Social Security retirement benefits can be considered an inflation-adjusted life annuity. Therefore it has a close connection to withdrawal strategies during retirement, as well as immediate annuities.
|Resources from the SSA:
Abbreviations and acronyms:
Program Operations Manual System (POMS):
To help decode the POMS, you will need:
The best source of information about Social Security can be found at the site social security on-line. The site has convenient links to the primary concerns of the average citizen which include:
- Your Social Security records
- Disability & SSI
- Widows, widowers & other survivors
- Get help with your situation
Details on how the retirement benefit is computed can be found at Your Retirement Benefit: How It Is Figured.
Planning Social Security benefits
Under the rules of Social Security, your Primary Insurance Amount (PIA) = the benefit you receive in the month of your Full Retirement Age (FRA).
For each month that you begin before this date, you reduce your PIA by 5/9 of 1 %. So if your FRA is 66, which, lets say, you reach in December 09, and you elect to begin your benefit in, say, June 09, then the reduction to your PIA would be 6 X 5/9 = -3.33%. This monthly reduction rate occurs for the first 36 months that you begin prior to your FRA. For months > 36, its 5/12 of 1%/month. The only other factors that would change the 5/9% reduction would be if the individual has earned income in the previous year, as the PIA will not include this, and the annual inflation adjuster for the new year.
If you delay starting your retirement or old-age benefit past FRA, you earn Delayed Retirement Credits and get a larger benefit. Wife, husband, widow, and widower benefits are also reduced if started before FRA (using different formulas), but are not increased by waiting past FRA to start.
The Social Security Administration has an illustrative table which shows the effects of early or late retirement. See: Early or delayed retirement
For example, you were born in 1951. If you decided to retire at 66 (your full retirement age), you would get 100% of your retirement benefits.
If you decided to retire early at 63, you would get 80% of your benefits.
Social Security is unisex and roughly actuarially fair. If you are a single unisex person of average health, it doesn't matter when you take it. There is a rough trade-off between fewer dollars for more years (start early) and more dollars for fewer years (start late).
Since females outlive males on average, single males will live fewer years than a unisex person and should take it earlier; single females will live more years than a unisex person and should take it later.
Since widows and widowers get the greater of their own benefit and their deceased spouse's benefit,[note 1] married couples have to consider their joint life. A high earning male with a low earning wife should wait to collect the higher benefit, not because he will live long enough to make up for what he gives up by not starting early, but because his wife will.
All benefits are subject to the earnings test if you are under Full Retirement Age. Your benefits will be reduced depending on your earnings for the year. Your wife (husband) may also have her wife (his husband) benefits that are based on your work record reduced by your earnings. The earnings test does not apply once you reach Full Retirement Age.
Here is a concrete question from the forums that shows the potential complexity of Social Security planning, which may not be fully applicable anymore to those who turn 62 after Jan 2, 2016 due to the new deemed filing rules:
Wife and I are same age, 62 this summer. Her SS that she qualifies for on her own is about half mine. The wrinkle is she still is working. Her 35 highest years have a lot of zeros, so each year she works will replace a zero. I am retired and when I turn 62 my pension drops by more than half, called a level income option because it assume SS will be started at 62. We need to make up some of the income lost by the drop in pension. Wife contributes 1000 per month to her 401(k) so we can stop that. Having her file for SS as the link suggests might be an option but she plans to work to age 66. Her salary is very modest but her job provides us health benefits. Do you think this "Team Play" technique would work for us or does it assume both spouses are not working?
The full answer:
The Team Play described assumes neither is working at 62. There are several issues for you to consider.
Her own benefits: If your wife is going to continue to work for the health benefits, then it doesn't make sense for her to apply for her own benefits before age 66 if she makes much more than $20,000. The earnings limit for 2009 is $14,160 - for every $2 over the limit, $1 is withheld from benefits. If her benefit at age 62 would be $800 a month ($9,600 a year), she would get to keep none of her social security if she makes $33,360 ($19,200 over the limit - benefits reduced by $9,600).
