htm.

Benefits from first spouse if no longer married to second

Q: I am married for the second time and receive my own Social Security retirement. My first husband and I were married for 18 years and he earned lots more money than I did. If I was single again, could I draw Social Security from my first husband? 

A: The answer to this question could go in several directions depending on the amount of the person’s own retirement, other benefits received, if the marriages ended by death or divorce, and other items. Without more information, this question cannot be answered.  

The Social Security website, www.socialsecurity.gov, is great for general information, retirement planning and online services, including online applications, but when you have a detailed question such as this one, speak to a SSA representative to discuss your options. Having the Social Security number of all parties involved would be useful. Call the SSA national toll-free number at 1-800-772-1213 (TTY 1-800-325-0778) (7:00am – 7:00pm) or your local office 

Based on age, a widow or widower can start receiving Social Security survivors benefits as early as age 60. Remarriage before age 60 prevents payment. Remarriage after age 60 (for age based benefits) will not affect eligibility to survivors benefits. If twice widowed, benefits might be payable through the work record of either deceased spouse or the person’s own retirement work record. 

Survivor benefits might also be payable to the divorced spouse of a deceased worker if the marriage had lasted 10 years or more. 

More about Social Security survivors benefits is here. 

The original question did not specify that the first husband had died. If the couple had divorced, benefits to her through his work record might be payable since they were married at least 10 years, if she was not married. Information about benefits for divorced spouses is here. 

If the second marriage continues, there is the potential for spousal benefits.

Is there still a Social Security funeral benefit?

Q: Does Social Security still pay a funeral benefit? A friend said that none was payable when his grandmother recently died.

A: You are referring to the Lump Sum Death Benefit (LSDP) and, yes, it still exists when specific requirements are met.  

The Lump Sum Death Benefit (LSDP) is a one-time payment of $255 to help offset funeral costs. While this is a small amount towards a funeral today, the payment dates back many years to when that amount covered a more significant portion of costs. 

The benefit is payable only on the record of someone with insured status, meaning she or he had enough work for benefits to be payable on their record. Even then, the LSDP is payable to a limited group. 

When the deceased had enough work, the LSDP can first be paid to the surviving spouse if they were living in the same household at time of death, although exceptions exist.

If no spouse survives, the LSDP can be paid to a child if he or she was eligible for benefits based on the work record of the deceased for the month of death. 

Lump Sum Death Benefit (LSDP) examples:

  1. The deceased was receiving her or his own SSA retirement and lived with their husband or wife. The surviving spouse can receive the Lump Sum Death Benefit (LSDP).
  2. The deceased was eligible for Social Security as a spouse or widow / widower but not eligible based on their own work record.  A LSDP is not payable.
  3. The deceased received their own SSA retirement, has no surviving spouse but did have an adult disabled child receiving through her or his record. The surviving child can receive the LSDP because they were already receiving benefits from the parent’s record.
  4. The deceased received their own SSA retirement, has no surviving spouse but has grown children, none of whom receives Social Security child benefits. A LSDP is not payable.  

The LSDP is separate from ongoing Social Security survivor benefits 

Always contact Social Security when there is a death in the family. The SSA representative can discuss potential benefits, whether for now or the future, be sure that ongoing benefits are properly ended and answer questions.

Do I pay income tax on my Social Security benefits?

Q: Do I pay income tax on my Social Security benefits? 

A: Perhaps. Here is information from the Social Security website, www.socialsecurity.gov. Including links to IRS information, more details are at www.socialsecurity.gov/planners/taxes.htm 

Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits. 

No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. 

If you file a federal tax return as an “individual” and your combined income is

·  between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.

·  more than $34,000, up to 85 percent of your benefits may be taxable. 

If you file a joint return, and you and your spouse have a combined income that is

·  between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits

·  more than $44,000, up to 85 percent of your benefits may be taxable. 

If you are married and file a separate tax return, you probably will pay taxes on your benefits.

 

Is payroll tax withheld if I work and receive Social Security?

Q: I stopped working full-time at the end of 2014 and started Social Security retirement. For the next few months I will work part-time and then retire completely.

Will Social Security payroll tax be held from my paycheck? If yes, will this increase my retirement amount? 

