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2013 Social Security Retirement Guide

Written by Jim Blair

Published by GEB Media, LLC.

Copyright © 2013

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Disclaimers and Legal Notices

Independent Resource Notice

This document is NOT a publication of the United States Social Security Administration. Nor is it endorsed by them,

or affiliated with them in any way. The official website of United States Social Security Administration can be found

at http://socialsecurity.gov

Results Disclaimer

This document contains strategies and advice related to social security benefits that, regardless of the author's

own results and experience, may not provide the same (or any) results for you. The author makes absolutely no

guarantee, expressed or implied that by following this advice you will save money, receive any benefits, or improve

your life in any way, as there are several factors and variables that affect each person's individual situation.

Liability Disclaimer

By reading this document, you assume all risks associated with using the advice contained within it with a full

understanding that you, solely, are responsible for anything that may occur as a result of putting this information

into action in any way, and regardless of your interpretation of the advice.

You further agree that the author or his company cannot be held responsible in any way for the success or failure

of your results as a result of the information presented here. It is your responsibility to conduct your own due

diligence regarding the safe and successful implementation of any information presented here.

In summary, you understand that the author makes absolutely no guarantees regarding the results of applying this

information. You are solely responsible for the results of any action taken on your part as a result of this

information.

Personal Use License

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we require you to report the source of distribution immediately at [email protected] to

ensure that we preserve the exclusive nature and value of this product in the interest of our paying customers.

Furthermore, you are given a non-transferable "personal use" license to this product. You cannot distribute it to

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anyone who violates this copyright ownership.

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Table of Contents

Introduction ........................................................................................................... 4

Chapter 1: Social Security Fundamentals ............................................................... 6

Chapter 2: Benefit Computations ........................................................................... 9

Chapter 3: Options for Single Individuals ............................................................. 20

Chapter 4: Options for Couples ............................................................................ 24

Chapter 5: Options for Widows/Widowers .......................................................... 34

Chapter 6: Divorced Retirees ............................................................................... 41

Chapter 7: Quarters of Coverage ......................................................................... 42

Chapter 8: Medicare ............................................................................................ 44

Chapter 9: Government Pension Offset (GPO) ..................................................... 55

Chapter 10: Windfall Elimination Provision (WEP) ............................................... 58

Chapter 11: Questionable Retirement ................................................................. 61

Chapter 12: Online Application ............................................................................ 63

Chapter 13: Benefit Appeals and Recalculations .................................................. 66

Chapter 14: Who Should Take Early Benefits at Age 62?...................................... 69

Chapter 15: Pre-Retirement Checklist .................................................................. 71

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Introduction

Social Security options for retirees are limited in number, but overlooking them can be costly.

Once you make a decision and file for benefits you are locked into those benefits with very few

choices for change. The Social Security Administration will not discuss all the options available

to you. Their assumption is you have researched all of your options for filing, and decided that

filing an application is best for you and your own situation.

The problem is most individuals do not know what choices are available. Most folks know you

can file at age 62. Did you know if you were born between 1943 through 1954 and you file for

Social Security benefits at age 62 you take a 25% reduction in your monthly benefit from what

you would receive at your full retirement age? This reduction is permanent and will be with you

for the rest of your life.

Do you know your full retirement age? It is different for individuals and is based on the year you

were born. It was initially age 65 but starting for individuals born in 1938 it began to increase

and now reaches age 67 for individuals born in 1960 or later. Those born in 1960 or later who

take Social Security benefits at age 62 receive a 30% reduction in benefits. This reduction not

only affects your benefits but also limits the benefits you leave for your widowed spouse.

Did you know if you delay receiving monthly benefits past your full retirement age you receive

delayed retirement credits that equal an 8% per year increase in your monthly benefit? Those

whose full retirement age is 66 would receive a 32% increase in their monthly benefit payment

if they wait until age 70 to receive benefits. Those are just a few options available to individuals.

A single individual has about 3 different options, a married couple has about 8 different options

and a widow/widower has about 4 different options to consider before filing for their Social

Security. The Social Security Administration will talk to you about some of the well know

options, but you’ll rarely get them to discuss things like the file and suspend and restricted

application options available to married couples. And as more cuts are being made to federal

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budgets, the amount of staff and office hours are declining while the number of applicants is

increasing. This creates a difficult situation for retirees seeking the information needed to make

good decisions.

The good news for readers of this guide is that I intend to help you dispel the mystery behind

how Social Security retirement benefits are calculated and awarded. As a former Social Security

District Manager, I have spent the majority of my life working with the rules and guidelines of

the Social Security Administration. Everything I have learned is available to you in this guide.

This guide is not intended to be a “magic bullet” for acquiring riches at the expense of Social

Security, nor is it a manual for manipulating the system to receive undeserved benefits. What it

is however, is a resource retirees can use to maximize their retirement benefits. You only apply

for Social Security retirement once in your life, so it is reasonable to assume few of you have

the expertise to recognize all of your options. Hopefully after reading my guide you will realize

there are many more things to consider than simply what date to submit your application.

The best strategy for reading through the chapters ahead is to read all of them in order the first

time. You will come across equations and formulas in certain places that can be overwhelming

initially. Do not interrupt your reading by spending hours trying to learn them. Work your way

through the content first and come back to the difficult parts. The calculations are provided as

resource, and in most cases you only need to recognize their output in order to maximize your

benefits.

If you have any questions while studying this guide, you can send them to me via email. My

email address for support questions is [email protected]

Wishing You the Best in Retirement,

Jim Blair

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Chapter 1: Social Security Fundamentals

The best place to begin this guide is with a quick review of Social Security rules and guidelines

that apply to retirement benefits. This section includes a wide range of topics, so I decided to

list them in bite-size paragraphs to break them up in an organized manner. Understanding

these core guidelines from the beginning will make it easier to apply the strategies discussed

later to your own personal situation.

� The 2013 average retirement benefit is $1,261 per month, according to the Social

Security Administration. That equals $15,132 per year, which of course is not a lot. But

keep in mind that Social Security was not created to be a standalone retirement

account. It should be combined with a retirement portfolio that includes savings,

investments and/or pensions.

� Social Security benefits are calculated using the 35 highest years of earning years in your

career. If you have less than 35 years of earnings then your non-earning years will be

represented with zeros. This will negatively affect the average of your benefits

calculation and lower your monthly benefit.

� There is a minimum requirement of 10 earning years to qualify for any amount of

retirement benefits. Social Security measures years in quarters, so it takes 4 quarters of

earnings to equal one year, and 40 quarters to meet the minimum of 10 years.

� As mentioned, the fewer “zero years” you have will improve your income averages, so it

makes sense to pursue more years/quarters of work if you are just short of the 10 year

or 35 year baseline. Each $1,160 in earnings counts as a quarter in 2013 and you can

earn a maximum of 4 quarters of coverage per year. Thus, if you earned $4,640 in

January of 2013 then you will have earned the maximum 4 quarters in only one month.

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� The absolute earliest you can receive retirement benefits is at the age of 62. You can

delay your benefits as late as age 70. Most people understand that the earlier they

enroll the less they will receive on a monthly basis. A 25% reduction in benefits is

applied when you enroll at age 62. This reduction amount decreases the closer you get

to your full retirement age.

� A common myth about the early retirement reduction is that it is a "penalty". This is not

true. The reduction simply recalculates your monthly benefits based on the fact you will

receive more payments over your expected lifetime. It is the 7% interest return that you

miss out on by claiming early.

� Earnings limits apply to benefit recipients younger than full retirement age - age 66 for

people born in 1943 through 1954. For 2013 this limit is $15,120. If you take benefits

early, which is any time before your full retirement age, Social Security will deduct $1 of

benefits for each $2 earned over $15,120.

� In the year you reach full retirement age there is an earnings limit of $40,080 for the

months leading up to your birthday. For example, if your birthday is June 1st then you

can earn up to $40,080 between January and May without penalty. However, Social

Security will deduct $1 from benefits for each $3 earned over $40,080 during this time.

Once you reach your full retirement age, there is no penalty and no limit on the amount

you can earn.

� Some people must pay federal income taxes on their Social Security benefits if they have

what is called other substantial income. 50% of benefits are taxable for individuals with

a combined income between $25,000 and $34,000, and 85% of benefits can be taxed on

individuals whose income exceeds $34,000. For couples, the 50% threshold begins

between $32,000 and $44,000, while the 85% threshold begins for joint incomes more

than $44,000.

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� Everyone who works must pay Social Security and Medicare taxes on their earnings,

regardless of age. Yes, even a 69 year old part-time employee who collects Social

Security benefits is required to pay into the Social Security system!

� One VERY important consideration for early retirees is health insurance. Keep in mind

that you cannot claim any Medicare benefits until age 65. If your employer currently

provides your health insurance then you run the risk of paying high insurance costs (or

having no insurance) if you opt leave your employer’s plan.

� Social Security is configured to provide lower wage workers with a higher percentage of

their average working income in retirement. For example, a low wage worker might

earn a Social Security benefit close to 50% of their pre-retirement income. The average

replacement rate for high income workers is around 25%.

� Your Social Security benefits are protected from most debt collections, but they can be

taken to collect unpaid federal taxes, federal student loan balances, and child support or

alimony. Clearing these debts will leave your Social Security benefits untouched.

� Your Social Security retirement payments do not begin magically appearing in your bank

account when you reach retirement age. If you do not apply for them you will never

receive a single dime from Social Security.

� Social Security disability benefits are automatically converted to retirement benefits

after you reach Full Retirement Age.

Again, this chapter is simply a collection of what I consider to be important facts about Social

Security and retirement. I included them here to answer some frequently asked questions

before we get into more detailed information beginning with the next chapter.

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Chapter 2: Benefit Computations

There are a lot of misconceptions about how the Social Security Administration computes an

individual’s monthly benefit. This is done by computer by the Administration but it is helpful to

understand how your benefits are computed. With this knowledge you can insure that your

benefits are correct, determine any effect a pension not covered by Social Security has on your

benefit, and it will allow you to consider a lot of “what if” scenarios.

To do your own computation you will need to know several things. First you need to know

what your Social Security earnings were in each year you worked. Use all of your earnings no

matter how long ago you earned them. Second you will need to know the indexing percentages

the Social Security Administration uses to bring your past earnings up to “today’s dollars”.

Third you will need to know the bend point figures the Social Security Administration uses to

determine your monthly benefit.

Ideally you still have a copy of the last Social Security statement the Social Security

Administration sent you (pictured above). Unfortunately they are no longer sending them as of

July 2011, however, they are available online at www.socialsecurity.gov. Yes, you can get an

estimate of your retirement benefits using SSA’s retirement estimator tool. But it does not

provide the same information found in the Social Security written statement.

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The newly launched My Social Security website gives everyone instant access to their personal

Social Security data, including lifetime earnings and potential benefits as they are currently

recorded.

