Social Security: How Do I Know When To Begin?

social-securityThere are many great mysteries in the world.  Some are created by the forces of nature and some are created by our desire as human beings to overcomplicate things.  The rules around receiving Social Security help to create one such mystery.

Most individuals approaching age 62 have 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 right answer 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.  Rules of thumb are just that and what is right for one individual or couple may not be right for another.

Far too often (a recent study shows about 80% of the time), Americans 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.

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 other spouse’s monthly figure.  However, in order to begin receiving a spousal benefit the other spouse must first apply for his or her own 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.

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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