Social Security Income Limit: What Counts as Income?

What counts as income for the Social Security Income limit

You may already know that if you’re under full retirement age and file for Social Security benefits, there’s a limit to the amount of income you can make before your benefit is reduced — or shut off completely.

But there’s one big question that keeps coming up when I talk to people about this topic: What counts as income?

Today, let’s find the answer. I’ll cover what the Social Security Administration considers income as well as what doesn’t count on your earnings test.

Before we get there, let’s go over a quick overview of how the earnings test for determining whether or not you’re hitting the earnings or income limit works.

What You Need to Know About the Social Security Earnings Test and Income Limit

The first thing to know is that, right now, the earnings limit only applies before your full retirement age. Once you reach your full retirement age, you can earn a bazillion dollars and continue to receive your full Social Security benefit.

(Changing this is one way that we could fix a breaking Social Security system.)[1] 

Because full retirement age differs based on your year of birth, we need to take a quick look at the table so you’ll know exactly when your full retirement age is.

  • If you were born between 1943 and 1954, your full retirement age is 66.
  • For 1955, the age is 66 and 2 months.
  • For 1956, it’s 66 and 4 months.
  • For 1957 the age is 66 and 6 months.
  • For 1958, full retirement age is 66 and 8 months.
  • For 1959, it’s 66 and 10 months.
  • For those born in 1960 or later, the full retirement age is set at age 67.

Obviously, the current full retirement age if you were born after 1960 is subject to change with the proposals floating around to fix Social Security — but this is where we are right now.

How the Earnings or Income Limit Relates to Your Full Retirement Age

If you make more than $17,640, the Social Security Administration will withhold $1 in benefits for every $2 in income that exceeds that amount.

The one exception is during the calendar year you attain full retirement age. During that period, the earnings limit nearly triples and the withholding amount is not as steep.

For every $3 you earn over the income limit, Social Security will withhold $1 in benefits. At your full retirement age, there is no income limit.

The $17,640 amount is the number for 2019, but the dollar amount of on the income limit will increase on an annual basis going forward. You need to keep up with the year-to-year changes to stay informed.

(Want to make this very easy to do? Just subscribe to my YouTube channel, because we do an update for these numbers as soon as we see them!)

What Counts As Income to the Social Security Administration

Now that you have a basic understanding of the income limit, we need to look at what actually counts as income toward that limit.

Thankfully, the Social Security administration makes it easy to understand for most types of income that you might normally receive. First, let’s look at the income that does not count.

Income that does not count toward the earnings limit includes:

  • Pension payments
  • Most annuity payments
  • IRA and retirement account distributions
  • Dividends
  • Interest income
  • Capital gains

As the law is currently written, you can receive an unlimited amount of income from the sources above and receive your full Social Security benefit.

The income that does count in the earnings limit is employment income. That means gross employment wages if you’re an employee and/or your net earnings from self-employment.

the social security earnings limit

Some Income Sources Are Harder to Classify Than Others

This nice, concise list will take care of 95% of all the types of income that exists. But there are numerous other types of income that can cause confusion.

You might have back pay, bonuses, vacation pay, deferred comp, fiduciary fees, renewal commissions — the list goes on. Unfortunately, we can’t go through each of these in detail here because even the Social security administration’s page lists 88 different types of income!

To confuse it even further, there are some types of income that’s not counted for employees, but it is counted for those who are self-employed.

You can take a look at that page to learn more about how these different types of income are treated. Some of this income is counted, some of this income is not counted — but before you get too stressed about this, remember that 95% of income sources are easily classified with our simple list above.

What to Do If You Get an Overpayment Notice from the Social Security Administration

If you are under full retirement age and receive income from a source that is not one of the common ones we discussed above, you’ll likely receive a letter from the SSA alleging an overpayment.

If you do, DON’T IMMEDIATELY ASSUME YOU HAVE TO PAY THE AMOUNT BACK.

You do need to communicate with the Social Security Administration about this notice, or they’ll turn you benefit off — but just because you receive a letter saying that the earnings test should’ve applied doesn’t mean they are right.

I’ve seen multiple cases in which all a client had to do was write a letter of explanation because the mistake was on the SSA’s end.

Just be aware that when it comes to the earnings test, the Social Security Administration seems to use the same playbook as the IRS does when they have a question. Instead of sending you a letter to get clarification, they simply assume they are right and tell send you a letter saying how much you owe in additional taxes.

For example, if a client sells a stock and doesn’t include the cost basis, the IRS just assumes the entire amount of the proceeds should be a capital gain. You have to go back to them and tell them how much of the proceeds were the cost basis and how much represented an actual gain.

The Social Security Administration will often do something similar when it comes to the earnings test and payments or income you received. They’ll send you an overpayment letter that says something along the lines of,

“Because you received this payment you should not have received your benefit. Starting on X date, we are going to stop paying your monthly benefit until the overpayment is recovered.”

Then the burden is on you to explain why the payment doesn’t count as income for the earnings test.

(As a side note to this…I recommend watching my video on How To Fix Social Security Overpayment Notices. I explain the process to file appeals and how to explain your position using their rules. If you get one of these letters, do some research to protect yourself!)

It’s Not Just Income That Matters – It’s Timing, Too

Additionally, the Social Security Administration will often want clarification on the timing of your earnings. In some cases, you may have earned money while you were still working, but didn’t receive it until after you stopped working and filed for Social Security.

Does that income still count? The answer is, it depends. The rules are slightly different for employees and for self-employed workers.

For previous employees, the Administration’s article, How Work Affects Your Benefits, says if you work for wages, income counts when its earned, not when its paid.

Then it goes on to say if you’re self-employed, income counts when you receive it, not when you earn it. But there’s a time qualifier on the end of that sentence; it goes on to say that this is true “unless [the earings are] paid in a year after you become entitled to Social Security and earned before you became entitled.”

Effectively, this means that if the payment occurs in the taxable year after you file for benefits, it will not count against the earnings limit as long as the work was performed before you filed for benefits.

But even within these rules there are some types of payments that fall in the cracks and don’t line up perfectly with these rules. Again, I want to strongly emphasize that if you receive a notice from the SSA alleging that you earned more than the allowable amount, dive into the rules to make sure they are right.

I promise you…they are not always right. If I can help you figure out a situation, you can contact me by going to devincarroll.com and clicking on the Contact tab. You can also learn more about hiring me to help with your specific Social Security situation here.

My video: How To Fix Social Security Overpayment Notices
https://www.youtube.com/watch?v=MkYXVwMmx0w

Social Security Handbook Chapter on Wages – https://www.ssa.gov/OP_Home/handbook/handbook.13/handbook-toc13.html

SSA publication “How Work Affects Your Benefits”

https://www.ssa.gov/pubs/EN-05-10069.pdf

SSA POMS RS 02505.240 Summary of How Major Types of Remuneration Are Treated
https://secure.ssa.gov/apps10/poms.nsf/lnx/0302505240

SSA POMS RS 02505.005 How to Count Wages Under the Earnings Test (ET)https://secure.ssa.gov/apps10/poms.nsf/lnx/0302505005

SSA POMS RS 01402.000 Wage Exclusions
https://secure.ssa.gov/apps10/poms.nsf/lnx/0301402000

SSA Publication “Special Payments After Retirement”
https://www.ssa.gov/pubs/EN-05-10063.pdf

SSA POMS RS 02510.016 Treatment of Special Payments (SP)
https://secure.ssa.gov/apps10/poms.nsf/lnx/0302510016

7 Social Security Myths That Could Derail Your Retirement

social security myths

With a system as complex as Social Security, it’s inevitable that misinformation (or simply a misunderstanding of the facts) will spread. It’s hard to understand what’s true and what’s not, and often, our brains prefer the version of events that feel intuitively more simple to understand.

And of course, Social Security is anything but simple to understand.

People tend to repeat some of these not-quite-true tidbits and downright falsehoods so often that they’ve reached mythical status and are often accepted without question.

In fact, that’s exactly how these myths seem so plausible and continue to live on. It’s called the illusory truth effect: people are more likely to believe something is true after hearing it said over and over again.

Separating fact from fiction is critical. Believing these myths can prove dangerous to your financial wellbeing — and even your ability to afford your retirement — because they can screw up the way you plan and prepare for the future.

But it’s time that we cleared these muddy waters. Today, I want to break down 7 Social Security myths that you might hear and believe but that just aren’t true… no matter how many times you’ve heard them repeated before.

Social Security Myth #1: Illegal Immigrants Collect Social Security

My YouTube channel is absolutely inundated with these kinds of comments. The belief that illegal immigrants can come to the United States and immediately receive Social Security benefits is simply not true.

What is true is that citizenship is not required. However, immigrants must be lawfully present and must pay into the system for at least 10 years.