Spousal benefits: When you reach 66, you can either file or file and suspend (File and suspend is not of benefit under the new tax law). Your wife can then apply for wife's benefits on your record. At 66, she will get half of your PIA (age 66 benefit) if her own PIA is a lesser amount. If your PIA is $1,800 a month and hers is $800, she can get $900 as a wife. If hers is $1,000, she won't get a wife's benefit, but she will get her own $1,000 (this assumes that she starts benefits at 66 - it is possible for her to delay her own benefits while collecting spousal benefits). Since she is still working and replacing some of those zero years, she may well end up with a PIA greater than 1/2 of yours (in spite of your statement that her benefit is about 1/2 of yours, that may not be true after her additional earnings are included in her calculation). You however, could follow part of the team play plan. When your wife applies for her own benefits at age 66, you can apply for your husband's benefit while delaying your own benefit. If her benefit is $800, you could get $400 at age 66 as her husband. By not taking your $1,800 at 66, you will increase the amount you eventually get at 70 (assuming you delay the maximum).
Some basic rules about eligibility
- If you apply for your own benefit before your Full Retirement Age and you are eligible for a spousal benefit at that time, you are presumed or deemed to have applied for a wife or husband's benefit at the same time.[note 2]
- If you apply for a wife or husband's benefit before your Full Retirement Age and you are eligible for a spousal benefit at that time, you are presumed or deemed to have applied for your own benefit at the same time.[note 2]
- You are entitled to a benefit if you are eligible and apply.
- You can suspend your old-age (retirement) benefit and earn Delayed Retirement Credits if you are Full Retirement Age.
- If you suspend your old-age benefit, you remain entitled to it even if no payments are made.
- You are eligible for a wife or husband's benefit if your spouse is entitled to old-age or disability benefits and[note 3]
- You have been married for a year (or other special cases),
- You are 62 or have in care a child under 16 receiving child's benefits based on your spouse's record,
- You are not entitled to an old-age or disability benefit based on a primary insurance amount that is equal to 1/2 or more of your spouse's.
- You can withdraw your application within 12 months of your original entitlement:
- You must pay back all benefits receive by you or your family that depend on the application.
- You must get the consent of anyone receiving benefits based on the application, e.g., your spouse.
- You can only withdraw one application in your lifetime.
Some additional notes and examples on spouse benefit
(Additional strategies to increase benefits may be available for those who turned 62 before Jan 2, 2016)
- Self benefits are those benefits based on your own work record.
- Spouse benefits are those benefits based on your spouse’s work record.
- Self and spouse benefits are separate and the calculations are applied to each separately.
- Your available benefit is the combination of your own benefit and your spouse benefit.
- The benefit calculations are based on the PIA (Primary Insurance Amount), FRA (Full Retirement Age) and the number of months before or after FRA that self and spouse begin receiving benefits.
- Any benefit increase or decrease (in percentage terms) due to taking, or deemed to be taking, a self or spouse benefit earlier or later than FRA, is permanent.
- A spouse benefit is only available if one spouse’s PIA is less than half of the other spouse’s PIA. The spouse benefit (SB) is the difference between half of the higher earning spouse’s PIA (PIA1) and the lower earning spouse’s PIA (PIA2), i.e. SB = Max(0, PIA1 / 2 – PIA2)
- You cannot take your own benefit or your spouse benefit before age 62.
- You cannot take your spouse benefit unless your spouse is taking their own benefit.
- You are deemed to have taken your spouse benefit if you and your spouse are taking your own benefits, even if you have not formally applied for the spouse benefit and are not, in fact, even receiving the spouse benefit.
- If you are taking a spouse benefit, you are deemed to be taking your own benefit.
- If you take, or are deemed to take, your own benefit at your FRA, you will receive an amount equal to your PIA.
- If you take, or are deemed to take, your own benefit before your FRA, your benefit is reduced by 5/9% per month for each of the first 36 months and 5/12% per month for each month beyond 36 months that you choose to receive your benefit before FRA.
- If you take, or are deemed to take, your own benefit after your FRA, your benefit is increased by 2/3% per month for each month after FRA that you choose to receive your benefit, up to, but not including, age 70.