“My Social Security Website” can be found at https://secure.ssa.gov/RIL/SiView.do

This new online feature provides a similar service to the paper statements that were once

mailed out annually. It is accessible to anyone with a Social Security number who is 18 years of

age or older. Registration is done directly through the website and the following information

can be found once you are logged in…

- Your Lifetime Social Security Earnings

- Estimated Benefits for Retirement, Disability and Survivors

- Estimated Taxes Paid for Social Security and Medicare

- Additional Planning Information for Retirement and Medicare

A final option, and one that I DO NOT recommend using, is the retirement estimator tool online

at http://www.socialsecurity.gov/estimator/

While this tool may appear to be a handy shortcut, it is not very transparent and therefore is

not a reliable means for insuring accuracy. Yes, you can get an estimate of your retirement

benefits using SSA’s retirement estimator tool. But it does not provide the same information

found in the annual written statement. Omissions include estimates of disability, survivor’s

benefits and your complete earnings record. Furthermore, younger Americans who do not

have 40 quarters of credits are not even permitted to use the tool. The bottom line is that the

statements and the information at “My Social Security” are the two best sources to check for

errors on your account.

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When reviewing your lifetime earnings, keep in mind that the Social Security Administration

measures earnings as wages and/or net earnings from self-employment. Other types of income,

such as investment income, are not included. There is also a maximum earnings cap for each

year. Any amount you earned over the maximum earnings cap does not get taxed for Social

Security. You will see the annual breakdown of the maximum earnings thresholds when I get

into the example computations later in this chapter.

Components of the Social Security Benefits Formula

In addition to your complete earnings record, you also need to know your Indexed Earnings

and Bend Points in order to calculate your monthly retirement benefit at full retirement age.

Let’s take minute to examine what these numbers are and how they are used in the benefits

formula.

Indexed Earnings

Social Security uses your highest 35 years of indexed earnings to determine your average

indexed monthly wages. Indexed earnings are a representation of your past earnings in today’s

dollars. Using such indexing ensures your future benefits reflect the general rise in the

standard of living that occurred during your working lifetime. The Social Security

Administration uses the National Average Wage Index (NAWI) to index earnings for benefit

applicants.

NAWI indexing depends on the year in which a person is first eligible to receive benefits. For

retirement, eligibility is at age 62. If a person reaches age 62 in 2011, then 2011 is the person's

year of eligibility. An individual's earnings are always indexed to the average wage level two

years prior to the year of first eligibility; earnings in the year you obtain age 60 or later will be

taken at face value.

The 2013 indexing factors are provided on the next page…

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For 2013, the indexing factors are:

Year Factor Year Factor Year Factor

1951 15.3544671 1972 6.0247848 1993 1.8579615

1952 14.4550906 1973 5.6700136 1994 1.8093989

1953 13.6902155 1974 5.3518733 1995 1.7396665

1954 13.6199345 1975 4.9797252 1996 1.6585543

1955 13.0184435 1976 4.6582890 1997 1.5671119

1956 12.1673923 1977 4.3949480 1998 1.4891707

1957 11.8020084 1978 4.0715695 1999 1.4105624

1958 11.6989520 1979 3.7440446 2000 1.3366460

1959 11.1467426 1980 3.4346703 2001 1.3055013

1960 10.7258106 1981 3.1205473 2002 1.2925386

1961 10.5167933 1982 2.9577183 2003 1.2616960

1962 10.0152887 1983 2.8203250 2004 1.2056482

1963 9.7755582 1984 2.6637387 2005 1.1630904

1964 9.3917405 1985 2.5548869 2006 1.1119804

1965 9.2226264 1986 2.4812410 2007 1.0637074

1966 8.7032152 1987 2.3324878 2008 1.0397881

1967 8.2440020 1988 2.2230020 2009 1.0557089

1968 7.7138301 1989 2.1383369 2010 1.0313333

1969 7.2923923 1990 2.0439248 2011 1

1970 6.9476144 1991 1.9704932 2012 1

1971 6.9476144 1992 1.8739404

We will use these indexing factors in a bit when I run through the benefits calculation examples.

Bend Points

A three-tiered benefit formula determines a monthly benefit based on your Averaged Indexed

Monthly Earnings (AIME). It is designed to replace a higher percentage of earnings for people at

lower levels. At higher levels of earnings the formula provides higher benefits, but the

percentage of the benefit relative to AIME declines. The earnings levels where percentages

change are called “bend points” because a graph of the benefits would have a bend in the line

at those points.

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The Bend Points Formula provides 90% of AIME up to the first bend point, 32% from there up to

the second bend point, and 15% above the second bend point. Bend points are adjusted each

year for inflation. For 2013 these portions are the first $791, the amount between $791 and

$4,768, and the amount over $4,768. Note that these are applied to your monthly earnings, so

they correspond to annual income 12 times that amount ($9,492 for the first bend point and

$57,212 for the second bend point).

Example 1: Your AIME is $3,000. If you retire in 2013 your benefits would be…

.9(791) + .32(3,000 - 791) = $1,418.78 (before rounding)

This is the monthly retirement benefit you receive if you retire at full retirement age.

Example 2: Your AIME is $5,000. If you retire in 2013 your benefits would be…

.9(791) + .32(4,768 - 791) + .15(5,000 – 4,768) = $2,019.34 (before rounding)

*All monthly benefit amounts are rounded down to the next dime.

So what you see here is a worker with lower wages will replace a higher percentage of those

wages with their monthly benefits (46%). And even though the worker with higher wages gets a

larger monthly benefit, it replaces a lower percentage of wages (42%). This disparity in

percentages grows wider for workers with even higher AIME than those covered in example 2.

The table below shows the official bend points for the last few years…

Year First Bend Point Second Bend Point

2011 $749 $4,517

2012 $767 $4,624

2013 $791 $4,768

Example Benefits Calculations

Okay, so we have discussed the core components you need to calculate your monthly benefits.

You have a record of your lifetime earnings. I gave you a chart with the Index Factor for each

year of earnings. And we know the Bend Points for 2013. Now it is time to plug this information

into the standard benefits formula.

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Example1: Maximum Earnings Worker

A maximum earnings worker is someone who has earnings that exceeded the Maximum

Earnings threshold for Social Security taxes.

Assume our worker was born in 1951 and became age 62 in 2013.

Step 1: Enter the actual earnings in Total Earnings column but do not enter more than the

Maximum Earnings column.

For example, even though our worker earned $5,000 in 1962 they would only enter $4,800 in

the Total Earnings column because that is the maximum amount on which they paid social

security tax for that year.

Step 2: Multiply the Total Earnings Column by the Index Factor and enter results in the

Indexed Earnings column. (graph continued on next page)

Year Maximum Total Index Indexed

Earnings Earnings Factor Earnings

1962 $4,800.00 $4,800.00 10.0152887 $48,073.39

1963 $4,800.00 $4,800.00 9.7755582 $46,922.68

1964 $4,800.00 $4,800.00 9.3917405 $45,080.35 1965 $4,800.00 $4,800.00 9.2226264 $44,283.01

1966 $6,600.00 $6,600.00 8.7032152 $57,441.22 1967 $6,600.00 $6,600.00 8.2440020 $54,410.41

1968 $7,800.00 $7,800.00 7.7138301 $60,167.87

1969 $7,800.00 $7,800.00 7.2923923 $56,880.66 1970 $7,800.00 $7,800.00 6.9476144 $54,191.39

1971 $7,800.00 $7,800.00 6.9476144 $51,598.71 1972 $9,000.00 $9,000.00 6.0247848 $54,223.06

1973 $10,800.00 $10,800.00 5.6700136 $61,236.15 1974 $13,200.00 $13,200.00 5.3518733 $70,644.73

1975 $14,100.00 $14,100.00 4.9797252 $70,214.13

1976 $15,300.00 $15,300.00 4.6582890 $71,271.82 1977 $16,500.00 $16,500.00 4.3949480 $72,516.64

1978 $17,700.00 $17,700.00 4.0715695 $72,066.78 1979 $22,900.00 $22,900.00 3.7440446 $85,738.62

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1980 $25,900.00 $25,900.00 3.4346703 $88,957.96

1981 $29,700.00 $29,700.00 3.1205473 $92,680.25 1982 $32,400.00 $32,400.00 2.9577183 $95,830.07

1983 $35,700.00 $35,700.00 2.8203250 $100,685.60 1984 $37,800.00 $37,800.00 2.6637387 $100,689.32

1985 $39,600.00 $39,600.00 2.5548869 $101,173.52

1986 $42,000.00 $42,000.00 2.4812410 $104,212.12 1987 $43,800.00 $43,800.00 2.3324878 $102,162.97

1988 $45,000.00 $45,000.00 2.2230020 $100,035.09 1989 $48,000.00 $48,000.00 2.1383369 $102,640.17

1990 $51,300.00 $51,300.00 2.0439248 $104,853.34

1991 $53,400.00 $53,400.00 1.9704932 $105,224.34 1992 $55,500.00 $55,500.00 1.8739404 $104,003.69

1993 $57,600.00 $57,600.00 1.8579615 $107,018.58 1994 $60,600.00 $60,600.00 1.8093989 $109,649.57

1995 $61,200.00 $61,200.00 1.7396665 $106,467.59 1996 $62,700.00 $62,700.00 1.6585543 $103,991.35

1997 $65,400.00 $65,400.00 1.5671119 $102,489.12

1998 $68,400.00 $68,400.00 1.4891707 $101,859.28 1999 $72,600.00 $72,600.00 1.4105624 $102,406.83

2000 $76,200.00 $76,200.00 1.3366460 $101,852.43 2001 $80,400.00 $80,400.00 1.3055013 $104,962.30

2002 $84,900.00 $84,900.00 1.2925386 $109,736.53

2003 $87,000.00 $87,000.00 1.2616960 $109,767.55 2004 $87,900.00 $87,900.00 1.2056482 $105,976.48

2005 $90,000.00 $90,000.00 1.1630904 $104,678.14 2006 $94,200.00 $94,200.00 1.1119804 $104,748.55

2007 $97,500.00 $97,500.00 1.0637074 $103,711.47 2008 $102,000.00 $102,000.00 1.0397881 $106,058.39

2009 $106,800.00 $106,800.00 1.0557089 $112,749.71

2010 $106,800.00 $106,800.00 1.0313333 $110,146.40 2011 $106,800.00 $106,800.00 1 $106,800.00

2012 $110,100.00 $110,100.00 1 $110,100.00

Step 3: Choose the highest 35 years and add these amounts together.

The highlighted years in the table above represent the highest 35 years of indexed earnings.

When added together the sum is $3,586,573.90.

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Step 4: Divide the total from Step 3 by 420 (35 years times 12) and round down to the next

lowest dollar. This will give you the Average Indexed Monthly Earnings (AIME).

$3,586,573.90 / 420 = $8539.00

Step 5: Multiply the first $791 of the AIME by 90%. This is the first bend point.

$791 * .90 = $711.90

Step 6: Multiply the amount of the AIME over $791 and less than or equal to $4,768 by 32%.

This is the second bend point.

($4,768 - $791) * .32 = $1,272.64

Step 7: Multiply the amount of the AIME over $4768 by 15%.

($8,539 - $4,768) * .15 = $565.65

Step 8: Add the totals from 5, 6, and 7 and round down to the next lowest dollar. This is the

monthly retirement benefit at full retirement age.

$711.90 + $1,272.64 + $565.65 = $2,550.19

Not too difficult, right? Now let’s do another example with a different tier of lifetime earnings.

