Pure’s Senior Financial Advisor, Allison Alley, CFP®, AIF®, provides a comprehensive overview of Social Security, addressing common questions about spousal and divorced spousal benefits, as well as other unique individual situations.
Outline
- 00:00 Intro
- 1:20 The Importance of Understanding Social Security Benefits
- 1:40 Benefit Factors
- 3:15 4 Important Changes to Social Security
- 6:44 Calculating Benefits
- 7:33 Expectations and Reality of Collecting
- 8:28 Collecting Early vs. Collecting Late
- 11:00 2024 Retirement Earnings Limit
- 12:19 Life Expectancy Upon Retirement
- 13:37 Spousal Benefits
- 15:45 Survivor Benefits
- 21:02 Divorced Spouse
- 22:16 Do you have to be retired to start receiving Social Security?
- I’m a 67 year old widow, my husband passed away in 2009, can I take his Social Security even though I’m working full time and will I be subject to pay back any Social Security if I take his?
- When talking about working income, when you work prior to full retirement age, what about my spouse’s income? Is this total income or just my own?
- If you’re working while collecting, please explain the benefit that’s withheld. DO I have to pay it back?
- If I take benefits at 62 and my son is only 8 and a half at the time, I was told I’d receive 50% of my full retirement benefit from him tax-free until he reaches the age of 18. Is this true?
- 26:18 Provisional Income
- 28:08 Tax Examples
- 30:57 My spouse just turned 66 and I’m 70 and taking Social Security, half of my benefit is larger than hers. Should I take the spousal benefit when I turn 67 rather than waiting until I’m 70?
- 31:53 If I meet the divorced spousal retirement but were the higher income earner, can you take your spousal benefits at 62 then claim my own higher benefit?
- Are you going to speak about single filers?
- If a survivor is receiving survivor benefits and currently re-married after the age of 60, am I still entitled to spousal benefits of the current spouse?
- My wife is CalPERS retiree, did not earn enough Social Security points for her own benefits and is told she cannot receive Social Security benefits through her husband. Is that correct?
- Claiming benefits as an ex-spouse, is it calculated the same way as spousal benefits so I’m eligible for the higher amount wither mine or my ex-spouse?
- 36:13 The Future of Social Security
- 40:09 My birthday is on October when I turn 67, how is my Social Security calculated while I’m still working?
- How does someone get their Social Security taxes taken out?
- How early should I apply for Social Security before receiving benefits?
- The spousal full retirement age for the lower wage earner, if the spouse is receiving SSDI. What are the rules?
- Does S-Corp pass through income factor into the 22,000 amount that reduces your Social Security income?
- What is the reversal scenario if the wife passes before the husband, who was the larger wage earner?
- My wife has a combination of Social Security and pension benefits, she should get about $1,200 a month when she retires and her pension is about $2,000 a month. Will she be eligible for spousal benefits?
- Can you begin receiving Social Security at 62 from divorces spousal benefit and continue working?
- Do I have to wait ex-spouse retires before I take spousal benefit?
- If I receive CalPERS during retirement and putting into Social Security, would I still be able to take half of my husband’s Social Security?
- I’m two years retired, using a small pension and 401(k) money until I turn 66 in eight months for my Social Security benefits. Will my Social Security benefit amount decrease before I begin my payments in September 2025?
- Please clarify rental income related to retirement.
- I’m a widow receiving my husband’s Social Security, I’ve continued to work since I have a higher benefit, can I change to my Social Security when I retire at 70?
- Does Medicare come out of Social Security checks? Are you able to pay the Medicare costs with an HSA?
Transcription:
Kathryn: Welcome to this webinar on Social Security. We are so happy that you’re here. Allison Alley is a CERTIFIED FINANCIAL PLANNER™ here at Pure Financial Advisors. She’s going to be leading our Social Security webinar. I’m Kathryn Bowie, the Director of Education. So welcome, Allison. How you doing?