- If you take, or are deemed to take, your spouse benefit at your FRA, you will receive your full spouse benefit.
- If you take, or are deemed to take, your spouse benefit before your FRA, your spouse benefit is reduced by 25/36% per month for each of the first 36 months and 5/12% per month for each month beyond 36 months that you choose to receive your spouse benefit before FRA.
- If you take your spouse benefit after your FRA, there is no change to the benefit.
Further details are available at:
- Code of Federal Regulations, Part404, Federal Old-Age, Survivors And Disability Insurance, see particularly 404.313 and 404.410.
- Social Security Handbook, Chapter 7 - Figuring the Cash Benefit Rate, see particularly 720 and 724.
- Information You Need To Apply For:
- Husband's PIA: $3000
- Wife's PIA: $1000
- Wife's FRA: 67
- Husband’s FRA: 67 (note that the wife’s spouse benefit does not depend on when the husband takes his benefit in relation to his FRA, but does in relation to her FRA)
Wife’s full spouse benefit is ($3000/2-$1000) = $500
Case 1 (wife takes at 62, husband already taking) Her own reduced benefit is:
- 5/9% x 36 = 20%
- 5/12% x 24 =10%
- Total early claim deduction for her own benefit = 30%
- (100-30)% x $1000 = $700
Her reduced spouse benefit is:
- 25/36% x 36 = 25%
- 5/12% x 24 =10%
- Total early claim deduction for spousal benefit = 35%
- (100-35)% x $500= $325
Her combined total benefit, starting at age 62 = $700 + $325 = $1,025
Case 2 (wife takes at 62, husband starts taking when wife is 67 (FRA))
- Wife will get her own reduced benefit of $700 between ages 62 and 67.
- Wife will get full spouse benefit of $500 at age 67.
Her combined total benefit, starting at age 67 = $700 + $500 = $1200
Case 3 (wife takes at 67, husband already taking)
- Wife will get her own full benefit of $1000
- Wife will get full spouse benefit of $500
Her combined total benefit = $1000 + $500 = $1500
Some computational and payment details
(taken from the POMS)
- Benefits are rounded down to the nearest dollar.
- All reductions and credits are computed using fractions, not percents. Someone who starts a retirement benefit 6 months early will have a reduction of 6 X 5/9% or 30/900 = 1/30. For a PIA of $1723.40, the benefit would be 1723.4 X 29/30 = 1665.95 rounded down to the nearest whole dollar or $1665. Using a reduction of 3.33% would give an answer of 1723.4 X 96.67% = 1666.01, which would seem to yield a benefit of $1666 a month. This is incorrect.
- The COLA is computed in percents to one decimal place, e.g., the 2009 COLA was 5.8%. The COLA is applied to your PIA, not your benefit.
- When the PIA is computed, it is rounded down to the nearest $0.10. For example, when a COLA of 5.8% is applied to a PIA of $1723.40, the new PIA is 1723.4 X 1.058 = 1823.36 rounded down to 1823.30. With a reduction of 1/30 for starting a retirement benefit 6 months early, the new benefit will be 1823.3 X 29/30 = 1762.52 rounded down to $1762. The actual increase in the retirement benefit is (1762 - 1665) / 1665 = 5.826%. With another PIA, the benefit could go up slightly less than 5.8%.
- If you delay retirement past your full retirement age, the delayed credits are applied in January of the following year or in the month of attainment of age 70 if applicable. For example, if your full retirement age is 66 and you apply for retirement benefits on your birthday in March at age 68, your initial benefit will include 22 months of delayed credits. The additional 2 months of delayed credits for January and February will be applied the following January.
- Benefits are paid in the month following the month earned. In a year with a COLA, the COLA is used to compute the December benefit paid in January. Thus the 2009 COLA, while based on the increase in CPI-W from the third quarter of 2007 to the third quarter of 2008 and applied to the December 2008 benefit, is referred to as the 2009 COLA since it first showed up in the January 2009 benefit payment.
