Last December,  I spoke at TXCPA conferences in San Antonio, Dallas and Houston.  The Topic of my talk was the 4 W’s of Social Security – Who, What, Why & When.  In May I’ll be addressing CPA’s in Houston, Dallas and Galveston, the topic will be The 4 W’s of Social Security 2.0 – Maximizing Benefits – Minimizing Contributions.  I thought it might be of interest to you, to dive into each of the 4 W’s over the next several newsletters to better appreciate and understand more about the nuances of Social Security.

The WHO – Basis Eligibility on One’s Own Record

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To qualify on one’s own record, one needs to have worked at a job where you paid Social Security Taxes for at least 10 years or 40 quarters.   The amount of money that one must earn to generate 4 quarters changes every year (see attachment – On Qualification).  As an example in 2024 one must earn $1,730 x 4 = $6,920.  What’s interesting is that one might make $6,920 in January and then nothing for the rest of the year and still generate your 4 quarters.  As you can see from the attached chart the minimum amount of earnings required changes on an annual basis.  In 1980 it was $290, 1990 it was $520, 2000 it was $780, 2010 it was $1,120.

Earning more money in any given year does not increase the number of credits, thus it truly takes 10 years to qualify on one’s own record.  Once you’ve qualified the objective would be to maximize one’s benefits based upon earnings and number of years one works.

Your Benefits – The Carrot and the Stick

You can claim retirement benefits once you reach age 62 (40% of people still claim at that age). Rules for claiming retirement benefits;

• If your FRA is 67 (born 1960 >) you will incur a 30% reduction / penalty for LIFE . Thus if your check at FRA was projected to be $3,000 you will receive $2,100 per month
• You are also subject to the Earnings Test (lose $1 in benefits for every $2 you earn in excess of $22,320 per year). Besides the penalty for claiming early (30%) you’ll have to payback benefits that were subject to the Earnings Test.  NOTE: If your going to continue working, don’t claim benefits!
• If you wait until FRA you are no longer subject to the Earnings Test thus you can claim 100% of your projected check ($3,000) at FRA and continue working.
• If you delay claiming until age 70 there is an 8% per year guaranteed increase in benefits between FRA and age 70, thus your check will be 124% of projected check at FRA (67) or $3,720 without factoring in any COLA’s over the 7 years.
• Keep in mind that your spouse will inherit your claiming decision upon your death!

Spousal Benefits

What many people don’t realize is that a spouse can receive spousal benefits even if they never qualified for benefits on their own record.  This was instituted in 1939 to protect non working spouses who in many cases stayed at home raising the children.  It was called the “Wife’s Benefit”, but is now gender neutral so either spouse might be able to receive spousal benefits.  Parameters for receiving Spousal benefits;

• Must have been married for 1 continuous year immediately before receiving benefits, unless one was receiving benefits from a prior relationship (ex, Survivorship)
• The spouse / applicant must be 62 years of age or older
• The worker must have claimed benefits (Retirement or Disability)
• The spouse is eligible to receive 50% of PIA (spouses check at Full Retirement Age). If spouse / applicant is not at FRA (66-67) there will be a penalty – reduced benefits in addition the applicant is subject to the Earnings Test (see above).
• The Spouse / applicant will receive the greater of their own benefits or 50% of spousal benefits. Can no longer claim spousal benefits while postponing one’s own!
• Same sex couples who are legally married also can qualify for spousal benefits.

Divorced Spouses

This is the same principle as Spousal Benefits, but there are a couple exceptions;

• Both the spouse and ex spouse must be over 62 years of age
• They must have been married for at least 10 continuous years
• The applicant is not currently married. Interesting side note, if ex remarried it does not preclude the applicant from claiming and will not affect ex or his current spouse.
• Same rules as above in regards to the amount of benefits received – must claim the higher of one’s own benefits or spousal.  The applicant can no longer claim on ex while delaying one’s own benefits until 70 had to be born prior to 1954.

Survivorship Benefits

If the Worker dies the spouse has the ability to claim survivorship benefits.  Basic survivorship benefits parameters;

• Couple must have been married for at least 9 months, except in case of accident
• The Survivor benefit will EQUAL the deceased spouses benefit at the time of their death, if the spouse (applicant) claims it at or after their FRA.
• If spouse died prior to claiming on their own record, the survivorship benefit will be the PIA check at FRA + any delay credits earned up until time of death. Survivor cannot earn delayed credit by waiting, thus if worker died at 68, they’d get 68 check at their FRA.
• The applicant can claim as early as age 60, but will incur a 28.5% reduction in benefits,
• If the applicant claims prior to FRA and still working the Earnings Test is still in play.
• One interesting side bit is that surviving spouse may claim their own benefits at age 62 and wait until FRA to claim survivorship or claim survivorship as early as 60 while delaying their own benefits until age 70. (Huge Planning Tool)
• If divorced the ex spouse can claim benefits as long as they did not remarry prior to age 60. NOTE:  If you were married for at least 10 years and you got divorced, DO NOT REMARRY until you reach age 60, especially if your ex is unhealthy!
• Interesting side note, if your ex remarried and you didn’t remarry until after age 60, both the spouse and ex spouse can receive survivorship benefits!

Children Benefits

Recently I’ve had several clients who were contemplating claiming benefits so that their minor children could receive benefits;

• Benefits are determined by Maximum Family benefits formula
• Payable until they graduate from high school or turn 19 whichever is first.
• Spouse can also receive benefits until youngest child turns 16
• Earnings Test is still in play and will affect children as well as spouse

WEP and GPO

If you are or will receive a pension from a job where you did not pay FICA taxes (ex; school teacher, fire or police) you will be subject to WEP (Windfall Elimination Provision) on your own record and GPO (Government Pension Offset) on spousal benefits.  I’ll save this for another newsletter.

Synopsis

There are 2700 rules relating to the Social Security Program, what I’ve attempted to do is highlight the main points as it relates to WHO qualifies for benefits.  I purposely didn’t go into any of the many exceptions such as Social Security Disability, Non Citizen spouses, etc.   Over the next several months we’ll explore the WHAT – the WHY – the WHEN and HOW.

Have a great month,