A: Yes, you continue to pay Social Security and Medicare payroll taxes. Your employer will continue doing so too. Everyone working in employment or self-employment covered by Social Security must pay payroll taxes regardless of age or eligibility to Social Security benefits. Current and historical Social Security and Medicare tax rates are shown here. 

If you are younger than full retirement age, remember annual earnings test limits.

Your new earnings would have to be better than the ones already used to compute your retirement amount to increase your monthly retirement amount. While possible, it is doubtful that a few months of part-time work will change your monthly retirement amount since the best 35 years of your working career are used.  

Benefit amounts of everyone receiving Social Security benefits are automatically reviewed when new earnings are posted to their work record even when low earnings are involved. Due to this, your retirement amount will be automatically reviewed once these 2015 earnings appear on your work record. 

Since you worked full-time all of 2014, it is much more likely that your 2014 earnings will increase your retirement amount when automatically reviewed. 

Employers report your earnings to the Social Security Administration as part of the W-2 process. Different employer deadlines apply based on how reporting is completed. Employers have a March 31 deadline if electronically reporting 2014 W-2 information using Social Security Business Services Online (BSO). If reporting by paper, the deadline is the last day of February.

However reported, national posting of all wage information is usually complete in approximately October, with automatic reviews of benefit amounts starting once wage posting is complete. If 2014 earnings increase retirement benefits, you will receive the increase in approximately December 2015, with payment retroactive to January 2015. 

 

Does Social Security contact you at 62?

Q: Does Social Security automatically contact you about starting retirement benefits when you are near age 62? 

A: Social Security does not do this but the agency does provide estimates and planning information for people thinking about starting retirement benefits, whether at age 62 or other ages.  

Concerning when to start Social Security retirement, lots of planning information is on the Social Security website, www.socialsecurity.gov, in the Retirement Benefits section and especially in the Retirement Planner at www.socialsecurity.gov/retire2/ 

Different calculators are there. In combination with the Retirement Estimator, the compute the effect of early or delayed retirement calculator is excellent for comparing different start month amounts, both before and after full retirement age.  

You can also create a personal my Social Security account at www.socialsecurity.gov/myaccount/ to check your earnings record as recorded on Social Security records and for retirement and family benefit estimates.

In addition to online services, you can contact Social Security representatives by calling the national toll-free number, 1-800-772-1213 (TTY 1-800-325-0778), from 7:00am – 7:00pm, or your local office.

 

Savings will not prevent Social Security disability benefits

Sometimes a topic suddenly starts to generate questions. The following question came up three separate times while I was teaching recently. Perhaps it will interest you too.  

Q: How much money can I have in savings before my Social Security disability stops?  

A: Your savings will not stop Social Security disability benefits. Whether rich or poor, your financial value does not matter for Social Security retirement, survivors or disability benefits.  

Work is at the base of all Social Security benefits, not financial need. Requirements vary with type of benefit but the person whose Social Security number record is involved needs enough work to be insured or benefits are not payable. Learn more about Social Security benefits at www.socialsecurity.gov 

If you receive Social Security through your own record, then your work record was used. If you receive benefits through another person’s record, such as a child eligible through a parent, then that person had to have enough work. 

What can confuse people on this topic is that the Social Security Administration is responsible for more than Social Security retirement, survivors and disability benefits.  

Eligibility for the low-income Supplemental Security Income (SSI) program does include income and resource requirements. SSI can provide benefits to those over age 65 as well as blind or disabled children or adults. SSI is very different from Social Security, but both programs are administered by the Social Security Administration. 

People receiving SSI must stay below certain income and resource levels to remain eligible. Resources include savings and other items of financial value that you own and can turn into cash but not everything you own is counted toward the resource limit. For an eligible individual the total level of counted resources is $2,000. For an eligible couple, this amount is $3,000. These resource levels will continue for 2015. If exceeded, the person is no longer eligible.

Some types of resources that do not count toward these totals are the house you live in and household goods, usually one vehicle, some insurance policies and some burial funds. This is not a complete list. An overview of Supplemental Security Income resources is here 

Since Social Security and SSI are completely different programs, one person can receive both of them if the separate requirements are met.

In summary, if a person receives both Social Security and Supplemental Security Income (SSI), his or her savings or other resources will not stop Social Security benefits but they can end SSI benefits.