When it comes to Social Security claiming strategies, "it's complicated" is the usual answer. If you're on disability, are a state employee or have a public pension, make that answer "it's really complicated."
For most Americans, the big debate is whether it's more advantageous to claim early versus wait as long as possible. Married couples, divorced individuals, widows and widowers have a multitude of claiming strategies they might employ.
But if you or a spouse is currently claiming Social Security disability benefits or has a public pension, it can be even more important to plan ahead. "It can get really muddy," said Mark LaSpisa, a certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. One recent client navigating Social Security benefits with a public pension "took us almost two years to get straightened out," he said.
Best strategies will come down to the individual, experts say, but here are some broad considerations to keep in mind:
Social Security disability benefits
Couples have several strategies to consider if one of them is on disability, said Clark Randall, a certified financial planner and founder of Financial Enlightenment in Dallas.
Notably, if the healthy spouse is already claiming Social Security retirement benefits, the disabled spouse might apply to receive a spousal benefit in lieu of a disability benefit as early as age 62. That depends on their work records and ages, among other details, that may provide a more valuable benefit, he said.
Either the healthy or disabled spouse could also opt to "file and suspend" at full retirement age, maximizing the survivor benefit if that person dies first, said Randall.
At the disabled individual's full retirement age, Social Security disability benefits convert to Social Security retirement benefits. "The amount won't change, but the label changes," said Deana Arnett, a certified financial planner with Rosenthal Wealth Management Group in Manassas, Virginia.
However, in cases where Social Security disability benefits were reduced due to workers' compensation and other public disability payments, the total received may increase at full retirement age. At that point, all the regular Social Security rules and considerations are once again in play for couples to assess, Arnett said.
Public pensions
Not all pensions are created equal when it comes to Social Security. Private pensions typically don't affect your benefits. The pensions to watch out for are those tied to jobs that don't pay into Social Security, said LaSpisa. That includes many local, state and federal government employees as well as teachers in some states, but also certain railroad employees and workers of foreign companies, among other groups, he said. "There's all these little side deals that have been done over the past 80 years," LaSpisa said.
Not sure if you've paid into Social Security? Ask your pension administrator.
The impact to your Social Security benefits, if any, depends on the details of your work record and what benefits you're claiming. One of two provisions can kick in: On your own benefits, the Windfall Elimination Provision, and on spousal and survivor benefits, the Government Pension Offset.
Under the Windfall Elimination Provision, your Social Security benefits can be reduced by as much as 50 percent. The exact reduction will vary, based on how many years you worked in other jobs that paid into Social Security and your average earnings over that working career, said Randall, so keeping good records is vital. "The more years you worked at a job [that paid into Social Security], the less that pension counts against you," he said.
The Windfall Elimination Provision doesn't apply if you paid Social Security tax on more than 30 years of what the federal government considers "substantial earnings." For example, if you make $22,050 or more this year, that is considered substantial earnings by the Social Security Administration. Use this table to find the amount the Social Security Administration considers to be substantial earnings for each year since 1937.
The Government Pension Offset applies in most cases where a public pensioner is claiming spousal or survivor benefits. It's the harsher of the two penalties, said Arnett. The spousal or survivor benefit is reduced by an amount equivalent to two-thirds of the pension. "It can cause a total loss of Social Security benefits," she said.
That interplay makes it worth crunching the numbers on whether it's more advantageous to claim your own benefit or a spousal benefit. But there are some exceptions where the Government Pension Offset does not apply, such as workers receiving a government pension from a military reserve service that doesn't pay into Social Security, she said.
Whatever your particular situation may be, it if is complicated by disability or you have public pension benefits, check with a financial advisor who has expertise in Social Security claiming strategies to maximize your retirement income.