Allison: Hi, good. Thanks. How are you doing?
Kathryn: I’m doing great.
Allison: All right, let’s get started. So we’re going to go through Social Security. Let’s start at the beginning. So Social Security was written into law back in 1935, but payroll taxes weren’t- didn’t start being collected until 1937. Originally they gave people a choice of taking a lump sum or a monthly payment. In the first couple of years, everybody took the lump sum with good old Ernest being the first American to receive a lump sum payment in 1937. He received a total of $.17. And he had paid in $.05 cents to the program. The first monthly check was issued to Ida Mae and she paid a total of $24.75 into the system for 3 years, in 1937, ‘38 and 1939. Her first monthly payment that she received was for $22.54. So she had almost gotten her entire contribution to the system back just with that first payment. By the time her second check was received, she’d obviously already gotten everything back. Over her lifetime, she collected just under $23,000 in Social Security benefits having only contributed roughly $25. So that was a return of over 92,000%. Obviously things have changed a little bit since then. There’s no lump sum options. The option is only, there’s no option at all. It’s, you just get a monthly check once you decide to start claiming. And I don’t think anybody’s getting a 92,000% return on their contributions at this point. So let’s get into how it works and what things look like. Social Security benefits can play, obviously, an important role in your retirement income plan. Often it’s referred to as part of a 3-legged stool. Often people have Social Security benefits, you might have a pension, and you might have other personal retirement savings, 401(k)s, IRAs, things like that. So this is going to be part of your retirement plan, and so we’ll kind of get into what that’ll look like. And the things that go into determining what your benefits actually going to be, your age, your current and prior earnings, your spousal earnings, whether you’re married, divorced, a widower, etc., whether you have a disability, and whether or not you are covered by a pension. There are government and city pensions out there that if you’re under them, you don’t pay into Social Security while you’re participating in those pensions. If you have a pension like that, you will likely see your Social Security benefits impacted in some manner. All right. Currently, nearly 9 out of 10 people age 65 and older are receiving Social Security benefits. Among elderly beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their retirement income, right? And we’ll get into it. And Social Security was, was not designed to replace 100% of your retirement income, right? The, it’s to give you some safety and security in retirement, but you really do need to concentrate on building other sources of retirement income so that you’re not dependent just on your Social Security benefits. Okay, let’s talk about the changes that came into existence this year, 2024. This year, people got a 3.2% increase in their Social Security benefit. So every year there’s a cost of living adjustment on your Social Security benefit. Last year it was higher. This year it was 3.2%. The Social Security administration attempts to keep up with inflation. However, we all know that over time, it does not keep up with inflation. So that’s important. In addition, the amount of income somebody’s earning, there’s a limit to how much income is actually subject to Social Security tax while you’re working. And that tends to go up each year as well. This year in 2024, the maximum taxable earnings that you could have Social Security income applied to or taxed on was $168,600.