In short, they have to follow the same eligibility rules as everyone else!

The Congressional Research Service makes the rules around Social Security benefits for non-citizens very clear when they say “If an individual never obtains work authorization, none of his or her Social Security covered earnings count toward qualifying for benefits.”

We can’t get much more clear than that, which makes this myth an easy one to bust. Illegal immigrants are not collecting nor can they collect Social Security benefits.

Social Security Myth #2: The Government RAIDED the Trust Fund!

Some people believe the Social Security system wouldn’t be facing insolvency today if the government kept their gosh-darned theivin’ hands out of it.

Here’s the truth: There has never been any change in the way Social Security payroll taxes are used by the federal government.

The Social Security trust fund has never been “put into the general fund of the government.” It is a separate account, and always has been.

We can find the origins of this myth in the change that happened back in 1969. At that time, the government began listing the trust fund’s transactions in a single budget along with all the other functions of the federal government.

The transactions were shown alongside other functions, but the trust fund remained a separate account. In 1990, the government began listing the activities of the trust fund separately.

None of these movements had anything to do with the actual operations of the trust fund; it was purely a change of accounting practices.

The government did not raid Social Security’s trust fund. But you might still believe the myth that it did if you don’t understand where the money went — because it is true that the system faces insolvency today.

Why isn’t there a trust fund sitting around with trillions of dollars from all the money we working taxpayers put into the system? Because the Treasury uses those dollars.

Before you say, “aha! This proves the point; the government did steal the money!” …not so fast. The government always uses incoming revenue to meet its current obligations before it borrows money. This includes funds coming in and earmarked for the Social Security trust fund.

For every dollar that comes in from Social Security taxes, a special-issue Treasury bond takes its place. These bonds earn interest — which is a good thing.

In fact, since these bonds were first introduced to the trust fund, they generated $1.9 trillion dollars in interest. For reference, the total trust fund balance is only $2.9 trillion.

Had all those dollars been left in cash, the trust fund would be worth about two-thirds less and would have run dry much earlier than currently projected.

The bottom line is that there’s no difference between the way the federal government runs the trust fund and the way your bank handles your cash accounts.

When your paycheck is deposited, that bank uses that money and makes an accounting entry. When you need your money, the bank pulls it from the institution’s account and notes a debit to your account. But no one gets hooked on conspiracy theories about banks misusing funds.

No one should get too worked up about the federal government using a nearly identical process, either.

Social Security Myth #3: Social Security Is Going Bankrupt

Many politicians leverage this myth to manipulate people into voting a certain way. In every campaign, someone always talks about how bad Social Security is — and how they’re the only candidate who can and will fix it and make everything okay again.

To compound that, the news channels figured out this is a headline that will get people to click, so they use it often. The result is you hear this myth perhaps more than any other… but it’s not quite true.

Here’s what’s really going on.

Social Security benefits are considered a “pay as you go” system. This means that the money that comes in from taxes today goes out to pay retirees today. For example, the taxes that I pay in right now also go out right now — and they pay for my dad’s benefits.

For many years, more people paid in taxes than the system needed to pay out at the same time. More money came in than went out, and the excess started to accumulate in the trust fund that we hear so much about.

But now, the worker to retiree ratio has started to shift. By 2020, we’ll reach a point where there is not enough money coming into the system to pay out to people claiming benefits. To make up this shortfall, the Social Security Administration will begin pulling money from the trust fund.

The issue here is that the current trust fund balance will only last until 2035. Once it’s dry, benefits can only be paid from Social Security taxes. The projections show that will only generate 76% of what’s needed to pay all benefits.

While not great news, this is not bankruptcy.

If your boss told you today that you were only to get paid 76% of your normal salary, would you be bankrupt? No! You’d be mad, to say the least, but you would not start receiving $0 and file for bankruptcy. Pay cuts happen and when they do, we must adjust to our new level of earnings.

Social Security will have to do the same. The most likely adjustments will come in the form of a reduction in benefits or an increase in taxes. But Social Security will not just collapse and disappear.

Social Security Myth #4: Members of Congress Don’t Pay into the Social Security System

Many people believe that members of Congress, being the ones who wrote (and get to revise) the rules, carved out a special retirement plan just for themselves. They get to live above Social Security, and don’t have to rely on its benefits — and therefore, don’t care what happens to it.

This is not true. Members of Congress may not end up relying exclusively on Social Security benefits in their old age… but many other Americans can say the same. Either way, both you and the men and women in Congress pay into the system.

This is another easy-to-bust myth: Since 1984, all members of Congress are required to contribute to Social Security just like anyone else.

Social Security Myth #5: You’ll Never Get Back What You Put In

This is one that I’ve heard for years, but it wasn’t until recently that I decided to dive in and figure this out once and for all.

To do this, I looked at the dollars I would put into Social Security over my working career, versus the dollars that I would take out.

I also looked at only the part of Social Security taxes that I personally put into Social Security. Remember that the total FICA tax is 15.3%, but as an employee, you only pay half of that (or 7.65%). Your employer pays the rest.

Of the money you owe, 1.45% goes Medicare and 6.2% goes to Social security. It’s that 6.2% that I counted.

I then looked at an individual who started working in 1972 and retired in 2019. That’s a long time to work but I wanted to illustrate what a maximum working lifetime may look like and thus give an opportunity for more taxes to be paid in.

Then I looked at four different income levels during that time period. To get a baseline I used the National Average Wage Index published by the Social Security Administration.

The first income level was for an individual at 50% of the national average. Then I looked at 100%, and then 150%, and for a maximum amount of Social Security taxes paid in I also looked at an individual who would’ve earned the maximum taxable wages for every year he or she was working.

With these earnings numbers, I used the calculator on the Social Security Administration website to calculate the benefits for each of these income levels at full retirement age. Finally, I increased that amount by 2% per year to keep up with the Social Security cost of living adjustment.

When you look across all of this data, it’s clear that each individual at their various income level got back the dollars they’d personally paid in — and they got that money within just a few years of filing for benefits.[1] 

In fact, the amount of taxes paid in pales in comparison to the average amount of lifetime benefits paid out! That makes this myth wildly untrue.

Not only do you get what you pay in to Social Security… you get that, and then some!

Social Security Myth #6: Social Security Benefits Are an Earned Right

This would be really nice. If it were true. Unfortunately, Social Security payments are not guaranteed and laws can be changed at any time that impact what you’ll receive in benefits.

Some of the other myths on this list seem… well, a little ridiculous. But I don’t blame people for buying into this one. It seems logical, for one — but what’s more deceiving is the fact that the government has essentially encouraged the belief that Social Security benefits are guaranteed.

A 1936 pamphlet from the Social Security Administration specifically states the following:

“The United States government will set up an account for you … The checks will come to you as a right.”

That sounds pretty rock solid, clear, and obvious to me. But it didn’t take long for the Supreme Court to step in and “clarify” this language for us.

In Helvering v. Davis, the Supreme Court’s language set the tone for the future. Here’s what they stated in the written opinion on the case:

“The proceeds of both taxes are to be paid into the treasury like internal-revenue taxes generally, and are not earmarked in any way.”

That eliminated the idea of the separate, personal account that the Social Security pamphlet originally implied. And then, in Flemming v. Nestor, the Supreme Court doubled down to make it very clear what the government thought about our “right” to Social Security benefits:

“There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law.”

If there was any doubt left about an individual’s “right” to a Social Security benefit, this court case should’ve banished it completely.

But just in case people forget that benefits can be changed or stopped altogether at any time, the Social Security Administration puts this reminder on every statement they create:

“Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.”

The takeaway here is that the criteria for eligibility could change with the whims of politics. (Just take a look at the means-testing conversations that we’re starting to hear about if you need further proof of this.)

I’m not trying to be the prophet of doom here, but I think we’ll see changes to the system — and to benefits paid out — coming down the line soon. I also believe these changes will hit those who have significant assets and income.

Remember, just because you get a statement showing a benefit amount doesn’t mean that you’ll eventually get that benefit. The government can change the rules.

Social Security Myth #7: EVERYONE Should Delay Filing for Social Security Benefits Until Age 70!

This is a myth that finance folks like to spread based purely on the fact that for every month you delay filing, you get a higher benefit amount — and more must be better, right?

Not necessarily, and certainly not in every single case. You can’t apply this blanket rule to all situations, because there are multiple scenarios where filing early makes more sense than filing later.

Frankly, if you need the income, you need to file as soon as you’re eligible to receive it. Sometimes there is no strategy; if you are no longer working and you need the income, go file for benefits. Simple as that.

You might also want to file early if you’re single and have health issues. You really only have your own income needs and life expectancy to consider in this situation, and it’s one of the few cases where using a break-even analysis makes sense.

