Social Security used to be a topic of little interest to federal employees, since few government workers had coverage and they were exempt from FICA taxes while working under the Civil Service Retirement System. Most questions revolved around the evil twins (as Mike Causey calls them): the Windfall Elimination Provision and the Government Pension Offset.
But times have changed. Now only 20 percent of federal employees are under CSRS. Those under the newer Federal Employees Retirement System are fully covered by Social Security, and they often have questions about when and how to apply for retirement benefits. Here are the types of benefits you might be able to choose from when it comes time to apply for Social Security:
- Your own.
- Your current spouse's.
- If you are divorced, your former spouse's.
- If you are widowed, your deceased spouse's.
- If you are very young, your parents'.
Here's what else you should know:
- You can apply as early as 62.
- You can apply at your full retirement age, somewhere between 65 and 67.
- You can apply for delayed credits as late as age 70.
- Or, you can apply anywhere in between.
You can receive only one benefit at a time, but it is possible that more than one person can receive benefits based on your work record. Whether people can receive a benefit from you depends on:
- If you have a former spouse, the number of years you were married.
- Whether you are currently married.
- Whether you have any dependent children.
Terms and Conditions
Before we look at some specific examples of how the Social Security benefits process plays out, here are a few important pieces of terminology to understand.
- Full Retirement Age. It can be from 65 to 67. Here's how to figure out yours.
- Primary Insurance Amount. This is the benefit a person would receive at full retirement age, without reductions for early retirement or increases for delayed retirement. Social Security has more complete definition and offers a fact sheet on how benefits are calculated.
- Reductions. You can apply for Social Security retirement any time between 62 and your full retirement age. But if you start receiving benefits early, they will be reduced by a fraction of a percent for each month before your full retirement age. This also applies to the benefit you might be applying for on your spouse's work record. People born in 1960 or later will have a greater reduction than those born earlier. Here's a chart showing the reduction.
- Delayed Credits. Social Security benefits are increased by a certain percentage if you delay your retirement beyond your full retirement age. Here's something that's a little quirky: This delayed credit does not apply to a spouse's benefit, but it can be included in a widow's amount. Here's more information. Because of the increase in the full retirement age from 65 to 67, the delayed credits provide a bigger increase to those born in 1937 than they do for people born in 1960 or later. Here's a chart explaining how it works.
Now let's look at a few scenarios to get you thinking about your options.
Two Income Couple; Both Covered by Social Security
At their full retirement age, Pat and Joe each will qualify for $1,800 per month in Social Security retirement benefits. Pat retired at 62 and decided to file early, so her benefit will be reduced by 25 percent to $1,350. Joe is 66 and has decided to apply for spousal benefits via Pat instead of on his own. He will receive $900 per month -- 50 percent of his wife's primary insurance amount. He then will apply for his own Social Security benefit at 70 to take advantage of delayed retirement credits. That will boost his monthly benefit to $2,376 -- a 32 percent increase during the four years between 66 and 70. He must be clear when he applies for Social Security at 66 that he is applying only for the spousal benefit.
One Income Couple Covered by Social Security
Jeff's wife, Annemarie, is 62 and doesn't work outside the home. He is at his full retirement age for Social Security -- 66 -- but wants to continue working. Jeff can apply for his own benefit, but also can request that it be suspended until he reapplies later to receive the delayed credits. Once Jeff applies for his benefit, Annemarie can apply for a spousal benefit. Since she is only 62, she will be entitled to 32.5 percent of Jeff's primary insurance amount. He is entitled to $2,000 per month, so she will receive $650 a month. At 70, Jeff can begin receiving his benefit with delayed retirement credits, and it will go up to $2,640.
Former Spouse
Suppose in the above example Jeff has a former spouse to whom he was married for more than 10 years. Lucy, the former spouse, has never remarried. She is the same age as Jeff and can file for benefits on his work record even before he files for his own. Since Lucy worked at lower wages, her own benefit at her full retirement age is only $500 per month. She can file for 50 percent of Jeff's $2,000. If she applies early, her benefit will be reduced whether she applies for her own or the one her ex-husband earned for her. If she has a more substantial benefit on her own, she also could use the strategy outlined in the two-income couple mentioned above. The fact that Lucy is eligible for benefits on Jeff's work record does not affect the right of his current spouse to collect her spousal benefit.
Widow
Widows can apply for benefits as early as 60 (50 if they are disabled). Starting at 62, they can choose between the widow's benefit or the benefit based on their own work record. If a widow applies earlier than full retirement age, the benefit received will be between 71.5 percent and 99 percent of the full benefit of the deceased spouse's. Widows at the full retirement age or older are entitled to 100 percent of the deceased spouse's benefit -- even if they applied for their own benefit early. This rule also applies to former spouses who were married for at least 10 years to a worker who is now deceased.
CSRS Wife Married to FERS Husband
Georgia has earned only 12 credits of Social Security coverage. She has been a federal employee since she was 19 and has been exempt from the FICA tax during her career. When she retired from government at 58, she worked part time for awhile, but does not have enough credits to qualify for her own Social Security retirement benefit. Her husband, Andy, 66, is retired and receiving his Social Security benefit. Georgia also is now 66 and would like to apply for spousal benefits based on Andy's work record. Ordinarily, she would be entitled to 50 percent of his $2,000 benefit. But she will be affected by the Government Pension Offset because she is receiving $3,000 per month in CSRS retirement benefits. In fact, her entitlement to the $1,000 per month Social Security spousal benefit will be offset by $2,000 (two-thirds of $3,000), so she won't be able to receive any spousal benefits. If Andy dies before her and she becomes entitled to the full $2,000 widow's amount, she still will be subject to the two-thirds offset, meaning she won't receive any widow's benefit.
The Big Do-Over
Bryan has been collecting his Social Security benefit since he was 62. Now, at 70, he receives $13,250 a year. He has decided to withdraw his original application so he can reapply for the delayed credits. He will have to pay back $94,556 that he has already received, but his new annual benefit will now be $20,693 a year. With the $7,443 increase, he will recover the redeposit amount and break even at about 83. When Social Security computes the amount of the payback, it doesn't include interest due. Bryan also can recover the taxes paid on the previously received benefits by filing with the Internal Revenue Service for a tax credit or deduction. The delayed credits also can boost the amount payable to a widow, even though they don't help the spouse of someone who is still living. In other words, if Bryan happens to die at 78, his widow could continue receiving the $20,693 benefit if it is higher than the benefit she is receiving on her own record and she is at least her full retirement age.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.