If you earn more than that, those additional dollars are not subject to Social Security tax. If you decide to continue working once you take Social Security, if you take Social Security before your full retirement age, the maximum amount that you can earn before having your Social Security impacted is $22,320. If you earn more than that, and you started Social Security early and you’re under your full retirement age, you will have $1 deducted from your Social Security income for every $2 of earnings over and above that $22,320. And again, that goes up each year as well. So something to factor in and a consideration if you’re planning to take Social Security early, if you’re going to continue to work. Okay, let’s get into the rules of Social Security benefits. Some frequently used terms that we’ll be referring to, full retirement age or FRA. That’s the age at which a person becomes entitled to receiving their unreduced retirement benefit. Primary insurance amount, or sometimes referred to as PIA is the benefit that you would receive if you start taking your benefit at your full retirement age. And then the Social Security administration or the SSA, that’s who govern Social Security. It’s also the website ssa.gov that you can go to, if you haven’t already, to find your most recent Social Security benefit projections. They used to mail statements out every year. They don’t do that until you’re much closer to retirement age. So along the way, if you want to check on your earnings history, your projected future benefits, that’s the website you go to, ssa.gov. All right, calculating benefits. This is just showing birth years and correlating full retirement age. So somebody that was born in 1958, their full retirement age when they’re eligible for 100% of benefits is 66 years and 8 months, 1959, 66 and 10 months, 1960 or later it’s age 67. If you decide to start your benefit early, you can start as early as age 62, but you’re going to be reduced in the amount you get. And this is just kind of showing that. So if you’re entitled to full retirement age at 66 and 8 months, if you were to start at 62, you would only get 71.67% of your full benefit and so on. Along those lines of collecting early and what people kind of expect, you know, they do studies and there’s research done, and when people have been asked, you know, majority of people, about 65% of people assume that they’re going to wait until 65 or later to retire, right? So that factors into Social Security when they think they’re going to claim the benefits. Most people think they’re going to work and wait till at least age 65 or longer to retire and claim benefits. However, real life happens. And as it turns out, more like 70% of people actually end up retiring and collecting benefits 65 and younger, right? Things happen, health issues, job layoffs. I mean, the list goes on and on of why somebody might retire earlier than they had previously been thinking and therefore need to start their Social Security benefits, again, sooner than they anticipated. So what’s the impact of that? Well, this is assuming somebody’s full retirement is age 67. If you were to start earlier, this just shows year by year the amount of the reduction in what you would get, right? So you start a year earlier, you’re going to get 7% less, 13% less if you start two years earlier and so on. And again, it’s about a 30% reduction if you started at 62 when you’re full retirement age of 67. However, on the flip side, there’s a benefit for waiting to take Social Security. If you’re full retirement age of 67 and you wait, you get an 8% increase per year every year you delay taking your benefits and there’s not a lot of places with a guaranteed 8% increase. So this can be beneficial over time. Certainly, there’s tradeoffs to this and other factors that you would want to consider. But there is a pretty significant benefit to waiting to take your Social Security income. And here’s kind of the things that might go into that decision, right? Are you gonna continue working even part time before your full retirement age? If so, you probably don’t want to take it. How’s longevity? How’s your health? Did your parents live to their 90s? Grandparents, etc. Right. Is there a family history of longevity that might make you want to wait to take it if you’re going to expect to live longer getting those higher dollar amounts for a longer amount of time can be really beneficial. And then what is your marital status? Are you married? What’s the age difference between spouses? whose benefits are higher? Whose can collect on whose earnings record? All of those things will factor into the decision to start early, on time or even late. Okay, let’s talk about that earnings limit. If you start claiming your Social Security before your full retirement age and you’re going to continue to work. Again, that limit for this year, $22,320.