Example 2: Worker with Middle Income Worker

A middle income worker is someone whose earnings that DO NOT exceed the Maximum

Earnings threshold for Social Security taxes.

Assume our worker was born in 1951 and became age 62 in 2013.

Step 1: Enter the actual earnings in Total Earnings column but do not enter more than the

Maximum Earnings column.

In this example we do have to be concerned about Maximum Earnings because all of the

workers’ wages fall under the maximum.

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Step 2: Multiply the Total Earnings Column by the Index Factor and enter results in the

Indexed Earnings column.

Year Maximum Total Index Indexed

Earnings Earnings Factor Earnings

1968 $7,800.00 $240.00 7.7138301 $1,851.32

1969 $7,800.00 $3,891.00 7.2923923 $28,374.70

1970 $7,800.00 $3,127.00 6.9476144 $21,725.19

1971 $7,800.00 $2,847.00 6.6152195 $18,833.53

1972 $9,000.00 $6,454.00 6.0247848 $38,883.96

1973 $10,800.00 $7,073.00 5.6700136 $40,104.01

1974 $13,200.00 $6,126.00 5.3518733 $32,785.58

1975 $14,100.00 $4,628.00 4.9797252 $23,046.17

1976 $15,300.00 $8,075.00 4.6582890 $37,615.68

1977 $16,500.00 $9,639.00 4.3949480 $42,362.90

1978 $17,700.00 $10,838.00 4.0715695 $44,127.67

1979 $22,900.00 $11,984.00 3.7440446 $44,868.63

1980 $25,900.00 $12,795.00 3.4346703 $43,946.61

1981 $29,700.00 $16,086.00 3.1205473 $50,197.12

1982 $32,400.00 $17,668.00 2.9577183 $52,256.97

1983 $35,700.00 $14,743.00 2.8203250 $41,580.05

1984 $37,800.00 $14,750.00 2.6637387 $39,290.15

1985 $39,600.00 $16,100.00 2.5548869 $41,133.68

1986 $42,000.00 $16,900.00 2.4812410 $41,932.97

1987 $43,800.00 $16,900.00 2.3324878 $39,419.04

1988 $45,000.00 $16,900.00 2.2230020 $37,568.73

1989 $48,000.00 $12,098.00 2.1383369 $25,869.60

1990 $51,300.00 $13,025.00 2.0439248 $26,622.12

1991 $53,400.00 $14,211.00 1.9704932 $28,002.68

1992 $55,500.00 $12,627.00 1.8739404 $23,662.25

1993 $57,600.00 $15,997.00 1.8579615 $29,721.81

1994 $60,600.00 $17,088.00 1.8093989 $30,919.01

1995 $61,200.00 $20,664.00 1.7396665 $35,948.47

1996 $62,700.00 $21,559.00 1.6585543 $35,756.77

1997 $65,400.00 $22,440.00 1.5671119 $35,165.99

1998 $68,400.00 $24,050.00 1.4891707 $35,814.56

1999 $72,600.00 $21,663.00 1.4105624 $30,557.01

2000 $76,200.00 $21,997.00 1.3366460 $29,402.20

2001 $80,400.00 $22,424.00 1.3055013 $29,274.56

2002 $84,900.00 $22,993.00 1.2925386 $29,719.34

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2003 $87,000.00 $23,576.00 1.2616960 $29,745.74

2004 $87,900.00 $23,958.00 1.2056482 $28,884.92

2005 $90,000.00 $24,492.00 1.1630904 $28,486.41

2006 $94,200.00 $25,136.00 1.1119804 $27,950.74

2007 $97,500.00 $25,881.00 1.0637074 $27,529.81

2008 $102,000.00 $27,608.00 1.0397881 $28,706.47

2009 $106,800.00 $27,955.00 1.0557089 $29,512.34

2010 $106,800.00 $28,427.00 1.0313333 $29,317.71

2011 $106,800.00 $28,886.00 1.0000000 $28,886.00 2012 $110,100.00 $30,002.00 1.0000000 $30,002.00

Step 3: Choose the highest 35 years and add these amounts together.

The highlighted years in the table above represent the highest 35 years of indexed earnings.

When added together the sum is $1,251,845.80.

Step 4: Divide the total from Step 3 by 420 (35 years times 12) and round down to the next

lowest dollar. This will give you the Average Indexed Monthly Earnings (AIME).

$1,251,845.80 / 420 = $2,980.00

Step 5: Multiply the first $749 of the AIME by 90%. This is the first bend point.

$791 * .90 = $711.90

Step 6: Multiply the amount of the AIME over $791 and less than or equal to $4,768 by 32%.

This is the second bend point.

($2,980 - $791) * .32 = $700.48

Step 7: Multiply the amount of the AIME over $4768 by 15%.

Does Not Apply

Step 8: Add the totals from 5 and 6 then round down to the next lowest dollar. This is the

monthly retirement benefit at full retirement age.

$711.90 + $700.48 = $1,412.38

19

Now you should have a good grasp of how to calculate your monthly benefit at full retirement

age (FRA). There are of course other options besides waiting until you reach FRA, and these will

be covered in the chapters ahead.

The big takeaway of this chapter is the fact that you can calculate your benefits yourself. Having

access to your most recent Annual Social Security Statement will save you considerable time by

providing a log of your earnings. All you need to do from there is follow the formula outlined

above.

Perhaps the best part of learning the benefits formula is you won’t have to rely on anyone else

for answers. The phone lines and walk-in traffic at your local Social Security office will cost you

hours of wait time. And through all that waiting you might not even get a direct answer to your

question! The government is deflecting the responsibilities to you for getting the information

about your case. The rest of this book will help you become proactive and self-sufficient in

these matters.

20

Chapter 3: Options for Single Individuals

Options for single individuals who are not entitled to benefits from someone else’s work record

are limited. Basically you are limited to age-related choices. You can file for benefits any time

after age 62 and your monthly benefit amount will be based on your full retirement age (FRA)

benefit and your age when you begin to receive benefits.

Important things to take into consideration as an individual when deciding when to file for

benefits are your health, family medical history, and of course your financial health. If you have

a financial advisor you may want to seek their advice before making your decision. Social

Security is a good base retirement for your other retirement income as it is a lifetime benefit.

That being said, once you file your application the options for changing your decision are

limited. For more information on this subject see “Do Over Provision” in Chapter 11.

Reduction Factors

Individuals who claim benefits prior to the full retirement age have their full benefits multiplied

by a reduction factor. This factor is generally equal to five-ninths of 1 percent (0.56 percent) for

each month the person claimed prior to FRA. The reduction factor changes to five-twelfths of 1

percent (0.41 percent) if benefits are received more than 36 months before FRA. In this case a

20% penalty is also applied for the first 36 months.

If you elect to begin receiving Social Security benefits within 36 months of FRA the monthly

payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is known as

the reduction factor. If you elect to begin receiving Social Security benefits when there are

more than 36 months before FRA the monthly payment will be reduced 20% for the first 36

months plus 5/12 of 1% (0.41%) for each month in excess of 36.

The good news is there is a much easier way to calculate how reduction factors will affect your

monthly benefits. You can use a formula that allows you to enter reductions in terms of months

to simplify calculations. Let me show you how this works.

21

If the reduction factor (number of months prior to FRA) is 1 through 36, subtract 180 by the

reduction factor and then multiply it by the FRA benefit amount. Then divide that total by 180.

This will equal your monthly benefit amount.

Example: 36 months or less before FRA

Say your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security

benefits at age 63. The reduction factor (number of months prior to FRA) is then 36. To

calculate your monthly benefit you would use the formula below:

180 – 36 = 144

144 x $1500 = 216000

216000 / 180 = $1200

Your monthly benefit at age 63 would be $1200.


If the reduction factor (number of months prior to FRA) is more than 36 your Social Security

benefits will be determined using a different formula. Subtract 192 by the number of months in

excess of 36 and multiply it times the FRA benefit amount. Then divide that total by 240. This

will equal your monthly benefit amount.

Example: 37 months or more before FRA

If your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security

benefits at age 62, your reduction factor will be 47 (see the note below). To calculate

your monthly benefit you would use the formula below:

192 – 11 = 181

181 x $1500 = 271500

271500 divided by 240 = $1131


22

Note - Benefits are not payable for any month before you are age 62 for the entire month.

Social Security determines you reach the age of your birthday the day before your birthday.

Only those individuals born on the 2nd

of the month will be eligible to receive benefits the month

of their 62nd

birthday. In that case, the maximum reduction factor for someone whose FRA is

age 66 is 48. For everyone else the maximum reduction factor is 47.

Benefits Options for Individuals

The basic options available to single individuals who are not entitled to benefits on another’s

work record are:

Receive Benefits at Age 62

Receive Benefits at FRA (currently age 66)

Receive Benefits at Age 70

If you take benefits at age 62 you will receive a reduction of about 25% in monthly benefits over

FRA. In 2013, earnings in excess of $15,160 will affect monthly benefits. Social Security will

deduct $1 in benefits for every $2 you earn over $15,160. These figures increase in the year

you reach FRA to $40,080 for only those months before the month you reach FRA and $1 of

benefits are deducted for every $3 you go over the $40,080.

If you delay benefits past FRA you will receive a 5/8 of 1% for each month you delay benefits

which equals 8% per year. You will receive a 32% increase in monthly benefits over FRA if you

wait until age 70.

The following is an example of monthly benefits and what you might expect to receive over

your lifetime in Social Security benefits:

(Continued on next page)

23

Date of Birth: 12/28/1951

FRA Benefit: $2094

Expected Death Age: 81.02 years

No cost of living increases were included.

Options

Age 62 benefit – Monthly benefit $1579 (lifetime benefit $361,591)



24

Chapter 4: Options for Couples

Options for couples include the normal age based choices as well as choices that will maximize

benefits for both individuals. Delaying either of your individual payments will allow payments to

be made while still building monthly benefits. Each member of the couple is free to file for

benefits as they desire, but if you want to maximize your benefit and maximize survivor

benefits you will need to look at other options that both individuals need to consider.

As with anyone, you and your spouse can file for benefits any time after age 62. You and your

spouse’s monthly benefit amounts will be based on each of your full retirement age (FRA)

benefits and the ages at which you begin to receive benefits. You both need to take into

consideration your health, family medical histories, and financial stability when making your

decision. If you have a financial advisor you may want to seek their advice before making your

decision.

Social Security provides a nice foundation for your retirement income, but most people will

need to combine it with other retirement incomes to lead the lifestyle they desire. It is a

lifetime benefit that provides benefit payments not only for your lifetime but also that of your

spouse. Once you file your applications your options are limited on what you can do to change

your decisions. For more information on this subject see “Do Over Provision” in Chapter 11.

The reductions for receiving early benefits are similar to the individual reductions discussed

in the previous chapter. The big difference comes in the administration of spousal benefits.

To keep things consistent I will cover all couples scenarios from the beginning.

If you and/or your spouse elect to begin receiving Social Security benefits within 36 months of

FRA the monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This

number is known as the reduction factor. If you and/or your spouse elect to begin receiving

Social Security benefits when there are more than 36 months before FRA the monthly payment

25

will be reduced 20% for the first 36 months plus 5/12 of 1% (0.41%) for each month in excess of

36.

