And welcome back as we continue to explore Social Security. In this lesson, we're going to talk about the pros and cons when applying for benefits. In the last lesson, we learned some terminology and acronyms used by Social Security. And we talked about what you should know before you even think about applying for benefits. Are there consequences and limitations involved? Today we're going to talk about calculating your benefits.

What happens if you do apply early, about survivor benefits and how they will influence your Social Security decisions? For many people, this all devolves into a blur with no clear mandate, what to do. And all the while as you're asking questions, you don't realize that some of them have no right answer. They depend on things that haven't happened yet, so it becomes a wild eyed guess. So which are the multiple claiming strategies 96 months and over 500 different calculations when you finally select get it wrong and your eventual pay could easily exceed $100,000. There are many variables and nuances that you want to become familiar with.

You don't need to dig too deeply until you approach 62. But you should at least open the account@ssa.gov and periodically review the amount credited to you and make sure it's accurate. By now you've established yourself on the ssa.gov website. You know what your earnings history looks like. There's a p i a number based on the values now in the system under your name. This is the starting point from a numerical perspective for dealing when to file a claim.

I say numerical perspective because there are lots of other reasons that have nothing to do with how much money you qualify for. Those have to do with family with your expectation of living a long life after retirement or not. those variables are unique to you, and so cannot be part of what I'm hoping to teach you here. Let's say you're about to turn 62 You want to know the extent to which monthly Social Security benefits will factor into your plans to retire? The first calculation involves the amount of money you've paid into this system over the years. That's also assuming that you have your requisite 40 quarterly credits.

Based on that, you also have your current D ay ay ay ay ay. Keep in mind the P i A is the number associated with your F ra or full retirement age. Aren't you glad we spent time in the last lesson on all these acronyms? Since the calculation involves the highest 35 years, it's very possible there are some zeros sprinkled in there somewhere. What you next have to think about is what you're likely to earn between now and age 70. At that point, it's almost mandatory that you file for benefits.

Here's one of the apparent contradictions about all this. Regardless of when you claim benefits, you're going to get roughly the same amount of money, whether you claim at age 62, or wait until you are 70. Well, not if you die before you reach age 70. But for our purposes, we're going to assume you live to be a ripe old age, you're going to receive essentially the same amount of money. And that's a shocker, isn't it? You can opt for a smaller check for a longer period of time, or a larger check for a shorter period of time.

This is because all you are doing is changing the start date. The End Date happens when you end, add it all up. And it's about the same amount. until you realize the annual cost of living adjustment will apply to the smaller amount if you start early instead of the larger amount. But what if you die at age 75? None of us has a contract with God to last Beyond Today, much less to age 75.

So yes, you waited until age 70 to file a claim and you get bigger checks for five years. But what if you'd claimed at age 62 and live to 75? You got smaller checks, but you got a lot more of them. Unfortunate It's once again a roll of the dice. Chances are your earnings this year will far exceed the smallest number in here 35 year earnings history. How much will in higher numbers for these later years influence your pie a, if you wait until you're 65, or 67.

So just how much well you get your primary insurance amount your pra is determined by the average of the highest 35 years of earnings from which you paid payroll taxes. If you had low numbers or zeros, those years affect the average. You can do the math here, but when you're talking about an average over 35 years, and you replace some early zeros with high numbers, the average will clearly be bigger, but how substantially bigger is it? Which brings the other potential reasons for claiming early into play? Are you married or single? Are you male or female, which one of you is likely to survive the other assuming you don't?

Share the same birthdate which one of us the older, which one of us the higher earner. In my case, my fra was age 65. My wife is younger than I and her fra was 66. Most of you involved in this course have an F ra of 67. Because I was earning a decent amount of money at the time, I like to wait until my fra but for some reason when I turned 70 my wife would like to defile for her benefits a year early. Here's where another variable enters the picture.