A break-even analysis will tell you the age you need to live to in order to receive the same amount in benefits as you would if you waited and filed later.

Another situation in which filing early could be the best route is in the case of a few different spousal issues. The first is if your spouse is the higher earner and has health concerns which will shorten their life expectancy.

Since their earnings were higher, their Social Security benefits will likely be higher. If they pass away early, your lower benefit will drop off and you’ll begin to receive their higher benefit. Delaying filing for several years to increase your own benefit won’t be worth it if you will eventually get your spouse’s higher benefit.

Another issue to consider: if your spouse’s earnings were lower and they’re older than you. If your spouse’s earnings were so low that the spousal benefit from your record will be the highest benefit they will receive, they cannot receive that benefit until you file for your own benefit.

This means that by filing early, you will receive a reduced benefit, but your spouse will become entitled to a benefit as well.

The reason we include this is that once your spouse reaches his or her full retirement age, their spousal benefit will not increase. So if they are older than you, they could be missing months or years worth of benefits while waiting on you to file.

If you receive a survivor’s benefit, filing early could make sense for you, too. The survivors’ benefit still allows you to switch back and forth between benefit options. You could file for your survivors’ benefit at 62 (or even 60) and switch back to your own benefit at 70 at which point it would be at least 24% higher than your full retirement age benefit.

Finally, if you have minor or disabled children at home, you might want to consider filing early because they may qualify for a benefit when you file. By delaying your filing, you miss out on your own reduced benefit plus the benefit payable to your child.

Just keep in mind that if you file before your full retirement age, the earnings limit will apply. Once you pass your full retirement age, the earnings limit will no longer apply.

Stop Believing the Myths, and Keep Educating Yourself on the Facts

I know we’ve covered a lot of ground here, but I hope now you feel more informed about some common, pervasive myths that keep floating around. The more we know, the more we can educate others — and make sure that everyone gets the facts.

Thanks for taking the time to get informed today. If you want to continue learning, check out my YouTube channel or browse more posts on the blog.

You can also get copy of my book, Social Security Basics: 9 Essentials That Everyone Should Know, on Amazon if you haven’t already. As of right now, it’s the number-one book on Social Security benefits on Amazon! Get your copy here.

Should You Apply for Social Security Disability or Retirement Benefits?

the choice of filing for ssdi can be difficult

If you’re retiring early for health reasons, do you know what benefit to file for when you claim Social Security?

Most people don’t, and simply assume they just need to file for retirement benefits. But if you could receive disability benefits instead, choosing to file normally could cause you to miss out on a lot of money.

Let me tell you this story to explain how.

Social Security Retirement Benefits Might Make More Sense to You… But They Could Be the Wrong Benefit to Take

Not long ago, a client came into my office and told me that he needed to retire earlier than we’d planned for. What started out as a tick bite turned into Lyme disease, and then that manifested itself in multiple debilitating symptoms.

It was a very sad situation, not only because of the complications from the disease but because this client loved his work. He built a successful business from the ground-up and never planned to stop working entirely. He enjoyed what he did and took pride in his successes.

But life threw him a curveball and he finally had to admit that he just couldn’t do it anymore. He completely turned the business over to his son and was getting other matters in order before he left the country to seek alternative treatments for his Lyme.

“I know my plan was to file for Social Security at my full retirement age and I never thought I’d be doing this at 62,” he said to me when we talked, “but there’s just too much uncertainty now.”

He thought the best thing to do was go ahead and file early and start taking Social Security benefits as someone who retired.

This would not have been a smart move to make.

The Right Thing to Do Might Be Filing for Disability Benefits (Not Retirement!)

I understood why my client thought the way he did. Life had changed and the plan we’d built needed to adapt with that.

But he was overlooking something really important. He didn’t need to file for retirement benefits.

He needed to file for disability benefits.

When I suggested this, he looked at me with some obvious skepticism. He was really proud of what he’d accomplished and did not view himself as disabled; just temporarily sick.

He felt confident in the out-of-the-country treatments he sought and believed he’d be back to work within a year. But at the same time, he was making a near-irrevocable decision with his Social Security.

Social Security Disability Is Not Welfare

ssdi benefits are earned

First, please understand that Social Security Disability is not “welfare.” This is often the first mindset shift people need to make when thinking about filing for disability benefits.

Hard workers who take pride in the work they do can have a hard time filing for disability. They may say it’s because of the trouble you have to go through or the paperwork it requires… but the fact is, many of them are just embarrassed.

You can’t blame them; there is a stigma to disability. For some reason, it’s viewed by many as some sort of “welfare” (probably because of the much-reported abuses in the system).

But consider this: the same taxes that pay for your Social Security retirement benefits also pay for your disability benefits! That means if one is welfare, then so is the other.

The real fact is that neither of these programs are anywhere close to welfare. You paid taxes for the duration of your working career for access to whichever program meets your needs when you stop working.

You May Receive More Through Social Security Disability Benefits

social security disability benefit is the same as full retirement age benefit

Let’s take the labels off for a moment. If given a choice between two income streams that you earned a right to, would you choose the one that gave you 30% less than the other?

Of course not. You’d opt for the income stream that was 30% higher. And that’s what can happen with disability benefits.

A disability payment is most likely going to be higher than what you’d receive if you filed for early Social Security retirement benefits. Depending on your full retirement age, your social security benefit at age 62 will be between 70 and 75 percent of your full retirement age benefit.

Your disability benefit, however, is 100% of your full retirement age benefit. Here’s an example:

Assume your Social Security benefit at age 67 is $2,000. At age 62, you are in a car accident and cannot return to work. If you file for retirement benefits, your monthly amount would be about $1,400 for the rest of your life.

But what if you qualify and file for disability? Then you would receive the full $2,000 per month right away. If we assume a life expectancy of 85 years and add in the cost-of-living adjustments, that makes a difference of $219,000 in benefit payments.

(This doesn’t even take into account the impact to your survivors’ benefits if you die before your spouse!)

How to Make Filing for Disability Through Social Security Easier

There’s no question that it takes more work to get disability benefits than normal retirement benefits through Social Security. The process of applying for retirement benefits takes 15 minutes. The process to apply for and eventually receive disability benefits could take months.

You should still be prepared for some frustration if you file for disability. The process is not easy to understand and unfortunately, it’s designed to discourage instead of encourage applicants.

But with such a big difference in payment amounts, it’s probably worth the trouble — especially when you know the right resources and information to help you make the process easier.

It’s often easier to get approved if you’re older. For applicants past the age 60, the Social Security Administration has age-specific rules when it evaluates your disability.

If the Administration reviews your application and decides that your condition doesn’t meet a disability listing, they’ll refer to a separate set of rules called the grid to decide if you are disabled — and those rules are relaxed for someone who is over 60.

If you file for disability and are declined(and most people are), hire an attorney or advocate who specializes in this work. The statistics strongly suggest that your chances of approval will increase substantially if you have help at this step.

But don’t just hire anyone. I’ve seen some real yahoos that do divorces, bankruptcies, ambulance-chasing and oh yeah… some Social Security disability on the side! I hope it goes without saying, but don’t hire those people.

This is where I want to help you get connected with a pro. You can use this link to take you to a short questionnaire, consisting of 11 simple questions. This allows you to get a free disability benefit evaluation.

Once you get through this questionnaire, you’ll get paired up with someone who specializes in Social Security disability — and you’ll greatly improve your odds of getting approved and receiving a higher benefit than had you filed for retirement benefits alone.

get help with social security disability

Bonus Tip: Don’t Choose! File for Disability and Retirement

One thing you may want to consider is filing for both benefits at the same time. You can’t receive both at the same time, but if you need to quit work you may need the income now — and since disability payments can take a while to get approved, your retirement benefit would be paying you while you waited.

Once your disability benefit was approved, your payment would step up to the higher amount. Before you do this, you may want to talk to someone and find out what your chances are of getting approved for benefits. If you don’t qualify for disability, you could be stuck with the lower retirement benefit for the rest of your life.

This is why it’s so important to work with a trusted professional to ensure you’re making the right Social Security decisions at every step. It’s also why you should keep doing your research and learn as much as possible, so keep browsing the blog and using the free resources available to you here.

Will The Social Security Administration Close Their Field Offices?

The Social Security Administration will not be the same in 10 years. They have a plan that is rapidly unfolding and some of this is detailed in their “Vision 2025” strategic plan.

You might have heard a little about this already. The Administration has a webpage devoted to it — but to really get into the meat of what the Social Security Administration plans to do next, you have to dive into the supporting studies.

Let’s take a look together in this article. I’ll help you cover the entire spectrum of what the Social Security Administration (or SSA) has in the works… and what I see as the biggest challenge to getting this off the ground.