Contribution and Benefit Bases lists historical values for annual maximum wages on which Social Security taxes are levied. For 2020, the wage maximum is $137,000, and for 2020 it is $142,800.
IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits is the IRS version of taxing Social Security benefits.
Taxation of Social Security benefits discusses several examples of SS benefit taxation.
Social Security application
Although Social Security generally says you can submit your application up to 3 months before you want to begin benefits, you may request benefits to start the month of filing, a month in the past (see retroactive benefits below), or up to 4 months in the future. This request is called the "Month of Election". Benefits start the "Month of Entitlement", defined as the month in which an individual has filed an application and Social Security has confirmed that age and earnings requirements have been met. Benefits are then paid the following month, based on your birth date for applications since 1997. If your benefits start in April, you will receive your first benefit payment in May. 
The following sections on Retroactive payments and restricted applications, Deemed filing, and Voluntary suspension are based on the many Forum contributions of Mike Piper, Oblivious Investor.
For Social Security retirement applications filed after full retirement age (FRA), a retroactive lump sum benefit back to FRA or a maximum of six months is available.
Forum threads have discussed the possibility of an unwanted lump sum and reduced monthly benefits from Social Security's use of a retroactive entitlement date after FRA. To make sure that you receive all the delayed retirement credits you expect, your application should restrict its scope with "unequivocal" statements to make your intentions clear:
GN 00204.020 Scope of the Application
. . . A claimant may choose to limit or restrict the scope of the application to exclude a class of benefits he or she may be eligible to on one or more SSNs for any reason (except where deemed filing applies). The reason may be to receive higher current benefits or to maximize the amount of benefits over a period of time, including the effect of delayed retirement credits (DRCs). (See RS 00615.480 for information on adjustment of the reduction factor.)
a. Before adjudication
The claimant must restrict the application before it is adjudicated.
b. Unequivocal statements
The claimant may restrict the application by completing appropriate blocks on the application or by signing an unequivocal statement that he or she does not wish to file for a specific benefit as follows:
“I filed on (DATE) for all benefits for which I may be eligible except ___________”; or
“I wish to exclude ________ benefits from the scope of this application.”
Only unequivocal statements are acceptable. Qualifying phrases such as “at this time” or he or she plans to file in the future are not acceptable. . .
Sample statements to include in the application comments section would be:
"I wish to receive my maximum benefit, including all delayed retirement credits to age 70. I do not wish to receive any retroactive payments based on a retirement age earlier than 70."
As of April 30, 2016 the deemed filing rules apply to all applications, even if you have reached full retirement age. If you file for retirement benefits or spouse's benefits and you are also eligible for any other benefits at that time, you will be deemed to have filed for all benefits. This prevents using a restricted application to claim benefits on another's earnings record (e.g., a spouse), while not claiming on your own earnings record. However, the new deemed filing rule, extending it to FRA and beyond, does not apply to those born before January 2, 1954. 
Also, deemed filing now applies automatically for anyone already receiving benefits when they become eligible for another benefit. Before April 30, 2016 deemed filing applied only when a new application was submitted.
If you are already receiving Retirement Insurance Benefits (RIB) and have reached full retirement age, you can voluntarily suspend them to increase your payments with delayed retirement credits (DRCs). If you change your mind and want the payments to start before age 70, tell Social Security when you want your benefits reinstated (orally or in writing). Your request may include benefits for any months when your payments were suspended, but you will lose DRCs for any retroactive payments. Suspended payments will start automatically the month you reach age 70.
GN 02409.130 Voluntary Suspension Reinstatement
A. Procedure for reinstatement at age 70
The Program Service Centers (PSC) use automated systems to process voluntary delayed retirement credit (VOLDRC) reinstatements at age 70. When we reinstate benefits at age 70, all VOLDRCs are credited immediately. We automatically select and process reinstatements to stop suspension with the month before the month the retirement insurance benefit (RIB) beneficiary attains age 70. For an explanation of the PSCs’ automated processes for voluntary suspension reinstatements, see SM 03020.250.
