by: Sandy Altman & Mark Starkman
Host: Hello and welcome to Upfront and Legal. The series that helps you make sense of the laws that affect each one of us at one time or another, either directly or indirectly. On this edition Sandy Altman and Mark Starkman of the firm of Jacobowitz & Gubits, Walden and Monticello, bring us information about Social Security. What it is. It's benefits and it's limitations. To begin, here's Sandy Altman.
SRA: Hi Mark, how you doing today? MTS: Fine Sandy. Thank you.
SRA: Good. We are going to talk today about Social Security and lets start with the basics. What exactly is Social Security?
MTS: Essentially, Social Security is a federal program that provides income to a variety of individuals in a variety of circumstances.
SRA: What are the different types of Social Security?
MTS: Social Security pays benefits in five separate categories. First, it will pay benefits on the death of an eligible worker. It will pay benefits to the surviving spouse of an eligible worker. It will pay disability benefits to an individual worker who has become disabled. It will also pay dependent benefits to a worker who is ready to retire or disabled. And lastly, and probably the most common type of benefit is the old age benefit that it pays to retirees.
SRA: Now the old age benefit, that's the one that most people think of when they think of Social Security. So lets talk about that for awhile. How do you become eligible for that? I understand it's become a little more complicated over the past few years.
MTS: Well eligibility for all benefits are the same. In order to receive any sort of Social Security benefit someone must work for 40 credits and that roughly is equivalent to ten years of employment. Almost all types of employment are covered. So virtually everyone gets a paycheck and makes that contribution to the Social Security fund, they will be eligible after 10 years of working or 40 quarters.
SRA: And at what age does someone become eligible? That's some of it that people really want to know. When can they first start collecting?
MTS: Well, the age varies depending on the type of benefit you are receiving. But let's just say we're talking about the old age retirement benefit for the moment.
SRA: Right.
MTS: As long as a worker has accumulated 40 credits or 10 years of work, they can begin taking benefits at age 62. That's the earliest anyone can take benefits. At age 62.
SRA: And so why doesn't everyone start at age 62?
MTS: Well there's a number of reasons for that. First of all, depending on the year you were born, the full retirement age varies currently somewhere between age 65 and age 67. So depending on what your full retirement age is, that's the time when your entitled to full benefits. Your eligible to take Social Security retirement benefits at age 62, however, there are some disadvantages to doing that. In fact, you can even defer benefits up until age 70 if you choose to do that. And there are particular advantages to doing that.
SRA: And so what are the advantages of taking your Social Security at the younger age, that is 62?
MTS: Well, the main reason is because you might need the money at age 62. If you have no other income or very little other income you might need the money right away. And that's an advantage. You'll be, if your normal retirement age is say 66 years and you take benefits beginning at age 62 years, you got four extra years of benefits that you might not otherwise of had. There is of course, a down side to that.
SRA: Well, lets get to that because now you have everyone saying "well lets do it at 62", but I'm sure there's reasons why everyone is not doing it at 62. So what are the down sides?
MTS: It turns out that a lot of people are in fact taking early retirement benefits. But the down side is that you get a reduced benefit permanently. If you begin taking benefits at age 62 your monthly benefit will be reduced but what could be a substantial amount of money. The amount that it is reduced depends on how soon you take it and how many months there are until your full retirement age.
SRA: So can you give us an example?
MTS: Sure, lets say someone's full retirement age is 66 years. And they begin taking the benefit at age 62. They've taking the benefit 48 months earlier than they otherwise would be entitled to take the benefits. The first 36 months is a reduction of 5/9th's percent per month.
SRA: What does that add up to over to four years?
MTS: Well, that alone over 36 months 5/9th's of that is 20% of your total benefit. The remaining 12 months, its 5/12th's of a percent for those 12 months.
SRA: Can you do the math for us? What does that mean as a total, in other words, what kind of percentage are you losing out of on for your life if you take it at 62?
MTS: The total percentage you would lose is 25%. That scenario. Every month for the rest of your life. There are, of course, other down sides to taking early retirement. If you have additional income over a certain amount.
SRA: You mean if you still working?
MTS: If your still working and have additional income over a certain amount, the benefit will be further reduced by a dollar for every two dollars over the limit.
SRA: So if you make $200.00 a month, you'll get $100.00 less on your Social Security check.
MTS: If you make, for instance, $200.00 more than the limit, you've received a $100.00 less. That's correct.
