Personal Finances - 2017


Social Security: Some of Your Questions Answered

By Mo Vidwans

Believe it or not, today the monthly payment of Social Security is the only income many millions of Americans have and they manage to survive on it. Happily, too. It is the only pension plan, financial insurance or annuity offered by the US Govt. to every American worker who has satisfied the requirements of the law. Yet, there are many things we may not know about it.

If you have worked in the American system, have contributed to the system and met the requirements, then you are in. At your Full Retirement Age (FRA is 67 for those born after 1960), depending on your contributions and your earned income over the years, you will get a certain payment from the government every month; you have to apply for it though. Unfortunately, you cannot get a paper check because it has to be deposited electronically into your account and you can get it no matter where you reside on this planet.

Now, let us look at some of the common questions that I get asked about social security:

Do I have to wait till my age of 67 to get my benefits?

No, you don't have to. You can start withdrawing as early as age 62 but then you would not get the full benefit. It gets reduced by roughly 5% of your FRA for every year you start early. For example, if you start at the age of 64, instead of 67, it will be reduced by 15%. This reduction is permanent and it gets difficult to correct that situation later. Much serious thought has to be given as to when you would wish to start your benefit.

Can I delay receiving my benefits?

Of course you can; you can delay taking benefits till the age of 70 and actually you get your benefit increased by 8% every year you delay withdrawing. There is no advantage delaying beyond 70.

I am a widow; can I take advantage of my husband's benefits?

Yes, you can but probably not the way you are thinking. If both spouses were taking benefits because of their own individual work history then you have a choice to make. When one spouse passes on, then the survivor spouse has an option of taking the higher of the two benefits, her own or that of the spouse, but not both. If only one spouse worked, for example, then the survivor spouse can continue with his/her benefits after the age of 60 (but preferred that you wait till your FRA).

Benefits for children when one parent passes on?

If the children are minor, under the age of 18 (or 19 if still in high school), they can take benefits from social security. You have to show that the benefits are used for the welfare and needs of the child.

What about the disability benefits?

Yes, they are available but the requirements are complicated and you have to qualify. It takes quite some time to get approved.

Do I have to pay taxes on the benefits?

It depends on the rest of the income you may have when you file for taxes. The calculation for how much of your benefit is taxed is based on combined income for the year. The social security administration defines combined income as: AGI+ tax- exempt interest + one half of your social security benefits. The amount of benefits subject to taxation for 2016 tax year is determined by your 2016 combined income.

Your benefits are not taxed, if you are single and your combined income is below $25,000 or below $32,000 for married filing jointly. If single and you have an income between $25,000 and $34,000, up to 50% of your benefits get taxed; same for married filing jointly if combined income is between $32,000 and $44,000. Above $34,000 for single and above $44,000 for married filing jointly, up to 85% of your benefits will be taxed.

Can you start benefits if you are over 67 and working and still contributing to HSA through your employer?

If you are over 67 and still working, then you can start your benefits but cannot continue to contribute to HSA. When you are 65 or older you are automatically enrolled in Medicare Part A for hospitalization. There is no opting out and once on Medicare you can no longer pay into HSA. However, you can keep the funds you have accumulated, over the years, into HSA and use them to pay qualified medical bills.

If you are full retirement age and still working, as well as collecting social security and your employer is withholding social security and Medicare taxes from your paycheck, then what?

Such deductions might appear “excessive" but that is how the rules are. This questions pops up frequently at tax time. Regardless of your age, employers are required to deduct these taxes from your paycheck as long as you continue to work. And the fact that you are collecting social security or receiving Medicare benefits makes no difference.

There is, however, some good news. Social security checks annually whether your additional earnings will increase your monthly benefits. If there is an increase, the agency will gladly send you a letter informing about it. All such changes happen only annually.

How have our ideas changed about social security?

President Roosevelt signed the law on August 14, 1935. Eighty-one years after its birth in the depths of great depression, today social security is deeply woven into the American fabric. But initially there were many skeptics and doubts were cast (do you see any parallel today) because of Americans' deep-rooted faith in rugged individualism. It was also a radical departure (not only because of just this law but because of many other laws, such as FDIC and more, passed at the time) from the traditional ideas of the role of the Government in American life. Today, social security is the only lifeline for many millions and over 45 million people take advantage of this safety net on a monthly basis. This number increases by about 10,000 every day because of retiring baby boomers.