Ask Rusty: Maximizing Benefits And When to Retire

by AMAC-Certified Social Security Advisor Russell Gloor

Dear Rusty:
I am looking for advice regarding maximizing social security benefits. In our case, my husband is 59 and has been on Social Security Disability for about 5 years. I am also 59 and work full time as a nurse. I would like to retire at age 62, but realistically will continue by working part time from 62-65 to keep my insurance benefits and some income. I have a fairly significant amount of money in my 401K that we can live on and delay taking Social Security benefits if need be. I have worked full time for most of the last 40 years. My maximum Social Security benefit right now at age 70 is $2,791 per month. What do you suggest would be our ideal strategy?
Signed, Working Nurse

Dear Working Nurse:
Here are some things for you to consider: Assuming your husband will continue on Social Security disability, when he reaches his normal SS retirement age of 66 years and 8 months, his SSDI benefit will automatically convert to retirement benefits at the same monthly amount he was collecting on SSDI. Your full retirement age (FRA) is 66 years and 8 months, and if you retire as soon as you’re eligible at 62 your benefit will be 71.67% of what you would get at your FRA. For each month you wait, your benefit amount will increase slightly; if you wait until you are 63 to apply, you’ll get 76.67% of your FRA benefit. Simply speaking, the longer you wait to apply the larger your benefit will be (up to the maximum at age 70). To use a simple example, if your benefit at your FRA is $1000 and you retire at age 62, your benefit will be $716/month. If you retire at age 63 it would be $766 per month, and if you wait until you are 70 years old, it would be $1266/month. These are just examples, but based upon what you’ve told me about your age 70 benefit your numbers should be about double those in the example.

You should keep in mind that if you start your benefits early and continue working, and you earn more than Social Security’s “earnings limit” ($17,040 for 2018), you will incur a reduction to your Social Security benefits to the tune of $1 for every $2 you earn over the limit. If you work and exceed the earnings test it can have a pretty severe impact on your benefits, so please be sure to factor this into your thinking when deciding when to apply. The way the excess earnings reduction works is that they withhold future benefits until they have collected what you owe due to exceeding the limit, which can hurt a lot if you’re depending upon your monthly SS income to meet expenses. They will eventually re-compute your benefit amount to help you recover all or some of what was withheld, but not until you reach full retirement age.

In the year you reach your full retirement age the earnings limit is considerably higher ($45,360 for 2018) and the reduction is less ($1 for every $3 over the limit), and once you’ve reached your FRA the earnings test goes away and you can earn as much as you wish without a benefit reduction. Please note that the Social Security earnings limit goes up a little each year, but the reduction amount doesn’t change. Another thing to keep in mind is that should you predecease your husband, he will be entitled to 100% of whatever benefit you are receiving (provided it is more than he is already receiving). Thus applying early has consequences not only for you but also for your surviving spouse. I mention this because many couples don’t take spousal benefits into consideration when deciding when to apply.

Obviously the decision when to apply is yours alone to make, but I hope the above gives you enough to make an informed choice.

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