SRA: Now, what are the benefits, you said that you can wait past your full retirement age? Your full retirement age was say 65 you can wait several years to collect that. What's the benefit of that?
MTS: A couple of benefits. First, let's just talk briefly about normal retirement age. And we said before it varies between age 65 and 67 depending on the year you were born. If you take benefits at full retirement age you don't have any reduction. In your benefits, you get the full retirement benefit. If you wait up until age 70 before you take your retirement benefits, not only do you get your full benefit, you get a bonus, a percentage increase based on waiting to age 70 to take your retirement benefits. Or any year after you are full retirement age. So, you can actually get more money, a significant amount more money than you would if you had taken it at full retirement age or even at early retirement age. And that's something you have to take into consideration if you want to wait that long before you start getting benefits. It's that higher benefits would be in effect for the rest of your life as well.
SRA: So when we get notices from Social Security every year it outlines all this doesn't it? What you'll get at age 62, 65, etc.?
MTS: That's correct. Everyone over age 25 whose not already getting Social Security benefits, gets the notice from the Social Security system. From the federal government. And it tells you what you can expect at early retirement, at full retirement, and at late retirement.
SRA: So everyone should be very interested in that and should really take a close look at that before they make a decision on when to retire.
MTS: Number one, you should look at that to figure out what your going to get every month. But number two, you should also look at it to make sure that all of your income is properly credited. Not everyone receives the same benefit. The benefits are based on your earnings over your lifetime. Your average earnings over a 35 year span of your lifetime. Again, your average earnings over a 35 year span of your lifetime. The 35 years in which you earned the most are counted towards your, calculating your Social Security benefits. So you want to make sure that all your income is appropriately calculated.
SRA: So that's really important. Now, you talked about receiving Social Security in other ways. One of the ways is that probably most interests people is Social Security disability. How does someone become eligible for Social Security disability?
MTS: Well, if you're a worker and you've qualified for Social Security benefits, that means by working for ten years, and you become disabled.
SRA: Ten years.
MTS: Again, 40 quarters.
SRA: Right, okay.
MTS: Ten years. Then you become disabled at any age, your entitled to benefits. Social Security benefit. Then there's of course a different way of calculating your monthly benefit based on the disability. But you would be entitled to that provided you can prove your disability to the satisfaction of the government.
SRA: How does someone go about that? I mean, does this mean that cannot work at all or they just can't do the job they used to do?
MTS: It's more than that. Most people aren't working any sort of gainful employment that are receiving Social Security benefits based on their disability.
SRA: Now, I've had clients who have had a lot of difficultly proving their disability. So it must be a fairly high standard that the government holds you to in order to give you that disability.
MTS: Well, its certainly not as high a standard as private disability policies have, but you do have to prove it. Medical evidence is what's necessary. And of course if your having trouble with Social Security and your disability, probably the best thing to do is to hire an attorney that practices in that area that can assist you in navigating the system and letting you know exactly what it is you'll need. I'd like to talk about some of the other ways you can get Social Security benefits. For instance, a spouse of an eligible worker is also entitled to benefits based on the working spouse's record.
SRA: Even if the spouse is not working at all.
MTS: That's correct. If the spouse is working and would qualify for Social Security benefits based on their own earning records, then they can take either the benefit based on their own earning record or on their husband's record. Depending upon which would provide them the most amount of money. Even divorced spouses are entitled to receive spouse benefits based on the earnings record of their now ex-spouse.
SRA: And what if there are several divorces?
MTS: Each one is entitled to that benefit provided they meet the eligibility criteria. Which means they had to have been married to that person for ten years to qualify. So I don't know how many people have many ten year marriages but to the ones that do, they are all eligible to claim based on that ex-spouse's records. And lastly, it's very important to sit with a financial advisor and made a determination whether you should be taking early retirement benefits from Social Security using money you might have in a tax deferred account or an IRA, or some other type of plan, or deferring it until your normal retirement age or till your age 70. All of those considerations have to be discussed carefully before you make that, that very fateful determination as to when to take Social Security benefits.
Host: Sandy Altman and Mark Starkman will return after a commercial break for more discussion and can take your questions.
Host: That concludes this edition of Upfront and Legal. Join us again next Friday at 1:00 pm and Sandy Altman and Mark Starkman will return with a provocative discussion of Medicare.
