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What You Need to Know About Social Security

Bob Edwards discusses changes coming in 2020 and how the program can work for you

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Bob Edwards: Hello, I'm Bob Edwards with an AARP take on today. Happy early Thanksgiving that's coming up next week, which means that black Friday, cyber Monday and the gift giving holidays are just around the corner. This time of year many of us are taking stock of our finances and if you're retired or just preparing for retirement, that means catching up on the latest changes to social security benefits today. We'll let you know about those changes before talking to Rob Clark, a consultant and former career employee of the Social Security Administration. He'll talk to us about the basics of the program, but first, here's what's coming to social security in 2020.

The cost of living adjustment or COLA by 1.6%. On average, an individual will receive about $288 more in 2020. This increase is less than in previous years. While COLA increases are a good thing, unfortunately, Medicare part B premiums are set to increase by nearly 7% next year according to the Center for Medicare and Medicaid services or CMS. CMS says the increase in part B premiums and deductibles is largely due to rising drug costs. The announcement is yet another clear example of how prescription drug prices are rising faster than inflation. And don't forget, open enrollment for Medicare began on October 15th and ends on December 7th. This is the one period during the year when people can take stock of their coverage and make the choices that will best meet their healthcare needs.

And now joining us is Rob Clark. We'll share the basics on social security and tips to maximize your benefit. Thank you for being on the show Rob.

Rob Clark: Pleasure to be here. Thanks for having me.

Bob Edwards: Tell me a bit about your long career with social security.

Rob Clark: I spent 38 years working with the Social Security Administration stationed out of a field offices, mostly in the state of Maine. Worked as a claims representative, help people get signed up for their social security, and then I spent a number of years as a public affairs specialist, left government services a few years ago and providing some consulting services and have been working with the ARPP for the past years.

Bob Edwards: Oh, you're definitely the man we need to talk to. For those who are on the cusp of collecting their social security benefits, what are some things they should know before they enroll?

Rob Clark: Well, the first and foremost is to do homework on a how much you're going to receive and social security, how your age might effect, how your social security fits in with other plans you've made for your retirement. And hopefully with it social security along with the other plans you've made, have a comfortable retirement.

Bob Edwards: Now, how do you determine your retirement age?

Rob Clark: Well with social security retirement benefits, you can collect as early as the age of 62. However, if you start your benefit early, social security reduces your benefit. Social security has a full retirement age, which is currently age 66 and it's going up to age 67. So if somebody wants to receive their full social security, they would hold off until full retirement age. Although they can collect early, collecting early means a reduced benefit and every deduction sticks with you for your lifetime.

Bob Edwards: So how do you determine what monthly benefit you'll receive?

Rob Clark: The best way to do that for your own retirement benefit is to check your social security statement. And you can do that by going to the social security website, which is socialsecurity.gov and check your my social security account. In your my social security account, once you register that, you can view your social security statement at any time. And that statement shows your earnings history and it gives you estimates of your retirement benefits at different ages. And just recently the social security administration has added a personal calculator so that you can use that calculator to find out how much your social security would be at any claiming age from 62 actually up to age 70. You can increase your retirement benefit by delaying up to age 70. You can also play around with the calculator and use different future earnings. What if you earn more? What if you earn in less? So, it's a fantastic tool for getting a very accurate estimate of how much you're going to get.

Bob Edwards: Can you work and still collect social security?

Rob Clark: That depends on your age. I mentioned social security full retirement age, which is currently 66 it's gradually going to increase until 67. It's age 67 for people born in 1960 or later, but once you reach full retirement age as of that month and year, you can work and collect your social security. There's no limit on your earnings. However, if you decide to start collecting your social security before your full retirement age, there are limits on how much you can earn before you start to lose benefits. For example, next year in 2020 somebody who's under full retirement age can earn up to $18,240 and collect all of their social security. Earn more than that, and then social security takes away $1 from your benefit for every $2 you earn over the limit. So if you're full retirement age, whether you can collect and work depends on how much your earnings.

I should mention that in the year you reach your full retirement age, there is a higher earnings limit. Now these limits change every year, so be sure to check in with social security if you're thinking about starting early to find out what your earnings limit is for that year.

Bob Edwards: Earlier we mentioned the cost of living adjustment increase is smaller this year than years prior. What determines that increase?

Rob Clark: The social security cost of living adjustment is based on the consumer price index for wage earners and urban clerical workers. The CPIW is what they call it, and it's based on the change in inflation from the third quarter of each year. So they looked at the third quarter of this year and compared it to the last social security increase and the CPI had gone up 1.6% and that results in a 1.6% increase in social security benefits for 2020. Now I will mention there have been occasions in the past decade where inflation has not gone up, and as a result, social security benefits have not go on up. The good news is there that there's no provision in the law for social security benefits to go down if there is no inflation. So it does depend on how the economy's doing as to how much that increases.

Bob Edwards: How can you maximize your social security benefit?

