Social Security is part of virtually every American’s life in retirement, if not sooner. If you’re like most people, you’re aware that when you start collecting retirement benefits affects how much money you get, but you’re not sure what that means for you. Armed with answers to some key questions, you can get the most out of your Social Security retirement benefits. As you plan for retirement, you need to know how much Social Security retirement income you can expect. Note to Baby Boomers: This information could come in handy sooner than you think. Finally, If you’ve applied for Social Security disability benefits, your initial application may be denied, but you’re not out of options: You can appeal Social Security’s decision through a multi-phase process.
Copyright © 2012 by AARP. All rights reserved. AARP is a registered trademark. Published by John Wiley & Sons, Inc., Hoboken, New Jersey
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When Should I Begin Collecting Social Security Retirement Benefits?
For many Americans, when to begin collecting Social Security retirement benefits is the $64,000 question — only that number may greatly understate the amount of money that rides on your decision. Depending on how long you live, differences in when you start benefits can easily add up to six figures over time.
So, what makes sense for you? Here are some questions you should consider to help decide when it’s best to claim Social Security:
How much income do you need in retirement? Planners often say you need between 70 percent and 85 percent of your pre-retirement income to maintain your standard of living when your working days are over. Some people can get by with less, and some need more to pay for the lifestyle they desire. You also can get a hint by plugging some numbers into online calculators and see what pops out. (One such tool is available at www.aarp.org/work/retirement-planning/retirement_calculator.) How close will your retirement income, including Social Security, bring you to the level you need? Remember: Your Social Security benefit will be higher the longer you wait to claim it, up to age 70. Think through your needs carefully before you start to collect.
Can you afford to wait? Most people claim benefits within the first few years of eligibility. But in doing so, they lock in a smaller monthly payment for the rest of their lives. Claiming earlier also may lock in a smaller monthly payment for your spouse, if you die. Given increases in longevity — which could mean you and your spouse depend on Social Security for many years — you should consider the upside of waiting for a larger benefit if you can afford to.
Can you use a marital strategy to maximize lifetime benefits for your household? Married couples may have options that singles don’t. For example, when the breadwinner reaches 66 (or 67, if born in 1960 or later), he or she can file for benefits but suspend claiming them. This allows a spouse who is 62 or older to claim a spousal benefit, while the breadwinner’s unclaimed benefit grows significantly.
How long will you live? That’s a mystery for most people, but you may have clues — and chances are, it could be a very long time. If you survive into your 80s and beyond, it can make sense to avoid starting benefits early. (If you anticipate a shorter life span, it may make sense to start them sooner.) How’s your health? What’s the experience in your family? Online longevity calculators such as www.livingto100.com and www.bluezones.com can give you a general estimate of how long you can expect to live.
Because you can’t be sure how long you’ll live, what makes you feel more secure: a smaller benefit sooner or a bigger benefit later? If you wait to claim but die early, you end up with less in total than if you claimed sooner. If you claim early and live longer (generally into your 80s and beyond), you end up with less in total than if you claimed later.
How important is the survivor benefit you leave behind? A surviving spouse who has reached full retirement age may receive 100 percent of your retirement benefit. The difference in when you start (as well as the age when your spouse claims) can come to many thousands of dollars in the lifetime of your widow or widower.
There is no perfect answer to the question of when you should start collecting retirement benefits, but by considering these questions, you stand a better chance of making a decision you’ll be happy with.
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How Much Will I Get from Social Security?
The average Social Security retirement benefit is more than $1,200 per month ($1,229 in 2012), and the maximum at full retirement age is more than $2,500 ($2,513 in 2012), but the exact amount you’ll get every month depends on how much you earned over your lifetime and how old you are when you start collecting Social Security. You have several ways to get a more meaningful handle on how much will be coming to you when you start collecting benefits:
Use a calculator. You can find Social Security’s online tools at www.ssa.gov/planners/benefitcalculators.htm. These tools include the Quick Calculator, which provides an instant but rough estimate, and the Retirement Estimator, which is based on your actual earnings record on file with Social Security. Other calculators, including AARP’s calculator (www.aarp.org/work/social-security/social-security-benefits-calculator), offer additional options, such as clarifying how earned income may affect your benefit before you reach your full retirement age and offering guidance for married couples.
