Social Security

Each person in a plan can have one Social Security retirement benefit. FinZot collects it as income at step 1 of each year from the year benefits start (how a year works). A statement or estimated benefit is stated in today’s dollars and rises with inflation each year. A manual monthly amount is the exception — it is taken as the literal figure you typed. Once paid, every benefit rises each year by the prior year’s inflation, the same lag as SSA’s cost-of-living adjustment, and is never cut.

Three ways to state the benefit

• I have my ssa.gov statement. Enter the monthly benefit at age 67 from your statement. That figure is in today’s dollars, so FinZot carries it forward with inflation to the year your benefit starts, then adjusts it for the claiming age you choose. Claiming age is the only adjustment: in results shown in today’s dollars, claiming at 67 pays exactly the amount you entered, and claiming earlier or later pays the reduced or credited share of it.
• I know my monthly benefit amount. Enter a monthly amount and FinZot uses it as is: no claiming-age adjustment, and no inflation between now and the year benefits start. Use this for a benefit already being paid. For a benefit that starts years from now, prefer the statement option, which keeps its purchasing power.
• Estimate. FinZot computes the benefit from earnings. Enter my past work history takes earnings by decade: an age range, the years worked in it, and the average earnings in the dollars of that time. FinZot indexes each year to age-60 wage levels using the Social Security wage index, caps each year at that year’s taxable maximum, and applies the benefit formula. Estimate from my future earnings uses only the plan’s projected earned income and ignores past work.

Claiming age

Benefits start at the Claiming Age, between 62 and 70. A statement amount or an estimated amount is reduced for claiming before the person’s full retirement age and increased for claiming after, using the Social Security Administration’s factors. Full retirement age is 66 to 67 depending on birth year. A manual monthly amount is not adjusted.

Spousal and survivor benefits

FinZot applies the spousal and survivor rules to a married couple on its own. There is no setting to turn on.

A spousal top-up. Once both spouses have started their own benefits, FinZot compares each person’s benefit to half of the other spouse’s primary insurance amount (PIA). Where half the other’s PIA is larger, FinZot pays the difference as a spousal top-up. It is paid from the month the second spouse’s benefit begins, so its first year is prorated even when the person’s own benefit has been paying all year. The top-up is reduced when it begins before the person’s full retirement age. It never grows for waiting past full retirement age. FinZot computes the top-up only when both benefits come from a statement or an estimate. A manual monthly amount has no PIA behind it, so it neither receives a top-up nor provides one.

A survivor benefit. From the year after a spouse dies, the survivor is paid the larger of two amounts: their own benefit including any top-up, or a survivor benefit (people and life events). The survivor benefit starts from the deceased spouse’s PIA, with cost-of-living adjustments. It is reduced for the survivor’s age when it starts, and capped if the deceased spouse had claimed early. The survivor benefit starts in the year after the death, or in the year the survivor turns 60 if that is later. There is no separate claiming age for it. The comparison is made month by month: a survivor benefit already being paid continues through the months before the survivor’s own benefit starts, and from then on each month pays the larger of the two. A spouse who dies before claiming still leaves a survivor benefit, based on their PIA.

The earnings test

Earned income before full retirement age reduces a benefit that is already being paid. In a year before the year of full retirement age, FinZot withholds $1 of benefit for every $2 earned above the annual exempt amount. In the year of full retirement age, it withholds $1 for every $3 earned above a higher exempt amount, counting only the months before full retirement age. After that year there is no test. The months withheld are credited back at full retirement age, so the benefit is recomputed as if it had been claimed later.

Benefit reduction

You can assume a future cut to scheduled benefits. Enter the percent, such as 23% for the trustees’ scenario in which about 77% of benefits are payable, and the year it takes effect. Left blank, the cut applies from the first payment. With no reduction entered, benefits are paid in full.

How the benefit is taxed

Federal tax follows the provisional income rules. Provisional income is the household’s other income, plus tax-exempt interest, plus half of the Social Security benefit. Up to 50% of the benefit is taxable above the first threshold and up to 85% above the second. The non-taxable part is excluded from AGI, but it counts toward ACA MAGI (expenses and healthcare). Each state applies its own treatment. Most exclude Social Security entirely (income taxes).

Where the benefit shows up

Social Security raises the variable spending budget dollar for dollar from the first year it is paid, after an assumed tax. A pension’s earnings test can reduce a supplement while Social Security is not yet claimed (pensions).