If you earn more than that, $1 of your Social Security income will be withheld for every $2 of earnings over and above that limit. In the year you turn your full retirement age, but you aren’t yet your full retirement age. So let’s say your birthday is in August, and that’s when you’re going to hit full retirement age. If for the- if you’re working that year, the amount you can earn before your birthday is actually a little bit higher, right? It goes up to $59,000. And if you earned more than that, $1 of benefit would be withheld for every $3 of earnings above the limit. So there’s a little bit more wiggle room here. There’s a higher amount, a lesser penalty per se, and it only applies to the month before full retirement age. Once you hit your full retirement age, there’s no limit to the amount you can earn, right? So your full retirement age is 67, you hit 67. You decide you’re still working. You want to keep working. You can earn as much as you want and your Social Security benefit won’t be reduced. Okay. Let’s talk about life expectancies upon retirement. So they’ve done studies of how long people are expected to live. And again, this plays into the timing of taking your Social Security income. A married couple currently age 65, there’s a 63% chance that at least one person will live to age 90. There’s an 85% chance that at least one person will live to age 85. When we look at individuals, singles, a single female, currently 65, has a 45% chance of living to 90 and a 66% chance of a living to at least 85. Men, slightly lower, right? Women tend to live longer. So a current male, age 65 has a 33% living- excuse me- 33% chance of living to 90 and 55% chance of living to age 85. So again, these kind of national averages, as well as your own health and family history will go into that, those decision making factors. All right. Let’s talk real people, or hypothetical real people. We’ve got a couple, married couple, David and Carol. David was the higher wage earner, Carol was the lower wage earner, and they’re the same age, so both of them have a full retirement age of 67 in this example. So what are we looking at? Based on their earnings records, David’s full retirement benefit is $2200. Carol being the lower income earner, her full retirement age benefit is $600. But the spousal benefit comes into play here. When you’re married, the lower earning spouse is entitled to the higher of their own benefit. In this case, $600 or 50% of their spouse’s. In this case, David’s benefit is $2200. So 50% of that would be $1100. So if they were to both file for benefits at age 67, David would get $2200 a month and Carol would get 50% of that, $1100 a month. Okay. Pretty straightforward. Let’s look at what that translates to and the maximum amounts. Similar to your own benefit, if you start taking it early, if you’re entitled to the spousal benefit and you start it earlier than full retirement age, it’s also going to be reduced. However, there isn’t any benefit in waiting past full retirement age if you’re going to be getting the spousal benefit. It can never be more than 50% of the higher earning spouse’s full retirement age amount. So in this case, Carol entitled to $1100 at full retirement age, that’s 50% of the David’s, she’s never going to get more than that if she were to wait. So there’s really no reason to wait. So let’s look at what that would translate to. And here’s how it’s calculated. So again, full retirement age, her own benefit is that $600. And then she gets the amount that brings the total to the $1100. If she were to start early, her own benefit as well as the spousal benefit is reduced at 62 in this example, she’d get $745 instead of $1100. If she were to wait, while her own does increase, as we’ve talked about, the spousal benefit would then just get reduced because the total maximum would stay at $1100. Survivor benefits also play into this. So survivor benefits are what a spouse is entitled to when another spouse passes away. So when one spouse passes away, the surviving spouse is going to continue to get the higher of the two benefits that were being received when both spouses were alive. So in this example, we’ve got the same original David’s benefit, $2200, Carol’s at $600. But if he were to have started early at 66 and 6 months and was getting the $1833 that he would have been entitled to, if he passes away first, Carol will continue to get that $1800, not the lower spousal benefit she would have been getting while he was still alive. Similarly, if he had waited until 70 and he was getting the $2900, even though Carol would have been getting the $1100, if he passes away first, she will then switch to getting what he had actually been getting. Her $1100 will stop, but she would start getting the $2900 that he had been getting. Let’s talk about how this kind of really plays out. So, a couple of things. This example we’re going to look at is same benefits. The assumption here is that David, they start at – We’re going to start them early at age 62. David’s going to live to 75. Carol’s going to live to 85. If he started at 62, he’s going to get $1540. Carol’s going to get her own reduced amount, $420, plus the reduced spousal amount of $325. So, this amount together, when we look at what they would get over their lifetimes, starting at 62, David again living to 75, Carol living to 85, David’s benefits would equal $240,000. Carol’s own benefit would equal $65,000. Her spousal benefit would be $50,000. If he passed away at 75, but she lived till 85, she would then have 10 years of getting the survivor benefits, $217,000. So the total Social Security received between the two of them during their combined lifetimes would total up to $574,000. Alright. Now we want to look and say, well, are there ways they could have gotten more? Let’s look at if they started at age 67 instead of 62. 