There is an easy way to calculate how reduction factors will affect your monthly benefits. You

can use a formula that allows you to enter reductions in terms of months (as opposed to the

percentages) to simplify the formula. Let me show you how this works.








180 – 36 = 144

144 x $1500 = 216000

216000 / 180 = $1200







26





192 – 11 = 181

181 x $1500 = 271500

271500 divided by 240 = $1131


Note - Benefits are not payable for any month before you are age 62 for the entire month as

discussed on Page 19 of this book.

Spousal Benefits

If your spouse is alive and receiving Social Security retirement benefits, you may be eligible to

receive a spousal benefit, even if you do not have enough work credits of your own. Eligibility

begins at age 62. The maximum spousal benefit is 50% of what your husband or wife receives.

In cases where you have both worked, it is possible to make a claim for your own benefits and

claim the greater of your own benefit or the spousal benefit. This should be carefully planned to

maximize the overall benefit to the spouse.

If either you or your spouse is eligible to receive spousal benefits you can begin to receive those

benefits as early as age 62. As with receiving benefits on your own work record before FRA, the

benefits will be reduced for age. The reduction for each of the first 36 months of reduction is

25/36 of 1%. The reduction for each month greater than 36 is 5/12 of 1%. The reduction

amount is based solely on the number of months involved.

27

Reduced spousal benefits (prior to FRA) are computed as follows:

If the number of reduction months is 1 through 36 you subtract the number of reduction

months from 144 and multiply that figure by the original benefit. Divide that figure by 144 to

determine the monthly benefit amount.


If your FRA is age 66 and your benefit is $500 and your spouse’s FRA benefit is $2000

and you begin to receive Social Security benefits at age 63, your reduction factor

(number of months prior to FRA) will be 36. To calculate your monthly benefit you

would use the formulas below:

Your Own Benefit:

180 – 36 = 144

144 x $500 = 72000

72000 divided by 180 = $400

Your Spousal Benefit:

$2000 divided by 2 = $1000

$1000 - $500 = $500

144 – 36 = 108

108 x $500 = 54000

54000 divided by 144 = $375

$400 + $375 = $775


Example: 37 months or more before FRA (next page)

28

If the number of reduction months prior to FRA is 37 through 60 you subtract the

number of reduction months in excess of 36 from 180 and multiply that figure by the

original benefit. Divide that figure by 240 to determine the monthly benefit amount.

If your FRA is age 66 and your benefit is $500 and your spouse’s FRA benefit is $2000

and you begin to receive Social Security benefits at age 62, your reduction factor

(number of months prior to FRA) will be 47 (see the note below). To calculate your

monthly benefit you would use the formulas below:

Your Own Benefit:

192 – 11 = 181

181 x $500 = 90500

90500 divided by 240 = $377

Your Spousal Benefit:

$2000 divided by 2 = $1000

$1000 - $500 = $500

47 – 36 = 11

180 – 11 = 169

169 x $500 = 84500

84500 divided by 240 = $352

$377 + $352 = $729





29

The original benefit is equal to ½ of your spouse’s FRA benefit. If you are also entitled to

benefits from your own work record, the original benefit is equal to ½ of your spouse’s FRA

benefit minus your FRA benefit.

Basic Options Available to Couples:

Receive Benefits at Age 62 (either individual or both)

Receive Benefits at FRA (currently age 66) (either individual or both)

Receive Benefits at Age 70 (either individual or both)

Additional Strategies Discussed in this Chapter

File and Suspend

With “File and Suspend” the higher lifetime wage earner applies for benefits at FRA, but

then immediately suspends the benefit payments. What this does is establish the

amount that the lower wage earning spouse can receive in spousal benefits. So it

creates an opportunity to claim spousal benefits while at the same time allowing the

higher wage earner’s own benefits to continue increasing in value until they reach age

70.

Restricted Application

A “Restricted Application” is also valuable for increasing lifetime benefits in situations

where both spouses have a good wage record and one wants to continue to work after

FRA. Here, the working spouse applies for spousal benefits on the other’s record. This

allows him or her to receive spousal benefits while continuing to work and increase their

own benefit until age 70.

The working spouse files a "restricting an application" to other’s benefits only. When the

working spouse chooses to retire, they begin to draw their own higher benefit (which

30

will have fully matured). As a bonus, the spouse who retired first would get a higher

survivor benefit in the future, if that happens.

Spousal Benefits Reductions and Credits

If you take benefits at age 62 your benefit will be reduced from your FRA benefit. Earnings in

excess of $15,120 before your FRA will also affect you and your spouse’s monthly benefits.

Social Security will deduct $1 in benefits for every $2 you earn over $15,120. These figures

increase in the year you reach FRA to $40,080 for only those months before the month you

reach FRA and $1 of benefits are deducted for every $3 you go over the $40,080.

If you delay your own benefits past FRA you will receive a 5/8 of 1% for each month you delay

benefits which equals 8% per year. You will receive a 32% increase in monthly benefits over

FRA if you wait until age 70.

Examples

These are some examples of how certain application options can affect what you and your

spouse might receive over your lifetimes in Social Security benefits. The following assumptions

were made:

Husband


FRA Benefit: $2090

Expected Death Age: 81.07 years

Wife


FRA Benefit $1387

Expected Death Age: 84.08

*No cost of living increases were included in the options that follow.

31

Option 1:

Husband "claims and suspends" August 2014 when both reach Full Retirement Age.

Wife files “restricted application” for spousal benefit August 2014 ($1045).

Wife files for own benefit May 2018 at Age 70 ($1830).

Husband files for own benefit August 2018 at Age 70 ($2758).

Husband receives $383,362

Wife receives $403,792

Total Lifetime benefits $787,154

Option 2:

Wife files for own benefit May 2014 at FRA ($1387).

Husband files “restricted application” for spousal benefit August 2014 at FRA ($693).





Option 3:

Wife "claims and suspends” August 2014 when both reach Full Retirement Age.


Wife files for own benefit May 2018 at Age 70 ($1830)





Option 4:

Wife files own benefit August 2013 at Age 65 ($1294).


32

Husband files own benefit August 2018 at Age 70 ($2758).




Option 5:

Husband files own benefit August 2013 at Age 65 ($1,950).

Wife files “restricted application” for spousal benefit May 2014 at FRA ($1045).

Wife files for own benefit May 2018 at Age 70 ($1830).




Option 6:

Wife files own benefit May 2014 at FRA ($1387).





Option 7:

Wife files own benefit August 2013 at Age 65 ($1,294).





Option 8:


33

Wife files own benefit August 2014 at FRA ($1387).

Husband files own benefit August 2014 at FRA ($2090).




Option 9:


Husband files own benefit August 2014 at FRA ($2090).




Option 10:






Note: In all options, the wife’s benefit converts to widows benefits which equal the husbands

benefit at the time of his death.

The bottom line is the longer you delay taking benefits the more money you will receive over

the long term. However, this does not mean you and your spouse both have to wait until age 70

to significantly expand the value of your lifetime benefits. Using “file and suspend” or

“restricted applications” can create a number of opportunities for your household to receive

benefits at age 66, while at the same time growing your primary benefits and widow/widower

benefits for the future.

34

Chapter 5: Options for Widows/Widowers

Widows and Widowers have options not offered to others. You can file for so-called survivor

benefits any time after age 60 (age 50 if disabled). These monthly benefits will be based on the

deceased individual’s full retirement age (FRA) benefit and your age when you begin to receive

benefits. You can choose between survivor benefits and your own benefit when you are ready

to file. You can switch to the benefit you didn’t originally take at any time.

If you remarry before age 60, you will not qualify for a survivor benefit. However, if you remarry

after age 60, you may be eligible to receive a survivor benefit based on your former spouse's

earnings record. Eligible children (18 and under or disabled) can also receive a survivor benefit,

worth up to 75% of the deceased's benefit.

As you will read in this chapter, it is important to calculate all possible scenarios to make a

decision that is best for your own situation. Consider your health, family medical history, and

your financial health in making your decision. If you have a financial advisor you may want to

seek their advice before making your decision.

Once again, Social Security can provide a good foundation to your complete retirement income

picture. You can take benefits in such a way as to maximize your Social Security benefit once

you reach FRA or age 70. If you elect to begin receiving Social Security benefits before your FRA

(whether it is the widows/widowers benefit or your own benefit) your benefit will be reduced.

The reductions for receiving your own benefits early are similar to the individual reductions

discussed in Chapter 2. The difference with widows/widowers is the additional death benefits

from their spouse, which is dependent on when or if they received benefits before passing

away. To keep things consistent I will cover all scenarios from the beginning.

35

Individual Benefits

If you elect to begin receiving your Social Security benefits within 36 months of FRA the

monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is

known as the reduction factor. If you elect to begin receiving your Social Security benefits when

there are more than 36 months before FRA the monthly payment will be reduced 20% for the

first 36 months plus 5/12 of 1% (0.41%) for each month in excess of 36.

There is an easy way to calculate how reduction factors will affect your monthly benefits. You

can use a formula that allows you to enter reductions in terms of months (as opposed to the

percentages) to simplify the formula. Let me show you how this works.








180 – 36 = 144

144 x $1500 = 216000

216000 / 180 = $1200






36





192 – 11 = 181

181 x $1500 = 271500

271500 divided by 240 = $1131




Widows/Widowers Benefits

Even if you file for early benefits yourself, you can still wait to file for survivor benefits at FRA

with no reduction. If your deceased spouse did not receive a reduced retirement benefit you

will be entitled to 100% of the deceased spouse’s benefit plus any applicable delayed

retirement credits. If your deceased spouse was receiving reduced retirement benefits you will

be entitled to the higher of what he/she would be receiving if he/she were still alive or 82.5% of

his/her FRA amount.

If you take survivor benefits first AND before your FRA AND your deceased spouse did not take

benefits before their FRA, your benefits will be reduced from your deceased spouses FRA

amount including any entitlement to delayed retirement credits.

If your deceased spouse took his/her benefits before FRA, then your survivor benefit will be

reduced using the following formula:

37

1. Widows/widowers benefit based on the higher of the deceased’s death benefit at FRA

or fictitious life benefit at FRA with any applicable delayed retirement credits using the

applicable fraction;

2. 82 1/2 % of the deceased spouses death benefit at FRA;

3. Determine the deceased spouse’s death benefit as if now alive.

4. Arrange the results obtained in 1, 2, and 3 in order from the lowest amount to the

highest amount and identify each by type.

5. Locate the sequence of results obtained in step 4 on the following chart. The benefit

payable is underlined.

NOTE: Bring all FRA amounts up to effective date of widows/widowers entitlement using

any applicable cost of living adjustments.

Determine the deceased workers FRA benefit at the time of his death. You then have to

determine what your benefits will be by reducing the benefit based on your age, what the

benefits would be based on 82.5% of the FRA benefit and the amount of benefit the

deceased individual was receiving at the time of his/her death.

Put those 3 figures in the boxes on the next page by putting the lowest of the 3 amounts in

column 1, the middle amount in column 2 and the highest of the 3 amounts in column 3.