Look at your personal statement if you have one. Following a hiatus, the Social Security Administration plans to resume mailings of personal statements to workers who are 60 and older. It also plans to make personal statements accessible online. Your statement spells out how much you can anticipate getting at your current rate of earnings if you retire early, at your full retirement age, or at age 70.
Factor in reductions for early retirement and credits for holding off your claim. You get less if you start collecting early, and more if you wait to collect. Social Security reduces your benefit in the range of 5 percent to 6.7 percent per year if you retire early (and your full retirement age is 66). It increases your benefit amount 8 percent per year up to age 70 if you wait past your full retirement age to begin collecting (and were born in 1943 or later). For more information on early or delayed retirement factors and an online calculator, check out www.ssa.gov/OACT/quickcalc/early_late.html.
Consider whether you’ll continue to earn money when you collect benefits. Social Security withholds $1 out of every $2 you earn above a certain amount (revised annually) if you’re collecting retirement benefits but you haven’t reached your full retirement age. A different earnings test applies during the year you reach full retirement age. You get the withheld payments back after you reach your full retirement age. For up-to-date details, go to www.ssa.gov/oact/cola/rtea.html.
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How to Appeal a Social Security Decision
If you’ve applied for Social Security disability benefits and you’ve been denied, don’t give up. You can challenge a benefits decision by Social Security — you just have to take certain steps in a certain order.
Keep in mind that the time clock starts clicking as soon as you receive an adverse decision on your application. At that point, you have 60 days to begin the appeal. (The 60-day time frame generally applies for each step of the appeals process.)
You can start your appeal online (go to www.ssa.gov and click “Appeal a disability decision online”), over the phone (by calling 800-772-1213, or TTY 800-325-0778), or at your local Social Security office (go to www.ssa.gov and click “Locate a Social Security office”).
Most challenges to Social Security decisions involve disability benefits. But the appeals process exists to settle other benefits disputes, as well. An appeal may go through four stages if it isn’t resolved along the way:
Request for reconsideration: At this stage, you don’t actually show up in person anywhere. You just file a request for reconsideration (the form is available at www.ssa.gov/online/ssa-561.pdf) if your initial application is turned down.
Such requests don’t have a very good chance of success, but they are required in most places if you want to proceed to the next phase, where you have better odds of prevailing.
Note: Residents of the following places may skip reconsideration and go straight to Step 2: Alaska, Alabama, Colorado, Louisiana, Michigan, Missouri, New Hampshire, New York, Pennsylvania, and parts of the Los Angeles metropolitan area. (Check with your local field office to be sure.)
Administrative law judge hearing: This stage is when you make your case before the administrative official who has the power to rule in your favor. This is your best shot in the appeals process to win. The judge looks at your case without taking into account the prior ruling, and it may be the first time you’ll be face to face with the decision maker.
You may want to hire a lawyer or other representative who understands the Social Security appeals process and can make your case.
To request a hearing before a judge, print the form at www.ssa.gov/online/ha-501.pdf, sign it, and mail it to your local Social Security office.
Appeals Council: This group of administrative appeals judges is the top level of review inside the Social Security Administration. They may choose to review your challenge, not to review it, or to send it back to an administrative law judge, perhaps with a recommendation that helps your case. At this point, though, most cases are rejected. Nonetheless, you must go through this administrative step if you want to appeal your case in federal court.
To request a review by the Appeals Council, print the form at www.ssa.gov/online/ha-520.pdf and follow the instructions at www.ssa.gov/online/ha-520.html.
Federal court review: When you’ve exhausted your options inside the Social Security Administration, the next step is to sue in federal court. This process can take many months. You won’t testify, but your attorney may argue with his government opponent before the judge. If you lose in federal district court, you can appeal to the appropriate U.S. court of appeals.
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