Rob Clark: Well, when it comes to maximizing your social security retirement benefit, basically what you're talking about is working longer. Social security retirement benefits are calculated based on your 35 best years of earnings. So if you continue working and have higher earnings, that will increase your benefit. So working longer, earning more money can increase it. And the big thing that increases your benefit is waiting until you're older to collect your social security benefit. If you find your full retirement age for social security and you start at your full retirement age, you get your full benefit with your own retirement benefit. You get less if you start early, you actually get more. If you delay claiming up to the age of 70. So starting early can result in a up to a 30% decrease in your benefit. Waiting until you're older can result in somewhere between a 24 and 32% increase in your benefit. So waiting until you're older will maximize your social security benefit.

Bob Edwards: Should social security be my main source of income when I'm retired?

Rob Clark: Now social security was never intended to be your only source of income when you retire. It was intended to provide a foundation for your retirement, and that's a very important foundation because it is adjusted for inflation and it is payable for your lifetime, but it's always been intended that as we work, we make other plans to go along with our social security benefit. To give you an example, if we have an average worker retiring today at the age of 66 who spent a lifetime earning an average wage in the United States, social security's going to replace 40% of their preretirement earnings. And as I talked to financial advisors, they generally advise that you want to try to replace a 70 to 80% of your income in order to maintain your standard of living.

Bob Edwards: What is a supplemental security income and social security disability insurance and how do I know if I qualify for either?

Rob Clark: Right. And social security administration manages the social security program and they also administer another program which is called supplemental security income. Now supplemental security income, commonly known as SSI is a program that's funded with general tax revenues and it's a income supplement program for people who are either disabled or over the age of 65 who have little or no other income and very little in savings. So it's a needs based program. You need never have worked to qualify for SSI, but if you wanted to find out if you might qualify for SSI, the best thing is to talk to a social security administration representative.

Now social security disability on the other hand is part of the social security package of protection that a worker gets by working in a job and paying social security taxes. So the social security disability program sometimes referred to as SSDI just to make it confusing is funded through the social security taxes. It's for workers who become unable to work, have not reached full retirement age, paid into social security and might qualify for disability benefits.

Now the social security statement I mentioned earlier that you get with your, my social security account also gives estimates of disability benefits. So if you thought you might need to apply for disability either now or sometime in the future, if you look at your social security statement, it will tell you how much you could expect to receive from social security if you qualified for social security disability. It's really good to look at that, especially for younger workers who are doing some financial planning.

Bob Edwards: Can I collect social security from an ex or a deceased spouse?

Rob Clark: You might. Social security provides benefits not just for the worker who paid in to the system, but also for that worker's, spouse or surviving spouse in the case of a deceased worker, and also in some situations for a former spouse, an ex spouse. Essentially, if you want to collect a benefit on your current spouse, your current spouse has to start collecting his or her own social security, that opens up the record and then you would have to be at least age 62 have been married at least a year. And if that spousal benefit is higher than your own social security benefit, normally social security pays you your own benefit first and then the extra from your spouse's record to bring you up to the higher amount. In survivor benefit cases, it works much the same way. If you're married at the time of your spouse's death and you're at least age 60 you could possibly qualify for a survivor benefit.

For divorced spouses in order to collect, you must have been married at least 10 years. So you bring up a great point here. If you haven't thought about social security benefits, you might be able to collect through a marital relationship. That's something you should really look into. And if you have any questions, again, contact the social security administration directly and they can help you evaluate your personal situation and let you know what might be there.

Bob Edwards: What if I'm not working, but I have a spouse who's younger and still works and we file a joint tax return. Do they assess my income on the total amount? I mean, am I penalized for that?

Rob Clark: Well, when it comes to collecting your own social security benefit, you can collect your own social security benefit that you learned regardless of whether or not your spouse is working. So if I'm retired and I'm 62 or older, I can collect my own social security retirement benefit. It does not matter how much my spouse is earning if she's still working. However, when it comes to paying income tax on my social security benefits, now the internal revenue service is going to look at our joint income if we file a joint tax return. So if we file a joint tax return and my income plus my spouse's income goes over a threshold, again I believe it's 32,000 then I have to pay income tax on some of my social security benefits. I should qualify here that I am not an income tax experts. So anybody collecting social security really wants to take a look at income tax issue to see if it's going to affect them.

Bob Edwards: What other questions do you commonly hear?

Rob Clark: Most of the questions that I run into with social security have to do with, "What are my options?" And some of them we've already talked about, can I work and collect my social security? Can I collect a social security benefit through my spouse? I was married previously, my spouse died. Do I have options on collecting my social security? So a lot of the questions I get are very personal, and I will say that ARRP has a great resource on their social security website. It's AARP.org/socialsecurity. And people will find a lot of great information there that might fit their personal situation.

Bob Edwards: Well, thank you, Rob.

Rob Clark: All right. You're welcome. Great.

Bob Edwards: To learn more about the basics on social security and tips to maximize your benefit, visit AARP.org/socialsecurity. For more, visit AARP.org/podcasts

Social Security is the financial foundation for many of our retirement plans. Listen in to learn how Social Security can work for you and what updates are coming to the program in 2020.

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