67, he’s going to get his $2200 a month. She’s going to get her benefit, the spousal benefit totaling the $1100. And again, same life expectancy. He lives to 75. She lives to 85. That gets them combined a total of $580,000 compared to them starting early, $574,000. Okay. So a little bit more because they waited until 67 and got the combined higher amount. And that’s the survivor benefits still applied after he passed away early. Let’s look as if to see what happens if they waited until 70, but he’s again, only going to live to 75. So that’s an important factor, right? He would get the higher amount from waiting. So instead of $2200 a month, he’d get $2700 a month. She, her amount would be higher. The spousal would be lower. The combined would still be the $1100. The totals here are actually worse off than both of the prior examples. And that’s because in this case, his life expectancy was only 5 years past when he started claiming. And obviously nobody knows that when you go into this, right? We don’t have a crystal ball. We don’t know how long we’re going to live. But in this example, them waiting until 70 actually turned out worse again than starting early or even waiting until age 67. So what have, what else, what are the other options out there? What are the other possible scenarios? How could we see a large difference in benefits? So in this case, we’re looking at similar situation, but let’s say Carol started her own benefit early at 62. So she started getting $420 a month. And then David started his at his full retirement age. So he started getting $2200. You don’t get to take the spousal benefit until the higher earning spouse actually starts claiming their benefit. So if Carol started at 62, she’d have 5 years of just getting the $420. Then David would start at 67. At that time, she would start getting the additional spousal benefit. And then that gets them the most of the scenarios we’ve talked about, right? So she would have a period of time just getting a little bit. Then hers would additional amount, the spousal amount that she could get would go into effect when he started getting his and then the combined benefit works out higher than everything we’ve looked at previously. What if there’s longer longevity in the family or for individuals? So in this case, we’re going to look at similar situation, but now David’s going to live to 85 and Carol’s going to live to 92. So in this situation, we’re showing, well, what if then David started at 70? Carol started her own back at 67. And then her spousal benefits stacked on top at 70 when David starts, because again, you don’t get to take the spousal until the higher earning spouse is claiming their own. Well, and, and in this case, they’ve got longer years ahead of them. And now the total, because he started at 70, but it’s going to live to 85 and is getting a significantly higher amount. She starts her own at 67, gets the higher benefit at 70. And she lives to 92. This combined amount gets them $900,000 if they lived to 85 and 92, respectively. You can also see what would happen in the same situation, in the same projection of age with full retirement age, both 70 and this combination. So if you have longevity in your lineage, you can see how waiting can be incredibly beneficial over time. And I mean, this is, you know, several hundred thousand dollars more Social Security income than any of the previous scenarios with them living to only 75 and 85 respectively. So that has to be factored in. So. Even if you get divorced, you could still be entitled to the spousal benefits based on the earnings of your ex-spouse. If you were married for at least 10 years, you’re currently unmarried, and you both are at least age 62, and if you’ve been at least- if you’ve been divorced for the, at least the last two years, then you actually don’t have to wait for your ex-spouse to be claiming benefits before you can claim benefits. So just because you get divorced doesn’t mean that you aren’t entitled to spousal benefits based on the earnings record of your prior spouse. I was going to say similarly, it’s not really similar, but if you are, a widow or widower, you will be entitled to those survivor benefits as long as you were married to your deceased ex-spouse for at least 10 years. So if you’re divorced and your ex-spouse passes away, you can still be entitled to the survivor benefits. You have to still be unmarried. Or remarried after age 60, and you have to be at least age 60 to be entitled to survivor benefits. And again, the survivor benefits are gonna be what that ex-spouse was actually getting. Alright, before we get into taxation, I’m guessing we have some questions.
Kathryn: Wow, you guessed right. Okay, so she’s 64, the higher paid earner. This is the one, her husband’s 12 years younger. And also retired. She’s considering taking the Social Security in the beginning of next year. So what is the best strategy for her husband collecting Social Security?
Allison: So it kind of depends on the rest of your situation. But if you started next year, so it’d still be early, fine. He still wouldn’t be able to claim any benefits until he’s at least 62. So 62 is the earliest you can start benefits. It would be early at that time. If he did decide to start claiming benefits at his age, 62, he would get the higher of his own benefit based on his earnings or the spousal benefit based on hers. So there’s nothing, there’s no other, there used to be other things you could do, but they kind of got rid of those little loopholes. So if your higher earning spouse is claiming benefits and you’re the lower earning spouse, when you start, whether it’s early or not, you’re just going to get the higher of your own or the spousal benefit, which however that gets calculated at that time.
