How to maximize your Social Security benefits

James Daniel, certified financial planner with The Advisory Firm.

James Daniel, a certified financial planner and founder of The Advisory Firm, answers questions today about Social Security benefits. Each week, a planner or adviser discusses relevant and timely topics to help you with your financial strategies.

If you have a question for any of the planners on our team, send an email to rcash@ajc.com.

Q: Last year at age 62, I was laid off and immediately filed for early Social Security benefits.  I have since found a new job paying well above the income limit when taking early Social Security benefits.  What are my options?

A: It’s a great question and one that many readers may relate to.  When you take your Social Security benefits early (age 62 is the earliest you can apply) you are restricted in the amount of income you can earn all the way until your “full retirement age” as defined by the Social Security Administration.  This year if you have gross income (W2 reportable) in excess of $14,160 your benefits will be penalized $1 for every $2 you are over that amount.  With this in mind it makes sense to run the calculation to see if you will get any benefit at all from Social Security as long as you are employed.

If in fact you determine that you want to stop the Social Security checks and restart later on with a higher monthly benefit there is an option for you; it’s called Voluntary Withdrawal of Benefits.  The SSA will allow you to request a withdrawal of your application and will treat it as if you had never applied early.  The catch is that you must repay in one payment all benefits paid out to you including taxes and any other withholdings (no interest will be charged).  Contact your Social Security office and ask for more information regarding form SSA521 or visit them on the web at www.ssa.gov.

Q: I am a teacher and spent the first 10 years of my career with a school system that withheld for Social Security.  The past 20 years I have been with a local county system that doesn’t withhold for Social Security.  Is there anything I need to know about my potential Social Security benefits when I retire?

A: Another good question as there are many municipalities and school systems in the metro area that opt out of Social Security (this means that they do not withhold Social Security taxes from your salary).  In this situation there are two special provisions you need to be aware of that could affect your personal benefit or that received as a spouse/widower.

The first item is called the Windfall Elimination Provision (WEP) and isn’t routinely reflected on your Social Security statement.  If you have covered earnings along with a period of non-covered earnings, the Windfall Elimination Provision means that your monthly benefit may be reduced from what your statement shows.  The SSA uses a different formula for calculating your benefit and may require that you contact your SSA office to have them calculate your true benefit.

The second item is called Government Pension Offset and affects spouses, widows/widowers benefits.  If you receive a pension from a local, state or federal government based on work where they did not withhold Social Security taxes, your Social Security benefit may be reduced if you are claiming Spouses or Widows benefits.  A quick calculation is to take two-thirds of your monthly pension from the non-SSA covered job and subtract it from your estimated monthly Spouses or Widows benefit.  That answer will be your estimated monthly benefit from Social Security. Once again this is a more complex area and it would be beneficial to contact your local SSA office to get further help.

Thank you for answering those questions, James.

Earlier this week, I attended a retirement seminar where there were plenty of questions about Social Security. Here’s what I found, including three ways to maximize your Social Security benefits.

It’s not just young families looking for income solutions.

At a recent retirement seminar in Marietta, a group gathered with hopes of hearing something they could use to complement their social security and other retirement benefits.

They were people like Lonnie Hollis, a 67-year-0ld retired educator who drove from LaGrange to get tips.

“Once people retire, retirement money is much less and you can’t live off that,” Hollis said. “I’m a budgeting person and I’m paying all my bills, but I wanted to know what else is available.”

According to the Social Security Administration’s annual report, 72 percent of men who filed for Social Security benefits last year did so before they could collect full benefits at age 66. The number increased more than 10 percent for women from 2008 to 2009.

“Because of the economy, people are trying to find ways to maximize their income,” said Bobbie Sims, a Social Security public affairs specialist in Marietta. “They want to figure out how to make Social Security go the farthest and how not to tap into their 401 (k) in order to take care of daily living expenses.”

David Kotschi, 63, lost his job and was not eligible for unemployment, he said. Eight months earlier, he’d also had heart surgery. Although his wife, Julie, works a part-time job, medical bills and other expenses overwhelm her salary and his Social Security benefits.

“We had money tucked aside,” he said. “Our house and our cars are paid for. But these are turbulent times for everyone.”

So, the couple came to the Retirement Solutions seminar to learn more about maximizing their benefits.

1. Retire, then retire again

A retiree collecting Social Security may find another well-paying job. In this scenario, the individual can withdraw benefits application and repay in one lump sum what they’d received. Later, they would reapply for what would be a larger Social Security benefit, as much as 30 percent higher. Additionally, the money that was received prior to gaining a new job can be put into an account to gain interest.

2. File and suspend

File for your retirement benefits so that your children or spouse can collect an amount based on your earnings record. Then, Sims said, suspend your benefits until age 70. According to Kiplinger, your benefits will increase an additional 8 percent for each year you delay collecting beyond your normal retirement age, up until age 70.

3. Wait

It’s not the answer many want to hear, but waiting longer to retire is key, Sims said. “Even if you find a job paying 1 million dollars a year, there is no reduction in benefit if you work until full-retirement age.”

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