Is the Social Security Administration Closing Up Shop? (They Certainly Are Closing Offices…)

You may be able to guess what’s coming next if you’ve seen some of the numbers that I have. Let’s recap if you’ve missed them:

  • Since 2000, the SSA closed 125 of its field offices
  • It’s closed all 500+ offices that were set up to serve rural isolated communities
  • SSA employees are leaving too. Why?…probably because More than one-third of Social Security Administration employees are eligible for retirement now. Within 5 years, that number will increase to 45% of their senior-level staff.

That’s nearly half of their most experienced employees! This seems like bad timing when you combine all of this with the fact that the number of people needing the services of the Social Security Administration skyrocketed recently.

In fact, by the year 2030, one in five US residents will be retirement age — and will need the services of the SSA.

The IRS Can Give Us Clues to What’s Next for SSA

If the SSA is closing field offices and employees are leaving — but demand for their services is at an all time high, what’s their plan?

Although they don’t say it directly, it appears that the SSA will go the same route as the Internal Revenue Service.

Several years ago, the IRS maintained what they referred to as “walk-in sites” where you could go and get help with tax questions. Now they are called Taxpayer Assistance Centers and you have to have an appointment to see anyone.

That is, you can make an appointment and see someone if you happen to have a Taxpayer Assistance Center close to you.

Over the past several years, the IRS closed many of these sites. Today, there are only about 300 left. And in the IRS directory of these centers, the IRS plainly says “nearly every tax issue can now be resolved online or by phone from the convenience of your home or office.”

The same thing is happening with the SSA.

The Ultimate End-Goal of the Social Security Administration

The Social Security Administration is currently pushing all recipients to start using their online mySSA account instead of making a trip to the local office.

Their headline image on the SSA.gov homepage is a happy couple looking at a computer with the caption “putting you in control…learn what you can do online.”

On this same page, they even have a video by Suze Orman on “why creating an account is important.” This push to drive everyone online and out of physical offices is working, too.

Online services have grown from 46.3 million transactions in 2013 to 163 million transactions in 2018. Make no mistake…the SSA is changing how they interact with you. It wouldn’t surprise me at all if they closed all field offices in the near future — or at least all field offices outside of the major population centers.

This is where I’d like to hear your thoughts. Do you think it’s a good idea to close the Social Security Administration’s field offices?

Is the Social Security Administration’s Push to Online Accounts a Good or Bad Idea?

I think it has pros and cons — but hey, let’s just face the truth here, and admit that the technicians in those offices are a mixed bag. Some are awesome! Others? Not so much.

And if you look at employer rating sites like Indeed or Glassdoor you’ll see plenty of reviews from current and former SSA employees that aren’t very flattering.

If you’ve ever been in one of those SSA offices and found yourself thinking, “You know, I don’t think this person likes their job” …there is a very good chance they do not like their job — and I’m not convinced that losing the ability to sit across the desk from these employees is going to end up causing much harm to Social Security recipients.

One thing is for sure: as the SSA changes their methods, you will need to learn and know more about their system!

Getting educated is the best way to stay safe. You don’t have to know everything, but if you know the basics you’ll be able to spot a potential problem and get it fixed before it gets out of hand.

There are a few books you should own so you’re well-versed in the Social Security system. Here are some of my favorites to help you get started:

Continue to educate yourself beyond just reading these titles. Not sure where to start? Watch every video on my YouTube channel, and don’t miss any of the new ones: subscribe and click the notifications bell to make sure you catch them all!

How to (Correctly) Stop Social Security Benefits

how to stop your social security benefit

Most of us spend a lot of time figuring out how to maximize the benefits we can receive from Social Security. After all, when we’re talking about retirement, every extra income stream and every dollar makes a difference.

So it might sound strange at first to talk about how to stop your Social Security benefits from coming in. But in some situations, there are a number of reasons why stopping your Social Security benefit is the right thing to do.

There’s a right way to do this, and a wrong way — and you need to know the difference so you can understand when it makes sense to turn off Social Security benefits, and how to do it correctly so that action doesn’t come back to bite you down the road.

Why Stop Social Security Benefits?

Sometimes, people file for their Social Security benefits and then realize they need to stop receiving this income — at least for a little while. It might be because they went back to work and earn their income that way, or feel like they made a mistake to file when they did (and feel it would have been beneficial to file later).

Whatever the reason you might face, know that you can change your mind and stop your benefits. However, there are two distinct methods you can use to stop Social Security benefits, and each of them have different rules and outcomes.

Understanding the differences between these two methods is really important.

Method 1: Suspending Social Security Benefits

Suspending Social Security benefits is the first way you can go about this. A suspension of benefits can only happen after you reach full retirement age.

This is the simplest way to stop your benefits (assuming you’re of the right age), because there’s no paperwork to fill out or lengthy process to follow. You simply call and tell the technician you want to suspend your benefit. That’s it.

This method is like hitting the pause button — and the upside of doing this is that every month you suspend your benefits, the total amount you receive increases by ⅔ of 1%. Not a lot, obviously, but again, sometimes every little bit helps when it comes to retirement income.

Method 2: Withdrawing Social Security Benefits

The second option available to you to stop Social Security benefits is choosing to withdraw those benefits. If suspending your benefits was like hitting the “Pause” button, the withdrawal option effectively hits the “Undo” button on your benefit election.

Going this route makes it like filing and receiving your benefits never happened. But the rules for this option are different than Method 1.

You can withdraw Social Security benefits anytime between ages 62 and 70 — but you must choose to do so within the first 12 months of receiving benefits. Once that 12 month window closes, you can no longer use this option.

Withdrawing benefits also means you have to repay all your benefits. This includes the benefits that you already received and any benefits that your spouse or children received. (The one exception is for a divorced spouse.) You must also pay back any Medicare premiums that were withheld and any voluntary tax withholding that came out of your benefit check.

You can only use this withdrawal method once, and keep in mind that anyone else’s benefit that would also be stopped from your withdrawal will have to provide written consent before your request is approved.

For example, a spouse who is receiving spousal benefits right now would no longer get those benefits should you withdraw your benefits. Since this would create a loss of income for them, they’ll have to agree to the withdrawal of benefits.

suspension of benefits vs withdrawal of benefits

Should You Stop Social Security Benefits Using Either Method?

You need to be fully armed with all the information before you decide to make either of these moves. Continue to do your own research and talk to your own advisors before you make a big move like this.

If you haven’t already, subscribe to our YouTube channel for more educational content like this to help you find the answers you need for all things Social Security. And for more information on this topic, you can start with these links from the Social Security Administration:

4 Big Medicare Mistakes You Might Be Making (and How to Avoid Them)

There are a few mistakes you can make with your Medicare benefits that seem small, but actually carry some big, nasty consequences.

I’m talking about the kind of consequences that can cost you thousands of dollars. That’s a lot of money that you could have on the line — and the confusing Medicare system doesn’t make it any easier to avoid big mistakes.

Medicare is full of confusing language, plans that seem awfully similar, a lot of different deadlines, and more than a few hidden costs that can take you (and your budget) by surprise.

I’ve seen more than a few people make these specific Medicare mistakes, and I want to help you avoid becoming just another one of many. Here’s what I see most often — and how you can avoid making these same errors.

Be sure to check out the FREE Medicare Basics mini-course at the bottom of the page (or HERE)!

Medicare Mistake #1: Misunderstanding Medicare Enrollment Periods

a big medicare mistake is misunderstanding the enrollment periods

Medicare would be much easier to understand — and Medicare mistakes easier to avoid! — if there was one enrollment period. Unfortunately, there are several and they all have different purposes.

There’s the initial enrollment period, which is a seven-month window that starts 3 months prior to when you turn 65 and goes through the month you turn 65 and three months after. This is when you first sign up for Medicare.

Then there is the general enrollment period. This period is for someone who missed their initial enrollment period, and it typically runs from January 1 – March 31.

The Medicare enrollment period you probably hear about most is the open enrollment period which happens each year from October 15 through December 7. This is when you can make changes to a Medicare Advantage plan or when you can switch to a new Part C or Part D plan.

As if all these weren’t enough, there are also a few other enrollment periods that apply only in certain circumstances. It’s no wonder that people get confused and mistake one for another!

The point here is not to fully explain the enrollment windows for the various parts of Medicare, but to drive in the fact that the mistake most people make is missing the right enrollment period.

In many cases, missing a Medicare enrollment period will result in a penalty. In turn, those penalties will result in higher premiums for the rest of your life. That’s why a seemingly small oversight like missing the right enrollment window is actually a massive Medicare mistake!

You’ve got to take the time to figure out these enrollment periods, or at the very least, get someone to help you so you don’t miss yours.

Medicare Mistake #2: Choosing the Wrong Medicare Path

should you choose a medicare advantage or medicare supplement

One of the big Medicare decisions everyone needs to make is choosing whether to stick with Medicare Parts A&B and add a supplement, or switch to a Medicare Advantage plan (which will combine all of the former).