Based on how the amounts work out in lowest to highest order determines which sequence

you will use to determine your monthly benefit amount. Depending on which sequence you

fall, the underlined amount is what you will receive.

38

Low Amount Mid Amount High Amount

Sequence

1 Reduced

Widows/Widowers

82.5% Death FRA Amount Deceased Spouses

Retirement Benefit

Sequence

2 Reduced

Widows/Widowers

Deceased Spouses

Retirement Benefit

82.5% Death FRA Amount

Sequence

3 82.5% Death FRA Amount Reduced

Widows/Widowers

Deceased Spouses

Retirement Benefit

Sequence

4 82 % Death FRA Amount Deceased Spouses

Retirement Benefit

Reduced

Widows/Widowers

Sequence

5 Deceased Spouses

Retirement Benefit

Reduced

Widows/Widowers

82.5% Death FRA Amount

Sequence

6 Deceased Spouses

Retirement Benefit

82.5% Death FRA Amount Reduced

Widows/Widowers

* You may need to call 1-800-772-1213 or go into the local Social Security office for this

information. If you never received any benefits from your deceased spouse’s record you will

have to go into the Social Security office with a copy of the death certificate to prove you are the

surviving spouse. If you are a surviving divorced spouse you will need your divorce decree and if

the divorce decree does not show the date of marriage, you will need your marriage certificate.

A method of computing a reduced widow/widower benefit requires the use of the total

possible reduction factor (RF) based on your date of birth. That number will vary from 60 to 84.

That method is:

(FRA or Unreduced Benefit) x RF x .285 = Reduction Amount

Total possible RF for claimant's date of birth

Round the result up to the next dime. The result is the amount of reduction. Subtract the

Reduction Amount from the FRA or Unreduced Benefit for the amount payable.

EXAMPLE: A widow born on 08/31/1951 is entitled beginning 08/2011. Her FRA is age 66. Her

RF is 66 while the total possible RF is 66. The Unreduced Benefit is $2094.

39

Using the above formula:

$2094 x 66 x .285 = $596.79 rounded up = 596.80

66

$2094 – 596.80 = $1497.20 reduced to the next full dollar amount or $1497.00 payable.

Another way to estimate survivor benefits is by comparing the charts and examples on the

Social Security website at: http://www.ssa.gov/survivorplan/survivorchartred.htm

Benefits Options for Individuals

The basic options available to widows/widowers are:

Age 60 - Receive widows/widowers benefits only AND:

Stay on widows/widowers benefits.

Switch to own benefit at Age 62.

Switch to own benefit at FRA.

Switch to own benefit at Age 70 and receive applicable delayed retirement

credits.

Age 62 – File for own benefit only AND:

Switch to widows/widowers benefit at FRA.

If you take benefits between age 60 and 62 you will receive a reduction in your benefit over

FRA. Earnings in excess of $15,120 will affect monthly benefits. Social Security will deduct $1 in

benefits for every $2 you earn over $15,120. These figures increase in the year you reach FRA

to $40,080 for only those months before the month you reach FRA and $1 of benefits are

deducted for every $3 you go over the $40,080.

If you delay your own benefits past FRA you will receive a 5/8 of 1% for each month you delay

benefits which equals 8% per year. You will receive a 32% increase in monthly benefits over

FRA if you wait until age 70.

40

Examples

The following is an example of monthly benefits and what you might expect to receive over

your lifetime in Social Security benefits. The following assumptions were made:

Deceased Individuals Date of Birth: 12/28/1949

FRA Benefit: $2094

Widow/widowers Date of Birth: 08/31/1951

Own FRA Benefit: $1252

Expected Death Age of surviving spouse: 83.53 years

No cost of living increases were included

Option 1:

Surviving spouse files for widows benefits ($1497 per month) at age 60 and stays on that

benefit. Total lifetime benefit $422,154. There is no reason for the surviving spouse to

switch to own benefit at either age 62 or FRA as these benefits are less than the

widow’s benefit.

Option 2:

Surviving spouse files for widow’s benefits ($1497 per month) at age 60 and switches to

own benefit ($1652) at age 70 with delayed retirement credits. Total lifetime benefit

$447,264.

Option 3:

Surviving spouse takes own benefit ($944) at age 62 and switches to widows benefits

($2094) at FRA. Total lifetime benefit $484,108.

The last option is the one that will pay the surviving spouse the most amount of money over

her lifetime. This is just one piece of the puzzle to consider as outlined above when deciding

when to file and what benefits to take.

41

Chapter 6: Divorced Retirees

Benefits for a divorced spouse or surviving divorced spouse may be payable if certain conditions

exist:

The marriage must have lasted at least 10 years or more;

You must not be currently married;

You must be age 62 or older;

Your ex-spouse must be at least age 62 or older, disabled or deceased;

Note:

The marriage of a divorced spouse will terminate entitlement to such benefits unless the

marriage is to an individual of the opposite sex entitled to widow(er)'s, mother's, father's, CDB,

divorced spouse's, or parents benefits. The divorced spouse can be entitled or re-entitled to

benefits if he/she was divorced from the Number Holder and remarried but the later marriage

terminated, provided the other requirements for entitlement are met.

Benefit payments are computed the same as for spouses (page 19) and widows (page 27).

You do not need to know the Social Security number or the whereabouts of your ex-spouse to

file for benefits. The Social Security Administration will find this information for you.

Taking benefits from your ex-spouse will not affect their benefits or the benefits of the current

spouse if they are remarried.

The options for a surviving divorced spouse are the same as those for a widow/widower. The

options for a divorced spouse are the same as a spouse except the restricted application

process. Also, an independently divorced spouse can draw benefits even if their ex-spouse is

not receiving Social Security benefits if you meet the requirements above and the divorce was

more than 2 years in the past.

42

Chapter 7: Quarters of Coverage

Everyone needs 40 quarters of coverage to be eligible for retirement benefits and premium free

hospital insurance of Medicare. It doesn’t matter when these quarters are earned. If you earn

your 40 quarters in your 20’s and 30’s and never earned another quarter you will still be eligible

for retirement and premium free hospital insurance.

Keep in mind however, that when the Social Security Administration computes your benefits

they will use your highest 35 years of earnings and if you don’t have 35 years of earnings they

will use $0 for those years to compute your monthly benefit amount. These zeros will

significantly impact your Average Indexed Monthly Earnings (AIME) and in turn reduce your

monthly benefit.

How does someone earn a quarter of coverage? People often ask if they can just pay the tax

and purchase a quarter of coverage. You can only earn a quarter of coverage by working for

someone or through self-employment. In 2013, you will earn a quarter of coverage for every

$1,160 of wages or net profit you earn. It doesn’t matter how quickly or how long it takes to

earn the $1,160. You can only earn a maximum of 4 quarters of coverage in a year.

The amount of earnings needed to earn a quarter of coverage in past years is different. After

1977, quarters of coverage are based on increments of covered earnings credited to the

calendar year. The following chart contains the earnings needed to earn a quarter of coverage:

(See full chart on next page)

43

Year Earnings Amount Required Year Earnings Amount Required

Amount for 4 QCs Amount for 4 QCs

2013 $1,160 $4,640

2012 $1,130 $4,520 1994 $620 $2,480

2010/11 $1,120 $4,480 1993 $590 $2,360

2009 $1,090 $4,360 1992 $570 $2,280

2008 $1,050 $4,200 1991 $540 $2,160

2007 $1,000 $4,000 1990 $520 $2,080

2006 $970 $3,880 1989 $500 $2,000

2005 $920 $3,680 1988 $470 $1,880

2004 $900 $3,600 1987 $460 $1,840

2003 $890 $3,560 1986 $440 $1,760

2002 $870 $3,480 1985 $410 $1,640

2001 $830 $3,320 1984 $390 $1,560

2000 $780 $3,120 1983 $370 $1,480

1999 $740 $2,960 1982 $340 $1,360

1998 $700 $2,800 1981 $310 $1,240

1997 $670 $2,680 1980 $290 $1,160

1996 $640 $2,560 1979 $260 $1,040

1995 $630 $2,520 1978 $250 $1,000

Before 1978, quarters of coverage were earned differently. The Social Security Administration

credits Quarters of Coverage on wages paid to an individual after 1936, or on Self-Employment

income for taxable years beginning after 1950. They may use military service wage credits, or

railroad compensation to establish the QCs in some cases. For years before 1978, a Quarter of

Coverage is any calendar quarter beginning January 1, April 1, July 1, or October 1, in which you

were paid at least $50 in wages, or credited with at least $100 of self-employment income (SEI).

44

Chapter 8: Medicare

Medicare coverage is available to individuals age 65 or older, who have been entitled to Social

Security disability benefits for 24 months or those who have End-Stage Renal Disease. This

book will cover Medicare coverage for those ages 65 or older. If you have questions about

entitlement because of entitlement to Social Security disability or ESRD you should contact the

Social Security Administration.

You have 3 enrollment opportunities to file for Medicare. The first is the initial enrollment

period, the second is the general enrollment period and the third is the special enrollment

period.

The initial enrollment period is 7 months beginning with the third month before you turn age

65 and ends the third month after you turn age 65. For example, if your birthday is in June,

your enrollment period would begin March 1st and end September 30th.

The general enrollment period is January 1st through March 31st of each year. If you enroll

during the general enrollment period the Medicare coverage will begin July 1st. You will be

subject to a 10% penalty for each full year you are eligible to enroll in Medicare but wait to file.

The Special Enrollment Period (SEP) is for individuals and their spouses who have an employer

group health plan coverage based on current employment. The SEP is the period for

enrollment in Medicare Medical Insurance or Premium Hospital Insurance is provided for

individuals who are eligible for Medicare Medical Insurance or Premium Health Insurance on

the basis of age or as disabled beneficiaries, and have been (or are currently) covered by a

group health plan (GHP) or a large group health plan (LGHP) based on current employment

status. This is a 7 month enrollment period that begins the first month entitlement to medical

insurance based on employment ends. If you are covered by a group health plan and do not

need the Medicare Medical Insurance it is strongly suggested to apply for the premium free

Hospital Insurance at age 65.

45

There is a 4th enrollment opportunity but it is for those who are Medicare beneficiaries. The

Transfer Enrollment Period is a special enrollment opportunity for Medicare beneficiaries who

are also Health Maintenance Organization (HMO) or Competitive Medical Plan (CMP) enrollees

and whose HMO or CMP enrollment is terminated either on a voluntary basis or because of

termination of the HMO or CMP contract.

If you begin to receive Social Security benefits before the age of 65 you will automatically

receive a Medicare card in the mail about 3 months before you attain age 65. If you have not

filed an application for benefits you will need to file an application for Medicare at age 65 with

the Social Security Administration.

The different parts of Medicare include:

Part A – Hospital Insurance

Part B – Medical Insurance

Part C – Medicare Advantage

Part D – Prescription Drug Coverage

Parts A and B are referred to as original Medicare.

Part A covers expenses when you have to stay as in inpatient in the hospital and skilled nursing

care if it follows a stay as an inpatient in the hospital. This coverage is free if you or your

spouse worked and earned at least 40 quarters of coverage based on Social Security covered

earnings. If you are not entitled to premium free Part A you may be able to purchase Premium

Part A Health Insurance.

