The snow outside makes it feel like this is finally the year that spring will never arrive. However, we’ve all been through this before and know that it always does. As you emerge from hibernation and prepare for spring, why not make a personal investment into spring cleaning your finances? One area often overlooked are Social Security benefits. With Social Security benefits, the to-dos vary based on your current stage in life.
Still paying in stage
For 2019, wage earners will pay 6.2% into the Social Security system on earnings up to $132,900. This percentage has stayed steady for several years. However, the wage limit has seen increases almost every year. Under the current Social Security system, a higher wage limit positively affects the calculation of retirement benefits. This can result in higher payments in retirement, so not all bad news.
Spring cleaning to-do:
Create an account that will allow you to view your Social Security record. Proactively manage this piece of your life by reviewing your “Earnings Record” each spring when you do your taxes. Your earnings record each year should mirror what is reported on your W-2. Any errors should be reported promptly to the Social Security Administration.
Retired, but not yet collecting stage
Generally, this is the life stage that affords people the most decision-making power. The “file and suspend” option was removed by Congress through the Bipartisan Budget Act of 2015. However, the “restricted application” option still exists for people born prior to January 2, 1954. As the system exists today, you can also start your benefits as early as age 62. Or, if you prefer, wait until age 70.
Spring cleaning to-do:
Engage with two knowledgeable parties to help navigate through all your options: your local Social Security office and your financial advisor. The Social Security office will give you specific details based on your age, your earnings record, and the earnings record of a current or former spouse. You can then share that information with your financial advisor to model out the options most appropriate for you given all the other variables in your life.
Applied for and receiving stage
Current recipients of Social Security benefits will see their payments increase by 2.8% in 2019. Inflation generally triggers increases and the cost of living also going up so most people will notice little impact overall. Once you have applied for benefits, there is very short timeframe in which you can make changes.
Spring cleaning to-do:
Determine if the federal withholding taken from your Social Security payments are sufficient. Up to 85% of your benefits may be included in your taxable income so if you end up with a large federal refund or balance due, an adjustment may make sense. State withholding is not an option.
While the government has regulatory and administrative oversight of the Social Security system, each taxpayer should evaluate his or her options related to benefits that can be controlled. Make it a habit to revisit Social Security each spring, and think warm thoughts while you’re at it!