Kathryn: And they don’t have to switch. Someone was asking, when you file for your benefits, if you are filing early, you get your own benefits and then when your spouse starts taking theirs, that’s when you get the spousal. So it’s not switching. It’s just adding.
Allison: Yep. Exactly.
Kathryn: And, how does spousal benefit work when the lower wage earner receives a state pension and the lower wage earner will also receive Social Security benefits subject to WEP?
Allison: Yep, then that spousal, the spousal benefit, the original spousal benefit is still going to get calculated. And then the WEP calculation. So I think there’s slides about this, but it’s the windfall elimination provision, and that will get calculated. and will reduce down what that person otherwise would have been entitled to.
Kathryn: Do you know if you can collect disability and Social Security at the same time?
Allison: No. You would get, like if you’re entitled to Social Security disability income, once you hit the age of being eligible for Social Security benefits, it will just switch from being categorized as Social Security disability income to Social Security retirement benefits.
Kathryn: And then lastly, what if the higher earner dies before they start receiving benefits? So, the spouse passed away prior to Social Security, can the lower wage earners still have access to their spouse’s intended Social Security benefits?
Allison; Yes. So, if the higher earning spouse passes away before the higher earning spouse is claiming benefits, the surviving spouse would still get the survivor benefit based on the higher earning spouse’s eligible benefit.
Kathryn: When they become at least 62 or have a dependent.
Allison: Yeah. And actually, and again, as a survivor, you could start technically as early as 60. So that’s an option. You get to, you can start a little bit earlier as a surviving spouse, it would still get reduced, right? If you start your own benefit, if you start the benefit, whether it’s the spousal or the survivor, whatever- you started before your own full retirement age, it’s still going to get reduced. So you could start as early as 60 as a survivor, but it’s still going to be a lowered amount than what you would get if you waited.
Kathryn: Okay. And then actually one more. If I switch, can I switch my benefits at age 70 after claiming survivor benefits? So can she have survivor benefits without claiming her own benefits?
Allison: Yes, you can. So you can get survivor benefits if your spouse passed away. And then if your own benefit at 70, is higher, you could switch to your own benefit at 70 after getting the survivor benefit earlier on.
Kathryn: Okay. We have a few others, but we’ll go ahead and wait because some of them are a little detailed, but go to the next section.
Allison: I’m guessing that the taxation of Social Security will add additional questions.
Kathryn: Yes.
Allison: All right. Let’s get into the taxation of Social Security. All right. So whether or not your Social Security is taxed is based on how much other income you have. So there’s something that gets calculated called your provisional income. Your provisional income is made up of half of your Social Security benefits, any dividends, capital gains, etc., and any other non-taxable interest and the rest of your income. So your, the rest of your adjusted growth income, dividends, capital gains, non-taxable interest, which while you don’t pay tax on it, it’s factored into this calculation and then half of your Social Security benefits. So that number gets calculated and then it gets applied to the scale. So if you are single and that provisional income is under $25,000, you will not have federal taxes on your Social Security income. If that provisional income is between $25,000 and $34,000, up to half of your Social Security could be subject to tax. If your provisional income is above $34,000, up to 85% of your Social Security income could be subject to tax. However, never will more than 85% of your Social Security income be subject to federal tax. For married filing jointly, exact same concept, but the numbers are a little bit higher, $32,000 it can be, and not have any taxes, between $32,000 and $44,000, up to half of your Social Security income could be taxed, and over $44,000, up to 85% of your Social Security could be taxed. These are just the federal rules. Every state is different. Like California does not tax Social Security income. Only a handful of states do, so you want to check that out, whether or not in your state your Social Security income is going to be subject to state tax. Alright, let’s look at an actual example of this and this illustrates what kind of income you have and how it determines how much your Social Security is going to be taxed. So in this situation, this person has $20,000 of Social Security income and takes $40,000 from their IRA. So