Part B covers doctor visits, outpatient hospital visits, lab tests and some skilled nursing care at

home. You do not need to enroll in Medicare Part B if you are covered by an employer’s group

health plan based on you or your spouse’s employment until that coverage ends. See the

46

information on the Special Enrollment Period above. The base premium for Medicare Medical

Insurance for 2013 is $104.90 per month. This can be higher based on your income.

Part C or Medicare Advantage is run by private insurance companies. They combine Parts A

and B under this plan. Some plans also cover Part D. Some plans have deductibles and others

do not. Some plans will only cost the base premium of $104.90 per month the Social Security

Administration deducts from your monthly benefit check. Other plans cost more but cover

more. You can change plans in the fall of each year.

Part D covers prescription drugs. The plan you pick will be based on where you live, what drugs

you take including the strength and frequency of your drugs. You will pay a premium and have

out of pocket expenses as each insurance company covers drugs differently. You can change

plans as your needs change in the fall of each year.

Medicare Means Testing

A change in the Medicare law affects how monthly Medicare Medical Insurance (Part B) and

Medicare prescription drug (Part D) premiums are charged if you have a higher income.

Depending on your (and your spouses) income you may have to pay higher monthly premiums

for these services.

I am sure your first question is does this affect me? The change will only affect a small

percentage of Medicare eligible individuals. The Social Security Administration will determine if

you will have to pay higher premiums. Social Security will use your most recent federal tax

return information to make this decision. If you must pay higher premiums, a sliding scale is

used to make the adjustments. This will be based on your modified adjusted gross income.

This is the total of your adjusted gross income and tax-exempt interest income.

If you have a higher income, you will pay an additional premium amount for Medicare Part B

and Part D coverage. Here is how it works:

47

• Part B helps pay for doctors’ services and outpatient care. It also covers other medical

services, such as physical and occupational therapy, and some home health care. For

most Medicare recipients the government pays a substantial portion—about 75

percent—of the Part B premium and you pay the remaining 25 percent.

Since 2007, higher-income beneficiaries pay a larger percentage of the total cost of Part

B based on income they report to the IRS. Higher-income Medicare recipients pay a

monthly Part B premium equal to 35, 50, 65 or 80 percent of the total cost, depending

on what they report to the IRS.

• Medicare prescription drug coverage (Part D) helps pay for your prescription drugs. The

government pays a major portion of the total costs for this coverage and the Medicare

recipient pays the rest. Plan costs vary depending on the plan, and whether you get

extra help with your portion of the Medicare prescription drug costs.

As they have in prior years, beginning January 1, 2012, higher-income Medicare

recipients with Medicare prescription drug coverage will pay monthly premiums plus an

additional amount equal to 35, 50, 65 or 80 percent of the total cost depending on what

they report to the IRS. The additional amount you pay will be tied to the base premium,

not your own premium amount. Because individual plan premiums vary, the law

specifies that the amount is determined using one base premium.

In 2013, if you file your taxes as “married, filing jointly” and your modified adjusted gross

income is greater than $170,000, you will pay higher premiums for your Medicare Part B and

Part D coverage. If you filed your taxes using a different status and your modified adjusted

gross income is greater than $85,000, you also will pay higher premiums.

If your income information received from the IRS by the Social Security Administration shows

you need to pay higher Medicare premiums, Social Security will send you a letter explaining the

reasons for the increase and what your premiums will be. If you have both Medicare Part B and

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Part D, you will pay higher premiums for both. If you have only one, Medicare Part B or

Medicare Part D, you will pay an income-related monthly adjustment amount only on the

benefit you have. If you decide to enroll in the other program later that year and you already

are paying an income-related monthly adjustment amount, the adjustment will be applied

automatically when you enroll.

To determine your monthly adjustment amount, Social Security will use your most recent

federal tax return information. Generally, this information is from a tax return filed two years

prior (i.e. for 2013, tax year 2011 filed in 2012). If you amended your tax return and it changes

the income counted to determine the income-related monthly adjustment amount, let Social

Security know. They will need to see a copy of the amended tax return you filed and your

acknowledgment receipt from IRS. They will update their records with the information you

provide, and correct your income-related monthly adjustment amount, as appropriate.

If your income has gone down due to any of the following situations and the change will make a

difference in the income level considered, contact Social Security to explain this and request

they make a new decision about your income-related monthly adjustment amount:

• You married, divorced, or became widowed;

• You or your spouse stopped working or reduced your work hours;

• You or your spouse lost income-producing property due to a disaster or other event

beyond your control;

• You or your spouse experienced a scheduled cessation, termination, or reorganization of

an employer’s pension plan; or

• You or your spouse received a settlement from an employer or former employer

because of the employer’s closure, bankruptcy, or reorganization.

If any of the above applies to you, Social Security will need to see documentation verifying the

event and how it has reduced your income. The documentation you provide should be related

to the event and may include a death certificate, a letter from your employer about your

49

retirement, or something similar. If you filed a federal income tax return for the year in

question, you will need to show them your signed copy of the return.

The standard Part B premium for 2013 is $104.90. Since there was a 1.7% cost-of-living

adjustment (COLA) in 2013, people already enrolled in Part B in 2011 with income below

$85,000 for an individual or $170,000 for married couples, will see an increase in their

premiums to $104.90 in 2013.

If you are single and filed an individual tax return, or married and filed a joint tax return, the

following chart will apply:

Modified Adjusted Gross Income

(MAGI)

Part B monthly

premium amount

Prescription drug coverage

monthly premium amount

Individuals with a MAGI of $85,000

or less

Married couples with a MAGI of

$170,000 or less

Standard premium

($104.90 for 2013)

Your plan premium

Individuals with a MAGI above

$85,000 up to $107,000

Married couples with a MAGI above

$170,000 up to $214,000

$146.90

(Standard premium

+ 42.00)

Your plan premium + $11.60


$107,000 up to $160,000


$214,000 up to $320,000

$209.80

(Standard premium

+ $104.90)



$160,000 up to $214,000


$320,000 up to $428,000

$272.70

(Standard premium

+ $167.80)



$214,000


$428,000

$335.70

(Standard premium

+ 230.80)


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If you are married and lived with your spouse at some time during the taxable year, but filed a

separate tax return, the following chart will apply:

Modified Adjusted Gross Income

(MAGI)

Part B monthly

premium amount

Prescription drug coverage

monthly premium amount

Individuals with a MAGI of $85,000

or less

Standard premium

($104.90 for 2013)

Your plan premium


$85,000 up to $129,000

Standard premium

+ $272.70



$129,000

Standard premium

+ $335.70


If you disagree with the decision regarding your new premium amount, you have the right to

appeal. You may request an appeal in writing by completing a Request for Reconsideration

(Form SSA-561-U2) or you may contact your local Social Security office to file your appeal.

You can find the appeal form online at the Social Security website; request a copy through Social

Security’s toll-free number at 1-800-772-1213. You do not need to file an appeal if you are

requesting a new decision because you experienced one of the events listed above and it made

your income go down or if you have shown the information used was wrong.

Conditions for Providing Equitable Relief

Equitable relief is the way of undoing harm caused an individual by the Government's actions,

failure to act, or misinformation. Equitable relief may be granted no matter how few months of

coverage or premiums are involved.

The Social Security Administration and Center for Medicare Services may take action to prevent

or correct inequity to the individual when his/her Medicare Medical Insurance Premium

Hospital Insurance enrollment, termination, or coverage rights are prejudiced because of the

error, misrepresentation, or inaction of an employee or agent of the Government.

(See note on next page)

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NOTE: An “agent” of the Federal Government is one who is authorized to act on behalf of the

Federal Government in matters pertaining to Medicare, such as a social security employee or an

employee of a Medicare carrier. If the evidence shows that an individual received

misinformation from someone (e.g., employer, insurance company) which received the

misinformation from an employee or agent of the Federal Government, this would also qualify

for equitable relief.

- The actions include (but are not limited to) the designation of enrollment and coverage

periods, and appropriate adjustment of premium liability.

- The actions may be part of the initial claims process, post- adjudicative processing, or as a

result of information or decisions that arise from the appeals processes.

- There is no time limit on granting equitable relief for these errors.

- Where the Government clearly erred, equitable relief can be considered by the Social Security

Administration on its own motion without the beneficiary having to ask for it.

Equitable relief applies to Medicare Medical Insurance and Premium Hospital Insurance for

those who are age 65 or older, on Social Security disability or have End Stage Renal Disease.

This relief, however, does not apply to premium free Hospital Insurance.

An equitable relief decision is not subject to appeal; however, an appeal can be made

concerning the correctness of, for example, the entitlement date or the termination date.

Additional evidence relating to erroneous information can be presented during the appeals

process.

(continued on next page)

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Requirements for Equitable Relief

The elements that the SSA requires for equitable relief to be granted are:

• Government error, misrepresentation, or inaction;

• Prejudice to the individual's SMI or Premium-HI rights; and

• Evidence of the error.

If you caused or contributed materially to the Government error by fraud or similar fault,

equitable relief will not be granted even if the main elements are present in the case.

Prejudice to Medicare Medical Insurance Rights

Prejudice to your rights may consist of:

• carrying private insurance you did not need;

• electing surgery in advance of entitlement because you were misinformed about the

entitlement date;

• missing an enrollment period;

• inability to pay a large premium arrearage which accrued due to Government delay; or

• any other hardship with health insurance or health care needs that is traced to

Government error, misrepresentation, or inaction on enrollment, premium collection, or

termination of entitlement.

What the Evidence Must Show

In most cases, the Social Security file must show that an error occurred, e.g., delay in awarding

entitlement, erroneous termination, failure to bill for or deduct premiums, disallowance

reversed on appeal. In other cases, an allegation by the beneficiary may be the first indication

that an error occurred.

There must be evidence which shows that:

• You took such appropriate and timely measures to assert your rights as could

reasonably be expected under the circumstances; and

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• Because of administrative fault, delay, or erroneous action or inaction by an employee

or agent of the Social Security Administration or the Center for Medicare Services or

another Federal Government instrumentality, the enrollment or premium rights will be

impaired unless relief is given.

SUBSTANTIATION OF ALLEGED ERRORS

You may allege that your rights were prejudiced due to misinformation received. Such

allegations must be substantiated.

The Government employee or agent identified as having given the misinformation (if known)

will be asked to report his/her recollection of the event. If the employee cannot recall the

interview or discussion, he/she should nevertheless report on the probability that he/she gave

the misinformation or misadvise that you claim receiving.

If the Government employee or agent cannot be identified for any reason, a statement will be

made by the supervisor or other person in authority as to the likelihood of such an error. This

statement may be based on the supervisor's observations of the type of errors known to have

been committed in the local field office, the fact that there was a preponderance of trainees

who could have interviewed the beneficiary when the alleged error occurred, etc.

In cases involving alleged misinformation from a teleservice center, the Social Security field

office management should assess the likelihood that misinformation was given.

REQUIRED DOCUMENTATION

Equitable relief may not be granted unless the file contains documentary evidence. The

evidence can be in the form of statements from employees, agents, or persons in authority that

the alleged misinformation, misadvise, misrepresentation, inaction, or erroneous action

actually occurred.

