Sep 22, 2016 4 min read

In the last three columns, we discussed the importance of income planning to utilize your assets such as IRAs and 401(k)s. Income planning is the first step of any retirement plan.

Today, we will discuss Social Security, which, while not an asset in the traditional sense, is a keystone in most people’s income plan. I say it is not an asset in the traditional sense, because you do not get to decide where to invest the money and except for spouses or ex-spouses, there are no other beneficiaries whom you can choose. (We are limiting our discussion of Social Security to retirement decisions only, not disability or minor children benefits).

People with lower income depend on Social Security benefits for a larger percentage of their income. This is because it is more difficult for them to have extra money available to save in other financial products. However, Social Security was never intended to be the sole income source for retirement.

Your Social Security benefit is calculated by reviewing your 35 highest earning years of income over your working life. You earn credit when your income for a quarter exceeds certain thresholds. The Social Security Administration does some calculations to adjust for inflation, since what you earned in the 1980s would be higher today because of inflation.

Sometimes people ask me if working part time during retirement will hurt their Social Security benefits. The basic answer is no, because these earnings will either replace a lower-earning year, or they won’t be included. Zero is used in the calculation for each of the 35 years in which you do not have any earnings.

The earliest anyone can start receiving Social Security benefits for retirement is age 62, unless you are a widow or widower. Then you can start benefits at age 60. Social Security is gender-neutral, so all rules apply equally to men and women. The earlier you begin benefits, the lower your monthly check will be.

Full retirement age is when you receive 100 percent of your earned benefit. It is age 66 for anyone born before 1954. After that, it goes up two months for each year until it reaches 1960. After that year of birth, everyone must be 67 to collect full benefits.

People can earn Social Security credit with their own work record. Only earned income counts toward the credit, which is basically income where Social Security taxes are withheld from your pay and matched by your employer. Someone can receive Social Security based on their deceased spouse’s record if they have been married for at least nine months before a wage earner’s death. In case of accidental death, the nine-month requirement is waived.

Someone may also be able to collect Social Security benefits from an ex-spouse’s record if they were married for at least 10 years and have not remarried. Actually, more than one ex-spouse could be collecting on the same employee’s work record, and it does not reduce the amount of money received by the worker, current spouse or any other ex-spouses.

There are also survivor benefits paid by Social Security. If your spouse passes away, you may be entitled to their benefit. If both people are receiving Social Security and one spouse dies, one check will be discontinued. The good news is it will be the smaller one.

But remember, living expenses do not drop in half when one spouse dies; you still must pay the rent or mortgage, taxes, utilities and upkeep on the property. You need to have a plan to offset this income loss.

An ex-spouse may be able to receive survivor benefits also, if he or she were married to the deceased for at least 10 years and they did not remarry before age 60.

In our next column, we will discuss ways to increase your Social Security benefits.

Gary Boatman is a Monessen-based certified financial planner. He is the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, contact business editor Michael Bradwell at mbradwell@observer-reporter.com