A spouse can apply for benefits even though they may have never worked a day in their life and have no earnings history. A spousal benefit is going to be 50% of the higher wage earners benefit. However, and this is a big However, if they file if the wage earner who's receiving the check filed before their fra that 50% is reduced depending upon how soon the claim was made before reaching the fra never realized this until I noticed my wife's benefit was less than 50% of mine. Had she waited another year from 65 to 66. We'd be enjoying an extra $250 per month right now. Claiming benefits before your fra and continuing to work can cause two undesirable outcomes.

One is that your monthly benefit will be permanently smaller. And two if you earn income above the stated threshold in any given year, they will will withhold some money from your check. This entire program is designed as a safety net to make sure you have enough money to pay bills as you get older and are no longer able to keep you know to keep working. If you claim early and continue to earn a living however, chances are you may not get any monthly benefit. You won't lose what they don't send you because it'll show up later as an increase after you stop working. This is a function of your tax returns and the numbers associated with earned income.

At this point, you may decide claiming early was a mistake. Are you within the 12 month limit for a do over? In an earlier lesson video, one of the major questions leading to a strategic answer that you need to focus on is when you want to retire. This is even more important if you are now just a few years away. A key takeaway from this module on Social Security is for you to prioritize waiting until your fra before you file a claim for benefits. However, if you can't stand your job, you desperately need money to make ends meet.

Or for some other rational reason, your best solution might be to simply sign up as soon as possible. A few more reasons why waiting until you're fra to claim your benefits. For one thing you're a me will probably increase as a result of having higher earnings replace some of your lower earnings years, some 30 years ago. Another reason is that if you claim it's your fra you can earn as much as you want with no reduction in benefits. If you claim early and still earn above certain thresholds, they will shrink your monthly payment. If you have a spouse and live another 25 to 30 years or more, and you're the higher earner, having full credit from your employment history could make a significant difference in the life of the surviving spouse.

If you could wait until you're fra that's going to play into your hands over the coming years, and unless you already have a ton of money, there's not much advantage in waiting until you're 70 to file a claim. Yes, the size of your check will increase by 8%. For every year you wait, but there's still a fixed amount you're going to get. Once you reach your fra take the money and run. We also talked in an earlier video about health issues. The break even point when claiming benefits at 62.

And getting 70% of your fra benefits is about 10 years. If your health is bad, and you won't make it to age 72 your family might regret it. If you waited to file a claim, regardless of when you do file a claim with the early at 62, or age 70. Some of what you receive from Social Security is subject to ordinary income tax. The percentage that will be treated as taxable income is determined by what is called provisional income. I'm not going to go into a long list of the things that are included in provisional income here.

Just know that up to 85% of your benefit could be taxable as income. If you're in your late 50s, or early 60s and have a spouse, the key ingredient of the Social Security benefit matrix is survivor benefits. What happens if one of us dies in early death and survivor benefits kick in? The basic rule is that the survivor gets the larger of the two benefits paid to the two people, but not always. A widow call me recently with a question. She just turned 60 and could now sign up to receive a benefit based upon her deceased spouse's record.

He died in 2015 had claimed his benefits before his FCRA full retirement age, and she thought she was entitled to 100% of his benefits as a widow. The SSA formula takes into account his having claimed benefits before his fra. Because he filed early, it caused her benefit to the 80% 88% of what he had been getting 12% last may not seem like much, but in retrospect, his surviving widow would have been better off if he had waited until his fra it's another reason for you to consider waiting until your fra to claim a benefit. On a personal note, my wife and I each receive a monthly check from Social Security. Her earnings history was less than mine, so her check is substantially less. The odds are she will survive me as I'm male and older than she is.

A key ingredient of my successful retirement is the certain knowledge that if my spouse survives me, she'll get 100% of my benefit as a survivor since I waited in My fra before filing a claim, a monthly Social Security check is an important part of my financial freedom. I do hope my answers here will help you get your arms around the idea of Social Security. There's a lot to think about and understand long before you ready to claim benefits. Do you have other family members approaching Social Security age? If they make the wrong choices? will it end up costing you money?

If it turns out they need your financial help? That's something to at least think about. In Module Three, lesson four. Our next lesson, we're going to explore some of the issues surrounding the Future of Social Security. Will it be there when you need it? Or will it be gone?