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In the absence of such personal knowledge, the evidence can consist of a statement that there

is a strong likelihood based on personal knowledge or prior experience that an error occurred.

What Does Not Justify Equitable Relief

Relief cannot be provided merely because of hardship or because of “good cause” for failure to

enroll. There must be some erroneous action or inaction by the Government which is

prejudicial to the rights of the individual.

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Chapter 9: Government Pension Offset (GPO)

Government pension offset (GPO) applies to spousal benefits when the spouse is also entitled

to a pension from work not covered by Social Security. Government includes federal, state and

local entities. These include but are not limited to Civil Service Pensions, Public Employees

Retirement Systems, some teachers, police and firemen/women. If you have wages where you

contribute to a pension other than Social Security you may see a reduction of any benefit that is

payable for another’s Social Security work record.

A spouse includes a wife, widow, husband, widower, divorced wife or husband, surviving

divorced wife or husband, mother, father, surviving divorced mother or father, young husband

or wife who have a child of the worker in their care.

If any of these conditions apply you may be wondering why your benefits may be reduced.

Benefits paid to wives, husbands, widows and widowers are “dependent’s” benefits. These

benefits were established in the 1930s to compensate spouses who stayed home to raise a

family and who were financially dependent on the working spouse.

It has since become more common for both spouses in a married couple to work, each earning

his or her own Social Security retirement benefit. The law has always required that a person’s

benefit as a spouse, widow or widower be offset dollar for dollar by the amount of his or her

own retirement benefit. For example, if a woman worked and earned her own $800 monthly

Social Security retirement benefit, but she also was due a $500 wife’s benefit on her husband’s

Social Security record, Social Security could not pay the wife’s benefit because her own Social

Security benefit offset it.

Before enactment of the Government Pension Offset provision, if that same woman was a

government employee who did not pay into Social Security, and who earned an $800

government pension, there was no offset, and Social Security was required to pay her a full

wife’s benefit in addition to her government pension. If this government employee’s work had

56

instead been subject to Social Security taxes, any Social Security benefit payable as a spouse,

widow or widower would have been reduced by the person’s own Social Security retirement

benefit. In enacting the Government Pension Offset provision, Congress intended to ensure

that when determining the amount of spousal benefit, government employees who do not pay

Social Security taxes would be treated in a similar manner to those who work in the private

sector and do pay Social Security taxes.

A pension is any periodic or lump sum payment received from a defined benefit or defined

contribution plan (i.e. 401(k), 403(b), or 457) which is based on your own non-covered earnings

while in the service of a State, local, or federal government and is payable because of

retirement or permanent disability. Some pensions that are not included for offset purposes

include but are not limited to Social Security benefits, VA benefits, Black Lung benefits, Railroad

Retirement annuities, workers compensation, state reimbursements for Medicare Medical

Insurance premiums, and survivor annuities.

For GPO to apply, you must be eligible for and entitled to a pension from work not covered by

Social Security. This is determined by the pension paying agency, not the Social Security

Administration. Eligibility for a pension means a pension payment is payable for a month if you

had been separated from the employment and you made the proper application for the

pension payment. Entitled to a pension means you meet the entitlement requirements for the

pension plan which includes filing the application and a benefit is payable for the month.

Determining the offset amount is as simple as taking 2/3rds of your government pension

amount and subtracting it from the auxiliary benefit payable to you. To do this, divide your

government pension by 3, multiple that amount by 2 and deduct the sum from your auxiliary

benefit.

Here are a couple of examples… (Continued on next page)

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Example 1:

Government Pension $1,500

Social Security Spousal benefit $1,000

$1,500 divided by 3 = $500

$500 x 2 = $1,000

$1,000 - $1,000 = $0

Verdict: You are not eligible for any benefit from your spouse’s Social Security record.

Example 2:

Government Pension $1,500

Social Security Widows benefit $2,000

$1,500 divided by 3 = $500

$500 x 2 = $1,000

$2,000 - $1,000 = $1,000

Verdict: You are eligible for a monthly benefit of $1,000 from your deceased spouses

Social Security record.

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Chapter 10: Windfall Elimination Provision (WEP)

If you work for an employer who does not withhold Social Security taxes from your wages the

pension you receive based on that work may reduce your Social Security benefit. In this case

you are entitled to a pension from work not covered by Social Security and you will be subject

to the windfall elimination provision of the Social Security act. These include but are not

limited to Civil Service Pensions, Public Employees Retirement Systems, some teachers, police

and firemen/women.

If you have wages where you contribute to a pension other than Social Security you may see a

reduction in the amount of benefits payable to you each month. The Windfall Elimination

Provision affects how the amount of your retirement or disability benefit is calculated. A

modified formula is used to calculate your benefit amount, resulting in a lower Social Security -

benefit than you otherwise would receive.

Why does the Social Security Administration use a different formula to compute your monthly

benefit? Social Security benefits are intended to replace only a percentage of your pre-

retirement earnings. The way Social Security benefit amounts are figured, lower-paid workers

get a higher return than highly paid workers. For example, lower-paid workers could get a

Social Security benefit that equals about 55 percent of their pre-retirement earnings. The

average replacement rate for highly paid workers is about 25 percent.

Before 1983, people who worked in a job not covered by Social Security had their Social

Security benefits calculated as if they were long-term, low-wage workers. They had the

advantage of receiving a Social Security benefit representing a higher percentage of their

earnings, plus a pension from a job where they did not pay Social Security taxes. Congress

passed the Windfall Elimination Provision to remove that advantage.

Refer back to the chapter on benefit calculations. We discussed how Social Security benefits are

based on your highest 35 years of wages after your earnings are indexed or adjusted for

59

inflation. Social Security then uses three brackets (bend points) to determine your monthly

benefit payment. Once the SSA determines your averaged indexed monthly wage, your benefit

is determined by multiplying 90% times the first bracket, 32% times the second bracket and

15% times the third bracket.

Within the Windfall Elimination Provision, the 90% factor is reduced by using a modified

benefits formula. With certain exceptions, the 90% factor is reduced to 40%.

One of these exceptions occurs if you have 30 or more years of “substantial” earnings in a job

that Social Security taxes. In these cases the 90% factor is not reduced. See the chart below.

Year Substantial Year Substantial Year Substantial

Earnings Earnings Earnings

1937-54 $900 1984 $7,050 2001 $14,925

1955-58 $1,050 1985 $7,425 2002 $15,750

1959-65 $1,200 1986 $7,875 2003 $16,125

1966-67 $1,650 1987 $8,175 2004 $16,275

1968-71 $1,950 1988 $8,400 2005 $16,725

1972 $2,250 1989 $8,925 2006 $17,475

1973 $2,700 1990 $9,525 2007 $18,150

1974 $3,300 1991 $9,900 2008 $18,975

1975 $3,525 1992 $10,350 2009 $19,800

1976 $3,825 1993 $10,725 2010 $19,800

1977 $4,125 1994 $11,250 2011 $19,800

1978 $4,425 1995 $11,325 2008 $18,975

1979 $4,725 1996 $11,625 2009 $19,800

1980 $5,100 1997 $12,150 2010 $19,800

1981 $5,550 1998 $12,675 2011 $19,800

1982 $6,075 1999 $13,425 2012 $20,475

1983 $6,675 2000 $14,175 2013 $21,075

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Exceptions are also made if you have “substantial” earnings in 21 to 29 years. After you

determine the number of years of substantial earnings you have (as outlined above) you can

determine the percentage used in the first bend point. The 90% factor is reduced as outlined

below.

Years of

substantial

Percentage

earnings

30 or more 90 percent

29 85 percent

28 80 percent

27 75 percent

26 70 percent

25 65 percent

24 60 percent

23 55 percent

22 50 percent

21 45 percent

20 or less 40 percent

If you get a low pension you are protected. The reduction to your Social Security benefit cannot

be more than half of the amount of your pension that is based on earnings after 1956 on which

you did not pay Social Security taxes. While your pension can be reduced by as much as $385

per month, it is never taken down to $0.00. You will receive some type of monthly payment.

The windfall provision does not apply to survivors benefits. If you arrange for your surviving

spouse to receive your pension based on work not covered by Social Security, they will still be

eligible for their full Social Security benefit based on their own work record.

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Chapter 11: Questionable Retirement

Individuals filing for Social Security monthly benefits between the age of 62 and their full

retirement age AND who are self-employed or a corporate officer will find they have to provide

the Social Security Administration with proof that their work and earnings have been reduced

before benefits will be paid. The Social Security Administration refers to this as “Questionable

Retirement”.

In the recent past, the SSA actively sought and questioned individuals who they believed were

still working more than 45 hours a month as self-employed. But effective December 2011, the

Social Security Administration accepts and posts the earnings allegations of corporate officers

and self-employed individuals without questioning or developing the allegations.

Previously, they had a long-standing policy to develop questionable allegations of retirement

made by corporate officers and self-employed individuals. The rationale for creating the

questionable retirement policy was that corporate officers and self-employed individuals could

control the amount of their earnings, by reporting lower than actual earnings, thereby avoiding

deductions under the annual earnings test. The Social Security Administration believed that the

application of this policy to those individuals would provide long-term program dollar savings to

the trust fund.

Over time Social Security found that the time spent questioning corporate officers and self-

employed individuals, and the processing associated with this policy did not always result in

consistent payment decisions. In addition, while the QR determinations provided immediate

program savings to the Social Security Trust Fund, there were no long-range savings.

Once the individual reached their full retirement age and Social Security applied the adjusted

reduction factor, the individual ended up with a higher ongoing monthly benefit amount. Since

individuals are living longer, this higher ongoing monthly benefit eventually eliminates any

short-term program dollar savings. If Social Security initially accepts the lower earnings

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allegations, they permanently reduce the benefit amount. This lower benefit amount results in

benefit outlays over a lifetime of about the same or less as if Social Security had imposed

questionable retirement and then adjusted for the adjusted reduction factor.

The elimination of the questionable retirement policy does not affect the substantial services in

self-employment policy. The Social Security Administration will continue to develop for

substantial services in the grace year for self-employed individuals.

In your initial year of retirement (grace year) Social Security holds that if a taxpayer spends

more than 45 hours a month in self-employment he/she is not retired. Less than 15 hours a

month is retired. Work between 15 and 45 hours a month may be considered as retired.

A simple way to avoid any questionable retirement claims is to simply wait until full retirement

age before beginning to collect Social Security retirement benefits. Once an individual has

reached full retirement age, Social Security no longer tracks how much an individual earns as

full benefits have already matured.

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Chapter 12: Online Application

The Social Security Administration is pushing to have people file their applications for

retirement disability and Medicare benefits online. This is due in part to the number of people

filing for benefits and Social Security’s struggle with staffing of their field offices. Filing for

benefits online is a good way to file. You can file from the comfort of your home, don’t have to

wait to talk with someone and can leave the application and come back to it later if needed.

It is recommended that you apply up to four months before you want your retirement benefits

to begin. For example, if you want to receive benefits in June then you would file by the end of

January to be safe.

