By: María J. Miranda Cruz, CPA, PMP, PCWA®
Senior Wealth Management Advisor / Vice President
Wealth Management Division, BPPR
Puerto Rico’s life expectancy is on the rise, which makes it imperative to plan for your retirement and learn when it’s best for you to claim your Social Security benefits.
Here, 5 important aspects to consider:
I. How are Social Security benefits calculated?
|Date of Birth||Full Retirement Age|
|1943-1954|| 66 |
|1955-1959|| 66 + 2 months for each year until 1960 |
|1960 +|| 67 |
The Social Security Administration uses a formula to determine the basic benefit or primary insurance amount, based on your earnings, years of work and retirement age. This is the amount that you will receive when you reach full retirement age, which is calculated based on your date of birth. If you wait until your full retirement age to claim your social security benefits, you will receive 100% of the benefit to which you are entitled.
The formula takes into account the highest-earning 35 years of work. If you have less than 35 years of work, each year without earnings will be factored in at zero. Every year, as a result of inflation, the Social Security Administration adds cost-of-living increases to avoid an adverse impact on beneficiaries.
Visit ssa.gov for additional information.
II. What impact, if any, has age when you claim your Social Security retirement benefits?
The decision of when to claim your Social Security benefits is one of the most important that you will take when planning for your retirement. For example, you may start receiving your Social Security benefits at age 62, but if you claim your benefits at that early age, you will have a permanent reduction in the amount that you will receive. If you decide to delay your benefit until full retirement age of 70, which is the maximum age to receive the Social Security benefits for the first time, your benefit will increase at a rate of 8% per year.
Each case is evaluated independently, so we recommend that you use the Social Security Benefits Calculator to help you simulate different scenarios.
III. Who can claim the benefit?
Besides retired or disabled workers (due to accident or disability) the following could claim the social security benefit, if they comply with several criteria:
- If you and your spouse are eligible for Social Security benefits
- If you and your spouse are entitled to receive Social Security, you must apply for your own benefit first.
- You may qualify for the spousal benefit, if your spouse’s benefit is twice as high as or more than yours.
- If you decide to receive the benefit as a spouse before reaching your full retirement age, the amount will be reduced and will not increase when you do reach that age.
- Spouses also qualify if they are responsible for your children under 16 years of age or older and disabled.
- In case of divorce
- If you are divorced and the marriage lasted ten years or more, you are 62 or older and single, you may be entitled to the benefit based on the contributions made by your ex-spouse. Taking a benefit on your ex’s record has no effect on his or her benefit.
- If your spouse is not insured under Social Security
- If your spouse is not insured under Social Security, it is possible for him or her to receive the benefit as a spouse based on your contributions. It will be equivalent to a maximum of 50% of your retirement benefit.
- Same-Sex Couples
- As of June 26, 2015, married same-sex couples will be recognized as such for the purposes of determining entitlement to Social Security benefits. Learn more information about the subject.
- The widow or widower will be entitled to receive the full benefit if he or she reached full retirement age or reduced benefits at age 60. He or she could also be eligible under the following circumstances:
- At any age if he or she is cares for children of the deceased 16 years-old or younger, or older and disabled.
- From 50 to 59 years of age and 11 months if the widow or widower is disabled.
- At 60 years (by age).
- Single children may qualify if:
- They are younger than 18 years of age.
- They are between 18 and 19 years of age and are full-time students in an elementary or secondary school.
- They are 18 or older with a disability that began before age 22 (medical evidence is required).
- If you contributed to the Social Security and your spouse and underage children survived, your children will receive the benefits until they reach 18 years of age.
- If, at the time of death, you were the provider of 50% or more of your father’s or mother’s support, he or she may be entitled to survivor benefits.
For additional information about eligibility, access the Social Security web page
IV. May I receive Social Security benefits while I’m working?
Nowadays, more people continue working past their full retirement age.
Once you reach 62 years of age, you may start receiving benefits while you continue working. Nevertheless, if you have not attained full retirement age and earn more than a specific amount (which varies annually), monthly benefits will be temporarily reduced. After reaching your full retirement age, Social Security may recalculate your monthly benefit, giving you credit for the months that weren’t paid.
If you have not reached your full retirement age, you should earn $15,720 or less to receive the complete Social Security benefits to which you may be entitled that year. If you expect to earn more working over this amount, Social Security will deduct $1 from every $2 in excess of $15,720 from your benefit.
If your reach full retirement age in 2016, you may earn up to $41,880 from January up to the month before you reach your full retirement age. If you generate earnings from work over that amount during such period, Social Security will deduct $1 for each $3 more than of $41,880.
Once you reach your full retirement age (which varies according to your date of birth), there are no limits as to what you may earn.
Regardless of your salary, you will have to continue to pay Social Security for your earnings. Once your earnings are accredited, Social Security may recalculate your benefit.
V. When do I have to pay taxes for the benefits received?
The Puerto Rico Internal Revenue Code excludes from taxes the benefits received from Social Security. Nevertheless, you must report your benefits using the IE Schedule of your Personal Income Tax Return.
If you must file a Federal Income Tax Return, your Social Security benefits may be subject to taxes. If your earnings exceed $25,000 (single or head of household) or $32,000 (married couples filing joint returns), you may be subject to federal taxes up to 85% of your income. Instructions for Form 1040 provide a schedule to compute the exact amount.
Recommendations for strong retirement finances
Plan for your retirement. The earlier you start planning your retirement, the better the final result. Be specific and realistic setting your goals.
Learn more about Social Security and retirement. . The Social Security Administration provides educational information in Spanish and English online, Start by creating your social security account, where you will be able to verify your salary history and estimate your future benefits. Use the calculators provided by Social Security to simulate different scenarios.
It’s important for you to review your financial situation and create a savings plan that complements your Social Security benefits. Popular Once has financial planning experts who may help you to create a detailed plan for your retirement.