Social Security Questions

[Beersheba]

I get a lot of questions about social security and strategy surrounding it. And I hear all sorts of things told to my clients about social security, and the sands seem to shift all the time. I don't know what my clients are telling me is gospel either.

If anyone knows, can anyone help me with:

1. Disability Social Security is not taxable. Unless someone's taxable income exceeds $36,000. (This supposedly was told by Social Security)
2. The infamous "penalty" (one dollar for every two over the threshold) begins at $19,000 of earned income. (supposedly was told by Social Security)
3. The "penalty" applies to recipients receiving spousal benefits from decedent's social security. (supposedly was told by Social Security)

If you choose to respond, please assume mainstream situations not complicated by exotic circumstances which normally don't happen.

Social Security stuff is not written into the tax code.

Thanks in advance.

[kathyc2]

1. Amount that may be taxable is no different for SS based on disability than retirement SS, unless it's a lump sum payment for multiple years.
2. For 2022 the amount is 19,560 if calendar year before reaching FRA. In year of RFA calculation is different.
3 Same as 2 if not FRA.

SSA.gov is loaded with all kinds of useful information.

https://www.ssa.gov/benefits/retirem...%20%2419%2C560.

[Lion]

The Social Security Administration does allow one "do-over." Do some short-range (working full time) and long-range (retired) planning, and maybe everything in between (one retired, both work part-time, etc.) with a tax professional who understand SS benefits and timing or consult with a Social Security expert.

A married couple has over 500 SS filing options!! Don't navigate SSA's 2,700 rules on your own. Explore how SS fits into your entire retirement plan through your own research, or better yet, with the help of an expert who can research your possibilities. Tens, maybe hundreds of thousands of dollars are at stake based on your decisions about how to take your SS benefits (about $1 MILLION over a typical lifetime). Don't leave money on the table.

https://njbia.org/wp-content/uploads...a-Bio-2021.pdf

https://oneteamfinancial.com/services/social-security/

Ash Awluwalia is one of the very few SS experts in the country, works remotely and in-person, and has a whole team of retirement and financial plan advisors. I've attended one of his classes, have recommended clients to him, and have tax preparer colleagues who use Ash for their clients and for themselves. He has some videos out there, for tax preparers and DIY tax payers.

[Beersheba]

A married couple has over 500 SS filing options!! Don't navigate SSA's 2,700 rules on your own.

Thanks Lion, I'm on board with this thinking. I bring questions to the forum when I don't want to read hundreds of pages of code, regs, or someone else's research. I think I should do minimal research on my own, but bring questions when it looks like I'm time-pressed or confused.

Ron J.

[Lion]

I wouldn’t post something “commercial” on this site, but there are almost no SS experts in the whole country. (I know, because as education chair of the NY/CT Association of Tax Professionals, we spent years tracking down an expert to speak at one of our meetings.) And, your clients are asking you before they begin taking SS benefits, so still have a LOT of choices they can make. H & W could benefit from an analysis of their specific situation. Or, might want to attend one of Ash’s classes or webinars to learn more about evaluating their own situation themselves. It really is a matter of tens or more likely hundreds of thousands of dollars over their lifetimes.

[Lion]

Watch this one yourself: https://vimeo.com/455931889

[Rapid Robert]

"The infamous "penalty" (one dollar for every two over the threshold) begins at $19,000 of earned income. (supposedly was told by Social Security)"

Except it's not a penalty, and it's a shame that this mis-information is repeated so often, even by professionals who should know better. It's just a delay in benefits, in that your benefits are re-calculated upon FRA to include an increase to make up for the previously delayed amounts. Not really any different from the concept of delayed retirement credits until ag 70, except you don't have the option to avoid it.

"It really is a matter of tens or more likely hundreds of thousands of dollars over their lifetimes. "

Here's what I know, contrary to many of the popular myths out there:

• For married couples, the goal is to maximize benefits over the total period of retirement for both. I'm so sick of hearing about how it's a priority to maximize the surviving spouse's benefit (assuming both don't die at the same time).

• The rate of increase in benefit as you wait to begin, from age to 62 to FRA, is not a straight line, and there is a lot of room to maneuver by choosing somewhere in the middle of the five year window between 62 and 67. Seems it's always portrayed as either you do the bad thing by starting at 62, or the good thing by waiting to FRA, when there are many other choices and the optimum is probably not at either extreme.

• Continuing to work full time after you have 35 full years of earnings will not gain you much in terms of benefits but will cost you by continuing to pay FICA/SECA. Even if I replaced my lowest-earning year out of 35 with a current year at $10K higher earnings (all amounts indexed), it would only increase my monthly SS benefit by a few dollars at most,, due to how bend points work. Yet the SS web site always makes it look like you have to keep on working at your current earnings level until FRA to get the estimated benefit. That is not true.

• Managing your taxable income to try to avoid having the full 85% of SS benefit be taxable is a huge win. Waiting until age 72.5 to start RMDs and age 70 to start SS benefits with the DRC increase guarantees that you will be paying the highest possible tax rates on those amounts, compared to if you had begun both of them at an earlier age.

• Taking pension or SS benefits early and investing them (instead of spending them) can be far better result than not doing so -- the stock market has done quite well over the last ten years even taking recent dips into account.

[kathyc2]

"The infamous "penalty" (one dollar for every two over the threshold) begins at $19,000 of earned income. (supposedly was told by Social Security)"

Except it's not a penalty, and it's a shame that this mis-information is repeated so often, even by professionals who should know better. It's just a delay in benefits, in that your benefits are re-calculated upon FRA to include an increase to make up for the previously delayed amounts. Not really any different from the concept of delayed retirement credits until ag 70, except you don't have the option to avoid it.

Technically true, but by my calculations it takes 14 year after FRA to recoup.

• For married couples, the goal is to maximize benefits over the total period of retirement for both. I'm so sick of hearing about how it's a priority to maximize the surviving spouse's benefit (assuming both don't die at the same time).

That depends on their situation. If they have enough other income/investments to meet their needs, I agree. However, if their other income is low, you want to make sure the surviving spouse has enough to live on. In that case I would advise delaying one SS.
To me, it depends on how much of their needs (not wants) need to come from SS. 100%? 50%? Do they have enough other investments that SS benefits can go toward their "wants" instead of "needs'? Many times I see those with low net worth where both spouses retire early. With two SS checks they can make it, but don't think ahead if the surviving spouse could make it on one check.

A lot of variables as to when the "best" time to draw benefits, the main one is how long will they live.

On another note, unless CPI-W decreases for July and/or August, COLA for 2023 will be at least 8.9%

[kathyc2]

Watch this one yourself: https://vimeo.com/455931889

Just listened to a couple small clips of it. What I heard was geared toward high net worth people. Sorry, but those aren't the people that need the help.

[Lion]

Yeah, that's a program hosted by a couple of annuity guys, and my clients don't have that much in their retirement plans and seldom annuities, maybe a 401(k) at work &/or their SIMPLE or SEP from their SE income/partnership/S-corporation &/or a Traditional or Roth IRA, and looking at when to take SS benefits.