We don’t have time to go into all the details of each plan in this particular article — but know that there are differences to consider!

If you switch to a Medicare Advantage plan but later decide you don’t like that coverage and want to switch back to the traditional Medicare, you’ll be subject to health underwriting (except in certain circumstances).

This means if you’ve been sick or ill, you may not have the option of switching back to the plan you like better.

Around a third of all Medicare recipients choose the Medicare Advantage plan, and I’m not saying that’s a bad option — but do your research and fully understand what each option will cover and how that relates to you.

It may be harder than you think to make the switch in the future if you don’t get it right the first time.

Medicare Mistake #3: Skipping Over Your Annual Notice of Change

You should always read your Medicare annual notice of change.

If you have Medicare Part D or a Medicare Advantage plan, you will receive an annual notice of change in September. This notice tells you how your plan is changing in the year ahead.

And yes — there’s always something that changes! It may be as simple as the premium increasing slightly. Or, it could be something big, like your family doctor no longer being in the network or discontinuing coverage for an expensive medication you need.

This notice is important to read and understand so you can plan appropriately. But it’s really easy to miss the annual notice of change for Medicare because they come in the fall when your mailbox is already blowing up with all of the other Medicare solicitations.

It’s a mistake to fail to read this notice, but it’s incredibly easy to have it get mixed up with all the other junk mail. Know that you need to watch for it each September, read it thoroughly, and make changes if necessary.

Medicare Mistake #4: Not Using The Right Resources

Boomer Benefits is one of the great Medicare resources

There are an abundance of free resources on Medicare that you can quickly and easily find online. I’ve linked to some of my favorites at the end of this article.

These are all helpful tools — but what’s even more powerful is finding an awesome insurance agent who really knows their stuff.

That being said, you have to be so incredibly careful when determining who truly is an excellent agent… and who only seems like it but won’t provide you with the best results.

I’ll be honest with you: technically, I have the right licenses to sell you a Medicare Supplement or Medicare Advantage policy right now. And I will also tell you that would be a horrible idea because selling these products is not my realm of deep expertise.

No offense to the person who handles your auto or home insurance, but that’s not who you need to use, either! So who should you work with in this capacity?

You need to find someone who specializes in Medicare policies and keeps up with all the changes from year to year (this is why I would not be that person; I’m not keeping that up to date on this specific subject). The Medicare landscape is constantly changing, and you should work with a pro whose job it is to keep up with every last detail.

But even then, once you’ve found that agent who only does Medicare policies… you still have to be really careful! I’ve known of more than one of these agents who just pushed the latest garbage product with the highest commission rates.

You need an agent who is going to get to know your situation and fit you with a plan that meets your individual needs. If you find the right fit, it’ll make all these Medicare decisions much easier.

Bonus: One of the Biggest Medicare Mistakes I See Almost Everyone Make

Even if you have the right agent on your side, you might still fall into making one of the biggest Medicare mistakes of all: not doing any of your own research.

You should know the basics of Medicare. Yes, this will take some reading and searching, but having a baseline level of knowledge is incredibly valuable when it comes to dealing with such a complex topic with major implications for your retirement income and your budget.

You may want to start with this Medicare & You Brochure. It’s an official publication of Medicare. (I still find it fascinating that they have a brochure like this and I wish the Social Security Administration could publish something this clearly written.)

On the Medicare.gov website there are numerous calculators that’ll take you down a progression of figuring out which plan is best for you.

You may also want to do some basic internet searches. YouTube has some fantastic videos that cover Medicare (and some that aren’t so great).  But if you just want to use one resource…this next one will be it.

The Best Medicare Resource to Use to Get Started

A few weeks ago I got my hands on a medicare basics course that was made by my friend Danielle over at Boomer Benefits. You may have already heard of Boomer Benefits, as they are one of the highest-rated Medicare agencies out there.

This course is something that they typically use as part of their client education process, but right away I knew this was a resource that I wanted to share with my audience if Danielle would let me.

Thankfully, she agreed to let a few readers have this for no charge. If you take advantage, you’ll receive a daily email that covers one core area of Medicare for the next 6 days. This focused approach makes the information easy to digest and retain.

The emails come with both written and video explanations of the day’s topic so you can make sure you fully comprehend the subject. I’m convinced that getting this course will be one of the best moves you can make to help you avoid the big Medicare mistakes that could devastate your retirement.

You can find the Free Medicare Mini-Course here. I hope you enjoy it, and you use it to make great decisions about Medicare — while avoiding some of these big Medicare mistakes you now know to watch out for.

If you want to just skip the course, get connected with one of Boomer Benefit’s Medicare experts here.

How YOU Can Change the Windfall Elimination Provision and Government Pension Offset

WEP and GPO repeal may never happen in Washington.

Are you an educator or public servant who currently works — and will eventually be subject to Social Security’s Windfall Elimination Provision or the Government Pension Offset? Tired of waiting on your elected officials to keep their promises and repeal the WEP and GPO that punish workers like you?

If so, I have some good news: you have the power to get these rules changed. You just need to know what actions to take, and that’s what I want to share with you in this article.

Why the Rules Around the Windfall Elimination Provision and Government Pension Offset Haven’t Changed – Yet

The amount of legislation that’s already been introduced to either reform or completely repeal the Windfall Elimination Provision and the Government Pension Offset creates a long, long list. And yet these rules stubbornly stick around.

The issue is that this kind of legislation is typically introduced during election season– and then dies in committee shortly thereafter. The closest that any bill has ever come to success was HR 711 which was sponsored by Rep Kevin Brady.

At the time, Rep Brady was the chairman of the House Ways and Means Committee. If a bill ever had the chance to make it out of committee and to the floor for a vote, that was it. So why has it been so difficult for any of these bills to gain traction?

It’s purely a matter of numbers. If you look at all recipients of Social Security, only 4% are affected by the Windfall Elimination Provision and Government Pension Offset. Therefore, lawmakers have little incentive to actually act on these proposals because they don’t affect enough voters to make a difference when it comes election time.

It may be time to start considering that this will never change legislatively — but there may be another way.

Forget Lawmakers in DC, and Focus on Change in Your District

Instead of pushing for change at the federal level, teachers and public servants may want to look at what you have the power to do to implement rule changes in your local school district.

First, you need to know that the laws vary among the different states. There are currently 15 states where educators do not pay into Social Security. If that’s your state, then you probably won’t be able to follow the procedures I’m about to outline. (But keep reading — I’ll give you the contacts to help you figure out how this works in your state.)

That matters because Windfall Elimination Provision (or WEP) and the Government Pension Offset (or GPO) only apply to individuals who have a pension from a job where they did not pay Social Security taxes.

A lot of educators think that since they went to work at a school district that does not participate in Social Security, they are stuck with these WEP and GPO rules unless the law changes.

But what if you could start to participate in Social Security right where you work? It’s possible!

In fact, in my home state of Texas — one of the states where teachers generally don’t participate in Social Security — there are multiple districts that participate in both Texas TRS and Social Security through the Section 218 agreement.

For these individuals in these school districts, the WEP and GPO do not apply for the time they spend at a dually covered school district!

A Quick Note on Taxes

This solution helps your district get around the WEP and GPO rules. But there’s a small tradeoff, and that comes in the form of a change to your tax situation.

Right now, you likely pay 1.45% of your salary to Medicare. If you start to participate in Social Security, that will increase by 6.2% to a total of 7.65%.

That’s a lot, but it may be well worth it. (I’ll get to determining whether or not the tax increase pays off in the long-run a little later in this article.)

Your school district will also have to start contributing their part of Social Security taxes which will be an additional 6.2% — and this is why you may meet some resistance to a proposed change to participate in Social Security.

Their payroll expense will increase which means that they’ll probably have to cut future expansion plans or some other budget item. Be prepared: this will most likely ruffle some feathers. 

Let’s talk about how to get that vote on the table so you can have more say in how your school district operates in this area.

The Process for Changing How Your District Participates in Social Security

How did my home state of Texas end up with some districts that participate in both Texas TRS and the Social Security program? In many cases, it came down to a vote among the employees where they decided to become covered by Social Security.

You have this same option. It probably won’t be easy, and you could meet some resistance from administration for reasons discussed above. But there’s an actual process you can follow to get this to a vote.

Every state has a State Social Security Administrator. They are going to be crucial in getting this done — but they may only talk to the administration. The first thing you need to do, therefore, is to convince your administration to set up the referendum.

Depending on how open the administration is to feedback from employees and how motivated they are to work with its teachers and staff, this might be an easy step or a very challenging one — but unless you get them involved, this will never go anywhere.