Someone from your local Social Security office will still review your application and likely give

you a call to verify some information or let you know what documents they may need to

complete the processing of your application. The retirement and Medicare online application is

simpler than the disability process because medical information is also collected. All

applications gather the information needed to process your request to completion.

Some of the questions you have to answer whether you file in person, by phone or online

include:

Initial Information

Your full name, Social Security number, gender and date of birth;

Your mailing and residence address;

Your phone and email contact information;

Your language preference;

Your place of birth and citizenship information;

Personal Information

Other Social Security numbers and names you have used (ex. maiden name);

64

Have you been unable to work during the last 14 months and is your disability expected

to last at least 12 months or can be expected to result in death?

Family

Are you currently married?

If yes, your spouse’s name, Social Security number, date of birth, marriage date,

marriage type (i.e. clergy or public official, etc.), and place of marriage;

Have you had any prior marriages that lasted 10 years or more?

Do you have any unmarried children under the age of 18?

Do you have any unmarried children aged 18 to 19 still attending elementary or

secondary school full time?

Do you have any children who became disabled prior to age 22?

Earnings

Did you work or will you work in the current year?

If yes, your employer’s name, address, date your employment started and ended (or will

end);

Are you self-employed?

Have your or your spouse worked outside the US?

Do you agree with your earnings history shown on your Social Security statement?

Are you a corporate officer of your employer?

Are you related to a corporate officer of your employer?

Do you receive earnings from a family corporation or other closely held corporation?

May Social Security contact your employer if necessary?

What are your total wages and tips in the current year?

Did you earn wages and tips over $1220 in all months of 2012 (this figure will normally

change each year)?

Months of 2012 when earnings are less than $1220 (this figure will normally change

each year);

65

Do earnings include any special payments paid in one year but earned in another year?

Other Pensions/Annuities

Have you ever worked in a job where Social Security taxes were not deducted or

withheld?

Did your spouse work for the railroad for 5 years or more?

When to Start Benefits

You will be asked what month you want your benefits to begin;

Will you accept an age-related reduction in benefits?

Direct deposit information including the bank routing number, your account number

and the account type (savings, checking, etc).

Other Benefits

Have you recently filed an application for Supplemental Security Income benefits?

Do you intend to apply for Supplemental Income benefits?

Have you filed any previous application(s) for Medicare, Social Security, or Supplemental

Security Income benefits?

Health Insurance

Have you enrolled in Medicare Part B?

Do you want to enroll in Medicare Part B?

Are your receiving Medicaid?

Remarks

You are given the opportunity to add any remarks you feel are necessary.

Once your application is complete you will be given the opportunity to review your answers and

make any corrections before submitting your application to the Social Security Administration.

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Chapter 13: Benefit Appeals and Recalculations

Automatic Reviews

Social Security will review your benefits calculation every year to check for increases. Thus, it is

possible to positively influence your lifetime income averages if new earnings from wages can

replace one of the 35 years used previously to compute your retirement amount. However, if

you are continuing to work for this reason then it makes more sense to wait until full

retirement age in to avoid the earnings cap.

This automatic annual review usually occurs in the fall, after all employer W-2’s are processed.

For example, increases due to 2011 earnings were paid in November 2012, retroactive to

January 2012.

Another annual event is the COLA (cost of living adjustment) review. In January 2013, the Social

Security administration announced that benefits would increase 1.7% to accommodate national

cost of living increases. The COLA adjustment was 3.6% in 2011. There were no COLA increases

in 2010 or 2009.

Finally, when you reach full retirement age, your benefits are reviewed to be sure all reductions

for age apply, with increases for months that work prevented benefit payment. In the case of

early retirees receiving benefits while still working, this review could increase benefits if their

earnings were high enough to prevent benefit payment for five months. The review at full

retirement age would result in a benefit increase by the amount of those five months.

Protective Filing

Protective filing is the term used for the first time you contact the Social Security

Administration to file a claim for retirement. Protective filing dates may allow an individual to

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have an earlier application date than the actual signed application date. This is important

because protective filing often affects the entitlement date for retirement beneficiaries and

their dependents.

Note that a written statement must establish intent to file. This may be necessary to protect

your rights to receive benefits beginning with a specific month. The Social Security

Administration cannot begin your benefits any earlier than the month you file if you want

benefits to begin before your full retirement age. Even if you are at your full retirement age or

older, retroactivity of benefits is limited.

The written statement must show your intent to claim benefits either for yourself or on behalf

of another. A written statement of intent to file must be signed or initialed (this includes typed

signatures and initials) by you, a third party, or an SSA employee to establish the protective

filing date. A Social Security Administration employee's personal identification number satisfies

the signature requirement when the employee completes the 800 Number System Worksheet

to document the protective filing date. A written statement also includes the date you or the

third party first completes the Internet Claim.

Do Over Provision

You may have unexpected changes after you file for your Social Security retirement benefits. If

you are receiving Social Security Retirement benefits and you change your mind (for any

reason) you may be able to withdraw your Social Security claim. You can then re-apply at a

future date.

You can only do this before you are entitled to retirement benefits for less than 12 months and

you are limited to one withdrawal per lifetime. This is a change in policy that the Social Security

Administration began December 8, 2010. Before the change you could withdraw your

application at any time. It is now even more important to make the right decision the first time.

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Appeals

If the Social Security Administration makes a decision you disagree with, you can file an appeal.

The first appeal is called a Request for Reconsideration. A person other than the person who

made the initial determination will review the case and any additional information you provide

and determine if the decision was correct or should be changed.

If you still disagree with the decision after the reconsideration process, you can file a Request

for Hearing before an Administrative Law Judge. You will then be granted a hearing and will

present your case before the Administrative Law Judge. If you still disagree with the decision

you can request an Appeals Council review of the Judge’s decision.

You have 60 days from the date of the decision to file your appeal. Social Security will grant

you an additional 5 days for mail time when filing your appeal. If you are outside your appeal

period, you can still file if you have good cause for late filing.

Earnings Test

If your age is under your full retirement age, employment can prevent you from receiving some

or all of your Social Security retirement benefit. The amounts change yearly. In 2013 if you are

between age 62 and December 31st of the year before you reach your full retirement you can

earn up to $15,120 each year without affecting your Social Security benefit. If you earn over

that amount the Social Security Administration will withhold $1 for every $2 you earn over

$15,120. The year you reach your full retirement age the yearly amount increases to $40,080

per year with $1 for every $3 you go over $40,080 withheld from your Social Security benefit.

Only earnings for months before you reach your full retirement age counts toward the $40,080.

Once you reach your full retirement age earnings have no effect on your Social Security

monthly benefits.

Note: This only refers to wages affecting the receipt of monthly payments. It does not refer to

recalculation of benefits based on your earnings.

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Chapter 14: Who Should Take Early Benefits at Age 62?

There will always be situations where, even if you understand the advantages of delaying

benefits, you simply cannot wait 3 to 8 years without the additional income provided by Social

Security. Here are a few situations where it likely makes sense to take early benefits at age 62,

despite the fact that it will cost you money in the long run.

Low Income

It doesn’t help you to earn more benefits later if you can’t afford to pay your bills today. You

should always prioritize your immediate needs (housing, food and transportation) before

worrying about investment returns. You wouldn’t starve yourself to add money to a savings

account, and Social Security is a form of retirement savings. The bottom line is you need food

and shelter first, so if that is a concern then go ahead and claim your benefits early.

Health Issues

None of us will live forever and you will need to survive into your eighties to gain the highest

returns from the strategies in this book. With that in mind, if you have a medical condition that

will likely prevent you from seeing your 83rd birthday, then you might decide to enjoy your

benefits today. Keep in mind though that your decision here could affect your spouse’s benefits

as discussed on Chapter 3.

Secure Health Insurance

This is a big one, and it impacts everyone regardless of their current health. Even if you elect to

receive early benefits at age 62, your Medicare insurance does not begin until age 65. Don’t

leave a stable job with health benefits solely on the premise that a combination of savings and

social security will be enough to fund your retirement. An average couple in their 60’s pays

close to $2000 per month for private health insurance (not including out-of-pocket expenses).

You really need a secure health insurance plan between the ages of 62 and 65 if you want to

minimize the risks of claiming early retirement.

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Better Financial Opportunities

What I would call “the rarest of circumstance” would be if you have an investment option that

exceeds the risk-free 7% return of delaying your benefits. This only applies to people who have

an extraordinary investment opportunity, or those who are comfortable gambling away their

returns in hopes of beating the 7% guaranteed return. If you are lucky enough to be in this

group then by all means take advantage of your good fortune.

Officially Retired

Many of you will continue to work after age 62, and if you make over $15,120 the government

will reduce your benefits $1 for every $2 you earn over this amount. Your early benefits will

also factor into how much you pay on income taxes at the end of the year. So although you will

be receiving more money with early benefits, a hefty chunk will disappear before it lands in

your checking account. Thus, you want to be officially retired before opting for Social Security

benefits at an early age.

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Chapter 15: Pre-Retirement Checklist

What do you need to do before you file for Social Security benefits? What can be done after

you file for Social Security benefits? Not considering all of your options before you file can put

you in a bad situation and you may be stuck with your decision.

Social Security benefits are a lifetime benefit. This can be not only your lifetime but also your

spouse’s lifetime. Social Security benefits were never meant to be your only income in

retirement. They should complement your other sources of retirement. They make a good

base income when you are trying to decide how to use your other investments. The choices

you make of when to draw your Social Security benefits affects your monthly income and that

of your spouse if they survive you. Taking benefits at 62 will cut your benefit by 25% over your

full retirement age benefit. It will also limit the amount your surviving spouse can draw when

you die. Waiting until age 70 will increase your full retirement age benefit by 32%. This also

increases the benefit to your spouse if they survive you.

Of course money isn’t the only consideration when deciding when to take your benefits. Other

things to consider include your health, your family history and your current financial standing.

Delaying benefits can take several years to reach the “breakeven point” but if you live to the

average age of 75 for men and 80 for women you will recover the initial loss and a lot more.

Looking at all of your options is the only way to make sure you are making the right decision.

You have anywhere from 3 choices for single individuals to 10 choices for married couples.

The commissioner of Social Security has told his employees not to discuss these options with

you. He stated he believes the American public is very smart and through the internet they will

have researched their options and know what they want to do when they contact Social

Security to file for benefits. In fact, the goal of the Social Security Administration is to have at

least half of the retirement applications filed online.

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It is my experience that most people, while very smart and internet savvy, do not know about

all of the options available. Not knowing all the options can result in you not receiving the

maximum benefit possible in Social Security Benefits.

If you file for benefits and find later you made the wrong decision you may not be able to

correct your mistake. You have one year from the time you became entitled to benefits to

withdraw your application. Even if you can withdraw you have to come up with all the money

Social Security paid you before they will process the withdrawal. You can only file this

withdrawal once.

All that being said, my Social Security pre-retirement checklist is short but very important:

1. Before you file make sure you consider all options available to you and your spouse.

2. Talk to someone about your decision before actually filing your application.

3. If you filed an application for retirement benefits and you feel you made a mistake

be sure to talk with someone. An employee of the Social Security Administration or a

non-governmental Social Security consultant will help you explore any options

available.

Good luck with your decision.

Jim

[email protected]

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