Social Security Q&A
In honor of the 83rd anniversary of The 1935 Social Security (SS) Act, here are some questions that I have received from you about the nation’s main retirement program.
Question: I turned 70 early this year but still work. I have two different 403(b) accounts with this employer and still contribute to one of them. Am I still required to take my Required Minimum Distributions (RMDs)?
Answer: The IRS rules are clear about traditional IRAs, as well as SEPs, SIMPLEs and SARSEP plans: you have to start taking RMDs by April 1 of the year following the year in which you turn 70 1/2, regardless of whether or not you are working. But if you’re age 70 1/2 or older and still working, you may be able to delay taking RMDs from the 401(k) or 403(b) sponsored by the company for which you’re still working. The IRS calls this "the still working exception." For this exception to apply you must:
- Be considered employed throughout the entire year
- Own no more than 5% of the company
- Participate in a plan that allows you to delay RMDs
Question: I claimed Social Security benefits at age 62, after I took an early retirement offer from my employer. After three months, the company asked if I wanted to work part time. How much money can I earn, before the government reduces my monthly benefit?
Answer: Because you are under your full retirement age (FRA) for all of this year, the Social Security Administration will deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040. In the year you reach full retirement age, they will deduct $1 in benefits for every $3 you earn above a different limit. In 2018, the limit on your earnings is $45,360. Starting the month you hit your FRA, your benefits will no longer take a hit.
Question: I called Social Security twice and got two different answers to the same question. Where can I get more information – in writing?
Answer: The Social Security web site, ssa.gov is searchable and has many examples of situations that could be helpful. AARP has a SS Benefits Calculator as well as an online SS Question and Answer tool and the Consumer Financial Protection Bureau helps pre-retirees plan with an easy to use tool.
Question: My 35-year old son does not believe that Social Security will be there for him, when he retires. Will it?
Answer: Your son is not alone. In the 18th annual Transamerica Retirement Survey, 76% of American workers feared that Social Security will not be there for them when they're ready to retire. That said, "This fear that Social Security is going broke is misplaced," says my friend and retirement/longevity expert, Steve Vernon. Steve is an actuary, so when he drills through the numbers, he knows his stuff!
Maybe your son saw a scary headline or two after the release of the 2018 Annual Report of the Board of the Social Security Trustees, which said that the program's trust fund would be exhausted by 2034. But Steve notes "retirees wouldn't see their benefits go to zero. As long as current workers are paying taxes into the system, current retirees will receive at least a large portion [about 75%] of their expected benefits." And that reduction in benefits would only occur if Congress did not act to shore up the system, which most experts believe is unlikely.