Once the issue goes to a referendum, there are two types of votes you can have in most states. There is the majority vote, where the majority could decide on Social Security coverage. If it passed everyone would participate; if it did not pass, no one would participate.

There’s also the “individual choice” vote or divided vote. This choice is not available in every state, but this type of vote allows only those employees who vote “yes” and all future employees who become members of the retirement system to be covered by Social Security. All current employees who vote “no” would not be covered.

Understanding How the WEP and GPO Currently Affect You

There’s obviously a cost to both you and your school district if you start participating in Social Security. The question is, would it be worth it?  Understanding that requires a little background information and education.

You may want to watch my video on teachers’ retirement and Social Security benefits, or pick up my book, The Hero’s Penalty, for a deeper view. I’ll hit the high points of what you need to know regarding both the Windfall Elimination Provision and the Government Pension Offset to show you how to figure out how gaining coverage from Social Security would affect you.

There are two separate provisions to understand here:

  1. Windfall Elimination Provision
  2. Government Pension Offset

The Windfall Elimination Provision is simply a recalculation of your Social Security benefit with a different formula than is used for everyone else.

Obviously, this doesn’t apply to you if you have never paid into Social Security, but if you have qualified for Social Security, say from a previous job, it is maddening to find out that your benefit is going to be reduced because of your job in public service.

This isn’t a small reduction, either. The max reduction in 2019 is $463 per month. That’s serious retirement income that would come in handy for most people.

The sad part is that the reduction is not on your Social Security benefits statement, so it’s not clear that you’re losing out on potential income. The statement shows your benefit as if your benefit will be calculated by the same formula as everyone else.

That’s a nasty surprise to get retirement started with!

There’s also the Government Pension Offset. This penalty does not apply to benefits from your work, but it does reduce spousal or survivors’ benefits (and, in many cases, completely wipes out those benefits).

The reduction to those benefits is equal to two-thirds of your pension. So, if your pension is $3,000, they would subtract $2,000 from any Social Security spousal or survivors’ benefits before they were paid to you.

The Impact of Plugging into the Social Security System

Let’s talk about how gaining coverage through Social Security and getting around the WEP and GPO rules could affect you. Let’s look at the Windfall Elimination Provision first.

The one way around the Windfall Elimination Provision that works well is to accumulate what the Social Security Administration calls “substantial earnings.” These are annual earnings of a certain amount where you paid into Social Security in another job.

If you have at least 21 years of these substantial earnings, the amount you’re penalized begins to decline. At 30 years of substantial earnings, the penalty amount goes away altogether. You can look at your earnings history to determine how many years you have.

If you’re in a district that begins to contribute to Social Security, you would start to accumulate these substantial earnings as long as your earnings were at or above the amount the Social Security Administration sets (which is $24,675 for 2019; this generally increases annually).

So, if you have previous work and earnings history where you paid into Social Security, it may not take but a few more years of working for you to avoid the penalty.

Now the Windfall Elimination provision workaround is nice if you can qualify for it — but 30 years is a long time. You may not want to work long enough to accumulate the required years… but getting around the GPO is a bit different and offers the bigger opportunity.

The exclusion for the Government Pension Offset is only 5 years and could mean a bigger benefit anyway. Here’s how this one works:

There is a Social Security rule known as the “last 60 month rule.” It says that you will not be subject to the GPO if you meet the following criteria:

  • Work at a job where you contribute to Social Security for at least the last 60 months of employment, and
  • That job is covered by the same retirement plan.

This means that if you get Social Security coverage at your school district, and spend at least 60 months there, the GPO should not apply to you. So how much is that worth?

Let’s assume that your spouse has a Social Security benefit of $2,000 per month at his or her full retirement age. If you can get out of the GPO, you would be eligible for a spousal benefit of $1,000 per month at your full retirement age.

Assuming that Social Security has an average cost of living adjustment of 2% per year, and that your retirement lasts for 20 years, the spousal benefit would pay you $291,568 in lifetime benefit payments.

If your spouse dies, you’d be eligible for survivors’ benefits, too. Using the same cost of living and life expectancy number, that would be worth $583,136 in lifetime benefit payments.

This is where I think most current educators would have the greatest benefit — but there are still those who ask, “Is it really fair to get a Social Security benefit that I didn’t work for?”

I understand why people ask that, but consider this: If instead of being a teacher, you worked for some other job with its own retirement plan. You would be qualified for spousal or survivors’ benefits in that situation. If you wouldn’t have worked a paying job at all and instead just managed your household, you would also be eligible to receive spousal or survivors’ benefits.

Why should you be penalized because you chose to be an educator or some other public servant?

It’s well worth considering if avoiding the WEP and GPO rules that penalize teachers and educators would benefit you and your colleagues. If so, consider working with your administration to set up a referendum so you can put it to a vote, and take control over this aspect of your retirement income.

If you’d like some help in deciding how this could impact you, I or someone on my team may be available for a consultation. Here’s where to find out more about hiring me.

How To Determine the Right Age to Collect Social Security

there is a right age to collect social security

It’s one of the most popular questions asked about claiming benefits for your retirement: What’s the right age to collect Social Security? Should you file early — or late?

This is not an easy decision to make, or one to take lightly.  No matter what your financial situation, you’ve likely wondered about the best strategy for you.

So today, take a look at the 10 factors you need to consider when you’re thinking about filing for your benefits.

Who’s Right: People Who Wait, or People Who File for Benefits ASAP?

Many people who work in finance take a hard stance on the best age to retire and collect Social Security. More often than not, they say it’s best to delay taking Social Security for as long as possible.

But plenty of other people persist in saying you need to get your benefits as soon as you can. So who is right?

The truth is that neither of these are always correct. The decision about when to take Social Security is highly personal, and the right choice for you needs to take multiple individual factors into account.

Don’t let the simplicity of the Social Security statement fool you — if you care about your retirement, this decision must be made with careful thought and analysis. My goal here is not to tell you that a certain age is best and another age doesn’t work.

Instead, I want to provide you with the right information so you feel empowered to make the best decision for you. But before we jump into the factors to consider in determining the right age to file for Social Security, let’s make sure we understand some of the basic facts we’re working with.

How Reductions and Increases in Social Security Benefits Work

The first thing you need to understand to make a decision for yourself is at what age do you obtain the Social Security Administration’s status for full retirement age. It’s pretty simple to find the answer.

For those born between 1943 and 1954, full retirement age is 66. If you were born between 1955 and 1959, add two months for every year after 1954 to get to your full retirement age. And if you were born in 1960 or later, your full retirement age is 67.

chart that answers what is my full retirement age

Full retirement age means the point at which you will receive the full amount of your Social Security benefit. For the purposes of the rest of this article, we’ll assume “67” when talking about full retirement age (but know yours might be slightly different if you were born before 1960).

Your benefit will be reduced or increased if you file at an age other 67. If you file after full retirement age, your benefit is increased up to 124% (which is 8% per year), up until age 70. If you file early it will be reduced by an average of 6% for every year before 67 that you filed.

We can use an example with dollar amounts to make this more clear. Say your full benefit at 67 is $2,000. That benefit will increase up to $2,480 if you wait until age 70. If you file before your full retirement age, however, your benefit could be reduced down to as little as $1,400.

Not including cost of living adjustments, that’s a $1,000 difference per month. That’s a big deal!

It’s easy to see why the financial community likes to make blanket statements suggesting that everyone should delay as long as possible. But despite the overwhelming software tools and online content suggesting that most should wait, that’s not what people are doing.

A Break-Even Analysis Might Not Be the Best Way to Evaluate the Right Age to File for Social Security

chart showing how many file for social security at 62

The filing age data put out by the Social Security Administration shows that one-third of people simply file at the earliest age possible.

Does that mean about 33% of us are making bad financial moves? To be honest with you, I do feel people often make the decision to file without doing a lot of thoughtful analysis first…

…but broadly saying, “filing early is wrong” is shortsighted. One thing I know for sure is that there is a lack of resources to help individuals make this important decision. This leaves individuals to make the most intuitive choice in front of them, and that’s generally centered around the concept of a break-even analysis.

These type of analysis tells you how long you’d have to live to for benefit payments to catch up to other filing ages. Let me give you an example of this.

Assuming your full retirement age benefit is $2,000, you could claim your benefits at age 62 and start receiving $1,400. If we go with the life expectancy assumptions from the Social Security Administration and say you’ll live to an average 85 years old, then filing at 62 gives you a total cumulative benefit of around $515,000 when you include cost of living adjustments.

That also means if you wait to file until age 67 and receive your full $2,000, your total benefit payout could be nearly 100,000 dollars higher! But you have to live until at least 76 before you break even and get the same amount as you would if you filed at 62.

When Some folks look at the life expectancy of their family members or coworkers and decide there’s no way they’ll ever hit that break even age of 76 and so…they file early. I think this is a mistake!

