Social Security Benefits – Look Before You Leap

Work Or Retire

Key Takeaways

  • The decision of when to begin receiving benefits is a very personal one and there is no “one-size-fits-all” solution.
  • Electing to begin benefits at the earliest age of 62 could mean you will receive 25% less than your full retirement benefit for the rest of your life.
  • Your benefit will increase by 8% per year for every year you delay from your full retirement age until age 70.

When to begin?

One of the biggest retirement mistakes many American’s make is not having a plan for when and how to maximize their Social Security benefits. The majority of individuals simply take their benefits as soon as they are offered to them.

If you are approaching age 62, you’ve probably had the thought:  “Should I just take my money and run, or do I delay to my full retirement age?  What about waiting until age 70?”  The simple truth is “it depends”.  There is no one-size-fits-all solution for everyone.  The decision of when to file for benefits is a very personal one and needs to be considered in the context of your overall financial plan.  This paper from the Social Security Administration provides important considerations on the topic.

The data shows that about 80 percent of the time, retirees are leaving money on the table by claiming Social Security benefits before their full retirement age, despite the financial haircut they take in doing so.  Full retirement age is between the ages of 65 and 67 depending on the year you were born.  If you begin to receive your benefit at age 62, you reduce that benefit by 25% for your entire lifetime.  Delaying receipt of payments to age 70 allows you to increase your payments by 8% per year from your full retirement age until age 70.

Monthly Benefit Example 

The following chart illustrates how much a monthly benefit of $1,800 taken at a full retirement age of 66 would be worth if taken earlier or later than full retirement age. For example, as this chart shows, this $1,800 benefit would be worth $1,350 if taken at age 62, and $2,376 if taken at age 70.

Social Security Benefit Amount

What should my spouse do?

Married couples have a choice.  They can each receive their own personally accrued benefit or choose to take the so-called “spousal benefit” if it is greater than their own.  The spousal benefit can provide up to 50% of the primary wage earner’s monthly figure.  However, in order to begin receiving a spousal benefit the primary earner must first apply for their personal benefit.

To make matters even more confusing there are additional strategies for married couples, which for the right pair, can maximize the benefit of delaying payments.  One of those strategies is the ability to file and suspend.  This means filing for benefits at your own full retirement age and immediately suspending that decision.  Thus, allowing your personal benefit to continue growing at an additional 8% per year until age 70.  However, the very act of filing gives your spouse the right to begin receiving their spousal benefit if they so choose.  Let’s say a higher-wage-earning wife is eligible for $2,200 per month at full retirement, while her husband’s benefit is $800 at his full retirement age.  If he chooses to take the spousal benefit at his full retirement age of 66 rather than his own personal benefit, he could receive $1,100 ($300 more than his own benefit) and she could still delay her payments to age 70 accruing the additional growth.

Liquidity needs, additional savings, differences in the age of spouses, personal preference, the future strength of the Social Security system and a host of other considerations can influence the decision of when to begin receiving payments.  This is why one should not make the choice in a vacuum or use a blanket rule of thumb approach.  Consider the decision carefully, and when the time comes, contact your financial advisor or other professional for assistance.  You have worked a lifetime making the deposits into your account, and it is only fair that you maximize what you’ve earned.

At Independence Advisors, LLC, we help our clients navigate these confusing waters.  If you’d like to understand more about the right strategy for you, please contact me for a complimentary analysis of your Social Security retirement benefits. (610) 695-8070  ckorger@independenceadvisors.com

About Chas Boinske

Charles P. Boinske, CFA, is a 30 year investment management veteran overseeing the strategic direction and portfolio management process for Independence Advisors, LLC. Have a question for Charles? CLICK HERE TO ASK CHARLES

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