their provisional income, because it’s half of the Social Security benefit and then the rest of your income, so half of $20,000 is $10,000 plus the IRA distribution. So $50,000 of provisional income. And so what happens is that scale that we were just looking at gets applied $50,000. They take off the first $32,000. So $18,000, half of that is subject to tax. So the first $9000 is subject to tax. And then the next chunk, the $50,000 to the $44,000, the additional $6000, 35% is subject to tax. So that’s where that 85% ,is the 0.5% plus the 0.35%, right? So 85%. So $2100 of that is subject to tax. So total the $9000 and the $2100. So of the total Social Security received, $20,000, $11,100. is subject to federal tax. So 55% of this person’s Social Security income is gonna show up on their tax return and be subject to federal tax. Another situation, the person has the exact same amount of income, but it’s different sources. In this case, they have $40,000 dollars of Social Security income and $20,000 dollars of an IRA withdrawal. So it’s still $60,000 of income, but the provisional income is lower because again, it’s half the Social Security. So $20,000 and $20,000 of the IRA. So a total of $40,000 is what the provisional income works out to be. The same scale gets looked at, but in this case, $40,000 minus the $32,000. So $8000, half of that is subject to tax and there’s nothing above that $44,000 threshold. So no additional dollars are subject to tax. So this person only has $4000 of their $40,000 subject to federal tax. So even though they had the same amount of total income, because more of their income came from Social Security, less, they have a lower provisional income and less of their Social Security benefit is subject to federal tax. Okay. Questions on taxes before we get into potential things coming in the future.
Kathryn: “I recently paid an overpayment penalty of $2700 due to the exceeding- due to exceeding the allowed earnings amount last year. Penalty is supposed to be returned to me at some point.” Can you explain the refund of the earned income penalty and is it paid as a lump sum or is there anything else that they should know?
Allison: So once you are, once you hit your full retirement age and are no longer subject to those earnings thresholds, then the income will be paid back to you. And so what you want to do is you can go on the Social Security website, again, the ssa.gov. If you have an account, you create your user ID, password, and you can go through there and find out like the, the amount you’re going to be entitled to and how it’s going to get distributed back out to you.
Kathryn: Yes, but it’s not typically, as you were about to say, lump sum.
Allison: Correct. Yeah.
Kathryn: Are survivor benefits affected by the, windfall elimination provision?
Allison: Yes, except it’s not, at that point, if it’s a survivor benefit, instead of being under the windfall elimination provision, it falls under the government pension offset. So, GPO instead of WEP. So yes, like if you have a government pension and you’re entitled to survivor benefits, those survivor benefits will be reduced for similar reasons, but it’s technically a different provision called the government off- government pension offset.
Kathryn: So wife has a combination of Social Security benefits and pension benefits. So will she be eligible for spousal benefits when we’re both at full retirement age? I guess if she makes less than the higher earner.
Allison: Yeah, you’d still be entitled to, I mean, anyone, everyone’s entitled to the higher of their own benefit or 50% of their spouse’s benefit, whichever one is higher.
Kathryn: Right.
Allison: So if you have a pension, and keep in mind, not all pensions are subject to that windfall elimination provisions, right? Just pensions that didn’t require somebody pay into Social Security while they were covered by that pension. Like private sector pensions don’t impact your Social Security at all. It’s just if you weren’t paying into Social Security while you were covered by that pension. So somebody might have Social Security income and pension income. And if their, if their own Social Security income is less than half of their spouse’s, they’re still going to be able to get their, that spousal benefit once the higher earning spouse claims. If their own benefit is higher than that 50%, then spousal benefits don’t apply.
Kathryn: Right. So someone else was saying if you could just comment on whether, when the two earners are similar. So there’s no benefit of getting spousal benefits if you’re-
Allison: Yeah, there isn’t a spousal benefit, right? Because if you’re, if both spouses made similar amounts throughout their working careers, their benefits are going to be pretty similar. Then they’re each just going to get their own benefit because half would be less than what they would already be entitled to.