B. Procedure for reinstatement prior to age 70
The RIB beneficiary who requested suspension may at any time request benefit reinstatement as of any month in the suspension period. We will accept a written or oral request. There is no signature requirement.
As of April 30, 2016 the following changes apply while your benefits are suspended:
- you cannot receive a benefit based on another’s earnings record, and
- no one can receive a benefit based on your earnings record.
These changes, along with the Deemed filing changes above, eliminated the “file and suspend” strategy allowing a spouse to collect spouse's benefits while continuing to earn DRCs on their own earnings record.
- A surviving spouse or child may receive a special lump-sum death payment of $255 if they meet certain requirements. Apply within two years of the date of death. See: Survivors Planner: A Special Lump-Sum Death Payment
- Exception: If you are younger than 62 as of 1/1/2016, deemed filing can occur beyond full retirement age as well. Specifically, if you apply for retirement benefits at any time and you are also eligible at that time for a spousal benefit, you will be deemed to have filed for your spousal benefit as well. In addition, if you are entitled to your retirement benefit at any time and you later become eligible for a spousal benefit, you will be deemed to have filed for your spousal benefit when you become eligible. (Ref: Re: Changes to Social Security, Mike Piper, Nov 27, 2015)
- Exception: If your spouse has suspended his/her retirement benefit, and the suspension request was made after 4/29/2016, you will not be eligible for a spousal benefit during the period of suspension. (Ref: Re: Changes to Social Security, Mike Piper, Nov 26, 2015)
- Social Security: member contributions - Benefit calculators provided by Bogleheads forum members.
- Taxation of Social Security benefits
- Social Security Calculators on the Bogleheads' wiki - Calculators to estimate your potential benefit amounts using different retirement dates and levels of future earnings.
- Primary Insurance Amount, from the Social Security Administration.
- GN 00204.040 Month of Election (MOEL) and Month of Entitlement (MOET), Program Operations Manual System (POMS), retrieved July 21, 2016.
- Social Security Retirement Planner: How You Apply For Retirement Benefits Or Medicare, retrieved July 21, 2016.
- Social Security Administration, "How do I apply for Social Security retirement benefits?", Frequently Asked Questions, retrieved July 24, 2016.
- GN 00204.030 Retroactivity for Title II Benefits, Program Operations Manual System (POMS), retrieved July 21, 2016.
- GN 00204.020 Scope of the Application, Program Operations Manual System (POMS), retrieved July 21, 2016.
- Deemed Filing For Retirement And Spouse’s Benefits FAQ's, retrieved February 9, 2018.
- Changes to Social Security, Bogleheads Forum, retrieved July 21, 2016.
- Retirement Planner: Suspending Retirement Benefit Payments, retrieved July 21, 2016.
- GN 02409.130 Voluntary Suspension Reinstatement, Program Operations Manual System (POMS), retrieved July 21, 2016.
- Changes to Social Security, Bogleheads Forum, retrieved July 21, 2016.
- Bogleheads® forum topic:
- Social Security Benefits Handbook / What You Want To Know - What You Need To Know A free online version of The Social Security Benefits Handbook by Stanley Tomkiel III
- The Sample Report at the Maximize My Social Security website has a very extensive written discussion at the end (Understanding Your Options and Our Calculations) covering almost all aspects of Social Security claiming strategies.
- analyzenow Bud Hebeler's site contains excellent resources on planning social security benefits. The Articles section contains a segment on Social Security where the timing of taking Social Security benefits is considered. The Free Programs section provides Social Security Spreadsheets.
- Understanding your social security benefits Vanguard Plain Talk Publication on Social Security:
- The Social Security Claiming Guide Center for Retirement Research, Boston College
- Innovative Strategies to Help Maximize Social Security Benefits James Mahaney, Vice President, Strategic Initiatives, Prudential
- Introduction To Social Security
- How Much Social Security Will You Get?
- Ten Common Questions About Social Security
- Top 6 Myths About Social Security Benefits
- Maximize Your Social Security Benefits
- 4 Unusual Ways To Boost Social Security Benefits
- Avoid The Social Security Tax Trap