The question the breakeven analysis answers is, “What if I die early?” But this question is such a small part of the filing decision. It only considers your benefit amount and completely ignores the optimization of spousal and survivor benefits and the role your benefit amount may play in their lifetime.

The 10 Factors to Consider to Determine When You Should File for Social Security Benefits

When you’re making the decision about when to file (or helping someone else make this choice), there are at least 10 factors that you need to consider to get to the right answer. All of these factors are very important to account for — but there can be disastrous consequences for ignoring the last two in particular.

Factor 1: What’s Your Gender?

Your decision about when to collect Social Security begins with your gender. The decision to delay or not is more important for women than it is for men. There are two reasons for this:

  1. Women live longer than men.
  2. On average, Social Security makes up a greater percentage of a woman’s retirement income (47%).

The decision to file later and get a higher benefit is possibly more important for a woman to consider. According to data from the Social Security Administration, men usually have a higher benefit amount than the women they’re married to.

If that’s your case, you need to exercise caution filing based on the impact your benefit will have to your wife (since she will likely outlive you and need the income even more than when you were living).

Factor 2: What Does Your Marital History Look Like?

Next, consider your marital history. If you had prior marriages, figure out if you are eligible for benefits from any of those past marriages that could boost your own benefit.

For example, if you have an eligible deceased spouse or ex-spouse, it could make sense to file for a survivors’ benefit as early as age 60 and switch to your own benefit later.

If you have an ex-spouse who is still living you need to figure out if you are entitled to a higher benefit from the spousal provisions

Factor 3: Do You Have Minor or Disabled Children?

If so, they could eligible for benefits once you file. Grandchildren could be eligible, as well, if both biological parents are deceased or disabled or if you have adopted them.

This is one of the cases where it generally makes perfect sense to file as early as possible. This is because a rule that states that before benefits can be paid to anyone off of your work history, you have to be receiving benefits.

When combined with your benefit, the benefits to children and your eligible spouse can be up to 180% of your full retirement age benefit. So if you have children at home that meet the criteria, there’s an obvious reason to consider filing early.

Factor 4: Are you Disabled?

If you are disabled, or think you may meet the criteria, filing for Social Security disability at age 62 could make a lot more sense than filing for retirement benefits. This is because your disability payment is the same as your full retirement age benefit.

Filing for disability will also enable your eligible beneficiaries to receive a benefit. If you file for disability first and then file for retirement benefits, just remember that the Social Security Administration will make up the difference if you are awarded disability benefits.

I’ve seen more than one individual who clearly met the criteria for disability benefits, but waited until full retirement age to file for retirement benefits so they could get their full amount. What a mistake!

Factor 5: How’s Your Health?

If you have a condition that could lead to a shortened life expectancy, that should be part of the decision process about the right age to file for Social Security.

If you’re single, it may mean that you file for benefits as early as possible in order to get all the payments you can. This is one time when the break-even chart really makes sense. This was part of the reason that I recommended to my own mom that she should file early.

On the other hand, if you’re married, you’ll have to balance the impact of leaving your spouse a smaller benefit (if you file early) or a larger benefit (if you file later).

Factor 6: How About the Health of Your Spouse?

In a broad sense, the age, health and individual benefit of your spouse should probably be considered separately, but they are so interwoven that I’ll cover them at one time.

First, let’s assume your spouse is the lower earner. If they’re also younger than you, they’ll probably outlive you. Your retirement benefit will likely become their survivors’ benefit when you die.

For this reason it’s important to consider how your filing timeline will affect the eventual survivors’ benefits your spouse could receive. Delaying your benefit would increase the survivors’ benefit they’d receive for those extra years after you’re gone.

But if your spouse is in poor health and is unlikely to outlive you, delaying your benefit strictly for the purpose of increasing their survivors’ benefit doesn’t make sense.

Again, assuming that your spouse is the lower earner, their benefit may not get to the maximum potential benefit until the spousal benefit portion kicks in. So If your spouse’s benefit is less than one half of yours, it could make sense to file just to open up your work record to pay a spousal benefit.

For example, if your benefit is $2,000 and your spouse’s benefit from their work is $400, they’ll be entitled to the $400 first, and then up to a $600 spousal benefit for a total of $1,000 at full retirement age.

The catch is, you have to file for your benefit first for the extra $600 to be paid. Furthermore, you have to remember that a spousal benefit does not increase beyond full retirement age. If your lower-earning spouse is older than you, waiting to file may be increasing your own benefit — but not necessarily your lower-earning spouse’s benefit.

Factor 7: Don’t Forget Your Spouse’s Earnings in Relation to Yours

If you have a spouse with very little to no earnings, it could make sense to file early for the sole purpose of opening up the spousal benefit. A strategy like this is highly dependent on multiple factors, but when you compare the total amount of benefits you both could receive, this strategy could make more sense than you delaying your own.

Remember that since the spousal benefit portion can’t be paid until you file, delaying your benefit also delays your spouse’s benefit.

Here’s another example: if your benefit at full retirement age is 67, your spouse would also be entitled to a benefit at their full retirement age of $1,000. So if your spouse is 3 years older than you, and you wait until you’re 67 to file, you’d be waiting five years to get an extra $600 on your check but meanwhile you’re leaving behind a $1,000 spousal benefit for every month you delay filing.

Yes, your benefit would be higher once you file, but your spouse’s benefit would not be. The total benefit paid with you filing at 62 versus 67 would eventually catch up, but you’d be 84 before getting to the break-even point.

If your spouse is the higher earner, then their benefit will be higher than yours. There’s nothing you can do in your filing strategy to increase their current benefit or future survivors’ benefit.

Instead of evaluating their health or life expectancy in this case, consider your own along with the last few factors we’ll discuss. (One exception may be if your spouse is the higher earner and in poor health, especially with a condition that has a high likelihood of ending in premature death; consider filing early because once they die, your own benefit will stop and you’ll start to collect your deceased spouse’s benefit).

Factor 8: What to Keep in Mind If You Already Have a Lot of Assets

If you have ample assets and other income sources, the relative importance of a filing decision is not the same as it is for someone with no other assets or income who will rely solely on Social Security.

Social Security benefits make up 38% of the average American’s retirement income. That’s a pretty high percentage. But this number includes those who have so much income they don’t even notice these deposits and people who depend on Social Security for 100% of their retirement income.

You’ll have more options to be flexible with your filing decision if you have ample retirement savings and other sources of income. So if this describes you, then you need to think about the next factor to determine the best age to file.

Factor 9: Your Tax Scenario

Somewhere between 0% and 85% of your Social Security benefits will be added to your taxable income. It could make sense to delay filing to reduce these taxes in retirement.

This won’t work for everyone, but it could make a big difference for those in the right income bracket.

In order to determine how much of your benefit will be taxable, you first have to calculate “combined income.”  This is a measurement of income used specifically for this purpose.

Combined income can be roughly calculated as your total income from taxable sources, plus any tax-exempt interest (such as interest from tax-free bonds), plus any excluded foreign income, plus 50% of your Social Security benefits.

Assume that you need $4,000 per month in income. Your Social Security benefit at your full retirement age is $2,000. This means that you’ll need $2,000 from other sources such as retirement accounts.

What if you took the entire $4,000 you needed from your retirement accounts until you reach age 70? Then, you could switch on your Social Security benefit which would be $2,480. Now you only need $1,620 in monthly distributions from your retirement accounts.

Since only half of your Social Security is counted in the provisional income calculation, the overall provisional income should be reduced. That results in less of your benefit being taxed.

All this being said, your tax advisor is the best resource for recommendations on a tax plan for retirement and Social Security, so be sure to touch base with them and talk through the specifics of your situation before making a final decision based on tax benefits.

Factor 10: Your Employment Status

Finally, we have to consider your employment status. The lure of eligibility at 62 is strong. But if you plan to continue working, you need to be aware of the Social Security income limit.

I’ve seen more than one individual who filed for benefits without being aware of this income limit — and later got caught with an overpayment notice and a suspension of benefits.

The Social Security income limit is the amount of money you can earn before your earnings impact if you’ll receive Social Security benefit. If your income exceeds the Social Security income limit your Social Security benefits will be stopped.

This limit increases every year. In 2019, the limit is $17,640. It’s important to note that the earnings limit does not apply if you file for benefits at your full retirement age or beyond. These limits only apply to those who begin taking Social Security benefits before reaching full retirement age.

In this complex conversation on Social Security and the best age to file for benefits, one thing stands out very clearly: there’s no one-size-fits-all answer or rule of thumb for Social Security filing.

Not even this article covered all the factors you need to know in order to make a great decision — but I hope it did give you some great food for thought. Keep digging in and continue learning how your filing strategy will impact you in retirement.