Kathryn: And then you would just have to do the different scenarios of one taking it early and that sort of thing.
Allison: Correct. Then you would just want to run through like, okay, who, you know, what are your other income sources? What are your other assets? Do you need the Social Security to sustain retirement? Can you pull from your own assets and let those Social Security benefits increase without jeopardizing the sustainability of your portfolio? How, you know, how’s your health, how’s your longevity, all of those things would go into figuring out, you know, who claims when, at the same time, somebody before the other and so on. Yeah.
Kathryn: And then lastly, when you’re talking about the calculations of the Social Security tax and the threshold, the limit, is that for each earner when married filing jointly or is that together that they-
Allison: That is together. Yeah. So that’s just looking at your tax returns that you’re married filing jointly, your provisional income is everything all in. So total 50% of total Social Security benefits. So you’re, and then you, that’s why there’s, there’s separate, there’s a, there’s, there’s separate charts, right? There’s a single chart and there’s a married filing jointly chart. So if you’re married finally jointly chart, that’s what’s going to apply to you and it’s the combination of everything.
Kathryn: All right. Well, those are the ones that I think can be answered.
Allison: So if you have additional questions you can reach out to us for our Social Security analysis that’s completely free. You can go to our website PureFinancial.com. Shoot us an email or give us a call and we’re happy to set you up with that free Social Security analysis. In that analysis, we can go over your provisional income, your other income sources, your asset levels, any pensions that you have to kind of help educate you on how it all works together and what the best strategy for you in claiming benefits might be. So if you have a change in your situation, you just got married, you got divorced, you had a spouse pass away, all of those questions we can help answer with that free Social Security analysis. The projections, right? The Old Age and Survivors Insurance Trust, that’s Social Security, is projected to run out of money by 2033. It’s 2024, so that’s not that far away. So we’ll talk about what might happen by 2035, it’s projected that the number of Americans 65 and older will be will increase from approximately 61,000,000 last year to about 77,000,000. So it’s a lot more people likely starting to claim Social Security. That same year, the numbers work out that there’s projected to be only 2.4 covered workers for each Social Security beneficiary. Currently, there’s 2.7 workers, right? So right now there’s more people paying into Social Security than we’re expecting to be in a decade and significantly more people claiming benefits. So that’s not a good ratio, obviously, for the potential sustainability of Social Security. The disability insurance trust and Social Security disability income, which is slightly different, is projected to be depleted in 2098. So that’s got a few more years. So, what might happen, right, because of these projected changes, I think most people would anticipate changes to Social Security that, you know, nobody really knows what that’s going to entail, but it could come in a number of forms. As we talked about in one of the earlier slides, right, there’s a, there’s currently a maximum amount of income that is subject to Social Security tax. So that could get increased. The benefit calculation that somebody is entitled to could get changed, right? They might lower that. The full retirement age could get extended might be currently, like I said, for most people at 67, that could get extended. The percentage of Social Security tax that you have on your current earnings, that could get increased, right? We don’t know exactly. It’s probably, it might be a combination of those things, but the likelihood is that we will see changes because nobody wants to see Social Security be depleted in 9 years.
Kathryn: Well, the other questions are mainly, you know, to do with, like, more individual situations. But I would say that if you have these questions, schedule your free financial assessment with either Allison or one of our professionals, and they’ll take a deep dive into your particular needs and what, not just Social Security, but everything about maximizing your retirement plan, minimizing your risk, etc. So Allison, thank you so much for everything that you, all of your knowledge and just how easily you give it to us.
Allison: Yeah, you’re welcome. Hopefully it was mostly understandable. There are a lot of moving parts of Social Security, so tried to make it as straightforward as possible.
Kathryn: Well thank you so much everybody. Have a great day.
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