Social Security Leveling- State Employees Beware!

I was approached by an NC State Employee who had worked for the State of NC for 30 years but was only 56. They had talked with the State Retirement System and were told that they had the option of starting Social Security early. Now let me clarify that this was probably not exactly what they were told, but what they understood. In fact, the State of NC does offer a plan for those that retire before they are eligible for Social Security where the state provides more benefits from the State early and reduces them when the employee is eligible for Social Security at age 62. I work with lots of State employees and help them understand how and when to file for both State Retirement benefits and Social Security. The reality is that no two employees are the same and the needs can be dramatically different depending on the variables of each person. I usually caution people about taking the leveling option because it can have unintended consequences. First, the leveling option is based on an expected amount from Social Security. If the employee were to truly stop working more than likely the Social Security benefit would be overstated. This is because the calculations used to determine the benefit is based on the person working until either full retirement, age 62 or age 70 at the current salary. If you want an accurate calculation I have software that I use to give a more accurate estimate of benefits. The second trap is if the employee chooses to work somewhere after retirement from the state. This can impact the amount they would receive at 62 from Social Security because there is an earnings test. It is always frustrating to be expecting a certain amount and suddenly receive less. The State Retirement System will stop the leveling payment at age 62 even if you do not elect to start receiving benefits from Social Security. The final downside of taking the leveling option is that your Social Security benefit will be the lowest you could possibly receive. If you are the higher earner in your household it not only effects your benefit but could significantly impact your surviving spouses benefit for the rest of their life too.

For some, this may be an option to consider if poor health is an issue, but for most I would pass on this option. If you want unbiased advice on either the State Retirement plan or Social Security give me a call and we can schedule a consultation.

 

A friend said that she went to Social Security and they told her to take the benefit as early as possible. Is this good advice?

Answer: First Social Security offices are not allowed to give advice. They are there to help process paperwork. It may be in their best interest to have you complete the paperwork while you are there so they will not have to do this in the future. It is impossible to tell whether or not it is best for you to start early without an analysis of your unique situation. Since no two people have the exact same variable it is difficult if not impossible to try to create some filing rules beyond the older higher income spouse should usually wait to file until age 70, but this also may not be true if both have a short life expectancy.

Shouldn’t I take Social Security early since they are broke?

Answer: One of the myths about Social Security is that they are broke. This is more political than factual. The recent audited report of Social Security shows a surplus and is expected to run a surplus through 2023 at which time outflows will exceed inflows and the surplus will be drawn down. This is expected to last about 10 years. At that time if nothing was done currently contributions to Social Security would be able to pay 77% of promised benefits. So the real question is not will it run out of money, but would you rather have ¾ of $3000 or ¾ of $2000.

I don’t know how long I will live so should I take Social Security early?

Answer: Good question. It actually depends. There are basically 4 variables that come into play when calculating the optimal benefit from Social Security. It is very complicated as you have to look at your age, your work history, your marital status and how long you think you or your spouse will live.  One error that most fail to consider is how long their spouse expects to live and will they need the money to live their lifestyle on the income from Social Security.

I have heard that I could get half of my Spouse’s benefit when I retire? Is this true?

Answer: It depends. The spouse is entitled to the greater of half of their spouse’s benefit or all of their own benefit whichever is greatest. If you turned 62 by December 31, 2015, you may be grandfathered in and eligible to use the restricted application for spousal benefits only. This would allow you to get half of your benefit at full retirement age and let your own benefit grow to age 70. If you did not turn age 62 by that date you fall under what is known as deemed filing and you automatically get the greatest of all benefits you are eligible for when you file. This would be the greater of half of your spouse’s benefit or all of your benefit. As a side note, your spouse must have either filed for benefits or if eligible filed and suspended if they were eligible.