You’re making the right moves by reading articles like these, but don’t stop here! Continue to do your research and talk to your own advisors. Most importantly, continue to educate yourself.

Want to learn more? Check out my YouTube channel!

the factors to consider when choosing the right age to collect social security

Do Felons Have a Right to Social Security?

It’s no secret that Social Security is not the easiest system to understand. A maze of complex and complicated rules make it very hard to understand what is and isn’t allowed, and there are a number of hoops everyone has to jump through to ensure they get their benefits in the right amount.

Another not-so-secret fact about the system? It’s plagued with problems, the biggest of which may be the fact that the Social Security Administration’s trust funds will run out of money around 2035 unless someone finds a fix — and quick.

Considering this, it’s little wonder that people are quick to take issue with anything about Social Security that seems to indicate that someone is getting more benefits than they should. After all, anyone receiving income from Social Security is pulling from a very finite pool of resources.

The more money that goes to people who shouldn’t be receiving it means less for people who truly need it.

So when it comes to people with felony convictions who receive Social Security checks, it’s little wonder people get very fired up about this topic. But there’s also a lot of misinformation floating around about this topic, so let’s set the record straight about whether felons have a right to Social Security or not.

A Felony Conviction Does Not Automatically Disqualify Someone for Social Security

Not long ago, someone commented that the Social Security system wouldn’t be in such trouble if we didn’t have prisons full of people collecting disability and retirement benefits.

While I have a lot of content, in the form of both blog posts and videos on my YouTube channel, dedicated to breaking down and explaining the complex rules around Social Security, that comment made me realize that I’ve never gone into detail on whether or not someone with a felony conviction can receive benefits.

Here’s how this works: a felony conviction alone does not turn off your Social Security benefits. But an individual cannot receive benefits while imprisoned for more than 30 days for that conviction.

That detail is important! It means that if someone is arrested for a crime, and spends 90 days in county jail waiting on their trial, their benefits will continue. In order for the benefits to be suspended, they must be convicted and imprisoned for more than 30 days.

The Rules Around Medicare and Other Benefits for Imprisoned Individuals

While we’re clearing up the misinformation around whether or not convicted felons serving their sentences for their crimes are eligible for benefits, let’s look at a few other important points that most people don’t have the facts on.

If someone is on Medicare when they go to prison, their Social Security benefits will stop. The automated payments to Medicare Part B stop, as well — but those premiums are still due and payable.

If an individual does not pay their Part B premiums, then their Medicare Part B coverage will discontinue. That person would then have to reapply for benefits during an open enrollment period. The result for that person would most likely be a much higher Part B premium.

The other interesting note is with regards to spousal and childrens’ benefits. The rules are fairly clear that if a spouse or child is receiving benefits from the work of an individual who is incarcerated, that benefit will continue.

Keep in mind that before a spouse or child can receive a benefit from another work record, the individual who owns that record has to file first. If someone is in prison when they first become eligible to file, then they can’t actually take that action — and if they can’t file, then their spouses and children can’t receive their benefit.

What’s Your Take on This Topic?

It’s easy to hear rumors like the one that a bunch of felons are sitting around collecting Social Security, and feel worried or concerned over whether that’s completely true. After all, Social Security is in some degree of trouble because funds will run out unless new rules or regulations go into effect soon.

But I ask that you really think this one through. Some people believe that if an individual is being provided housing and food by the government at taxpayer expense, they shouldn’t be able to get any kind of Social Security benefit on top of that.

But you can consider this from another perspective, too. Some people say that if a prisoner worked for their entire life and contributed to the system, the government shouldn’t be able to seize any portion of that earned benefit.

Should benefits be paid to prisoners? Let me know your thoughts in the comments. I look forward to hearing more about your take on this topic.

Why Means Testing Social Security May Be The Most Obvious Fix

means testing social security

Worries and rumors and complaints about a broken system on the verge of collapsing have been the norm when it comes to talking about Social Security since as far back as the 1980s — and that shows no signs of slowing down today.

With current projections showing the Administration’s trust funds run out in 2035, it makes sense that people are still concerned and clamoring for a solution. Wouldn’t it be nice if we could just fix Social Security once and for all?

It sure would be — and it might be easier than most people currently think. In fact, I believe there is a solution to fix Social Security. Not only would it repair a broken system, but it wouldn’t even require extensive legislation and the infrastructure is already in place to start administering this today.

Sound too good to be true? Keep reading and I’ll give you all the details on the most obvious fix for Social Security’s current woes.

We CAN Avoiding Cutting Social Security Benefits

It’s no secret that Social Security is facing financial challenges ahead. Again, we know that within the next 15 or so years, there will not be enough money coming in to pay out benefits.

Something has to change, and fast, or we can expect benefits to be cut by around 25% across the board. Maybe that’s not a big deal for some people… but for many others, losing a full quarter of your benefit payment could be devastating.

This would be a good place to pause before I share my solution, and give a quick warning to politicians who would like to stay in office:

There are nearly 50 million individuals in the United States over the age of 65. 25 million households get half of their family income from Social Security. More than 12 million get 90% of their income from Social Security.

That’s a lot of people — and this many people can easily swing election outcomes one way or another. Since 1900, the average popular vote difference between the winner and loser of a presidential election has been 5.8 million votes.

Clearly, there are more than enough voters here — voters who have the majority of their income at stake — to easily swing an election to the side of someone who can fix this system before benefit cuts happen.

My idea would not be difficult for politicians or the government to implement, because the systems are already in place to put this plan into action. So what is this great fix?

It’s very simple: it’s an extension of the Social Security earnings limit to all ages.

Here’s how it would work.

Extending the Social Security Earnings Limit to All Ages Could Fix the System

Under the current rules, if you’re younger than the full retirement age then you can only make a certain amount of income before your benefits are withheld. If you make over a certain amount in income, you don’t get benefits at all.

But once you reach full retirement age, there is no limit on the amount of earnings you can have outside of your Social Security benefit.

My fix would simply extend this current rule around the earnings limit to apply that limit to all ages. If your earnings exceed a certain amount — which would mean you don’t actually need Social Security in order to get by or afford your lifestyle — you would not be eligible to receive benefits.

This would actually realign the system with the original guidelines. It would also free up funds to go to those who truly rely on their Social Security benefits to survive in retirement and have little or no other sources of income to use.

Shouldn’t Social Security Go to Those Who Need It Most?

When Social Security first began, the earnings limit applied to all ages. In 1950, the earnings limit was eliminated at age 75.

In 1954, this was changed to age 72. Another change happened in 1983 when the age was dropped to 70. Finally, in 2000, the rules changed for a final time to make the earnings limit drop off at your full retirement age.

I’m certainly not the first to suggest this specific fix to Social Security — although my simplified method of extending the earnings limit may be new.

On the campaign trail in 2015, now-President Donald Trump said, “I would be willing to say I will not get Social Security. But the fact is that there are people that truly don’t need it, and there are many people that do need it very, very badly.”

In the same campaign season, then-Governor Chris Christie said, “We need to save this program for people who have paid into the system and need it. This government doesn’t need more money to make Social Security solvent. We need to be not paying benefits to people who don’t really need it.”

A Word on Fixing Social Security with Means Testing

Although a means test has been suggested before, I haven’t seen the research on the impact of such a change.  One of my big questions about this is, where would the earnings limit be set under this solution?

Ultimately, there is an earnings amount where cutting benefits to individuals above the line would completely fix the system. Is that number $15,000 in income? $25,000? Who knows?

To my knowledge this topic hasn’t been researched enough to have a complete answer, which is where the means test seems most problematic to me. It’s a big puzzle piece that’s missing and really needs to be known before this proposal can get serious.

I know some people will say that even my proposed solution of making the earnings limit something that applies to everyone regardless of age is a form of means testing — and that it unfairly punishes success.

As much as I agree with that, the entire Social Security system is already built on means testing. My fix doesn’t present a huge change due to the progressive Social Security benefits formula.

Under that formula, lower-earning individuals receive a benefit that is a higher replacement of pre-retirement earnings than higher earning individuals. And once benefits begin to be paid, lower earning individuals usually don’t have to pay any taxes while those with higher incomes have to give some of it back through taxes.

Adding a “means test” like the earnings limit applying to all ages wouldn’t really represent a monumental policy shift. 

The fact is, any solution we can use now will likely impact anyone under 50 with a higher than average income. Even I don’t love my solution, as it impacts me, too!

This is probably something we need to get used to — and I think a solution like the earnings limit applying to everyone is preferable to a convoluted fix that only fixes part of the problem through half measures and complex law. Let’s keep it simple so we can rip the bandaid off and get it over with!

As this and other policies develop, I’ll be here to give you the details. Be sure to subscribe to the blog or my YouTube channel if you want to stay informed.