Hopefully, when and how you take your Social Security benefits is not driven solely on emotion. I often hear people say they are taking benefits as early as they can because they earned them, and Social Security is going broke. While those statements may be true, it should not be the sole input into your decision. Why is that? In your decision-making process, you have to take into consideration other family members and how your decision affects them. You need to look at the decision using joint life expectancies and other factors to arrive at a fact-based decision. A married couple that reaches 65 has a 72% chance of reaching age 85, so start thinking long term. This is a one-time decision and you must get it right!
Did you know that the average working couple will receive over $1,000,000 in Social Security benefits over their joint life expectancy? That’s right, over ONE MILLION DOLLARS. If you use the right claiming strategy, you may be able to increase your benefits by $200,000.
Here is the biggest takeaway in the planning process – when strategizing about taking Social Security benefits, take the WRONG benefit at the WRONG time, it’s ALWAYS SMALLER and it’s FOREVER. The overriding goal in your planning process is to maximize the high-earning spouses benefit, coordinate the benefits between the spouses, and finally, maximize the surviving spouses’ benefits.
With that in mind, what are the “Foundation” questions you need to address to make an informed decision, keeping in mind that these “Foundation” questions need to be answered by each person. I call them “Foundation” questions because I consider Social Security benefits to be the foundation of your overall retirement planning. Remember that Social Security benefits are one piece of your overall asset base. Social Security benefits provide guaranteed income, are inflation protected, and last a lifetime. None of your other assets offers these three characteristics as a group.
- Do you qualify for benefits?
- Do you expect to live to 80 years old?
- When do you reach full retirement age?
- Are you considered disabled?
- What is your Primary Insurance Amount?
- Should you consider earning delayed retirement credits?
- Should you consider filing a “restricted application” for spousal benefits?
- Are you subject to the annual earnings limitation?
- Do you receive another public employee pension which may subject you to the Windfall Elimination Provision or your spouse, ex-spouse or surviving spouse to the Government Pension Offset?
- Are you married and for how long?
- Have you been divorced and for how long?
- Are you a surviving spouse?
- Are there any children under 19 in the family?
- Should you consider taking retroactive benefits?
- Should you voluntarily suspend benefits?
- Will the benefits be taxable?
There are very few “Rules of Thumb” when Social Security is involved. Every situation is different, and no one size fits all, so don’t listen to your neighbor (unless it’s me). Below I have compiled what I would consider to be the few “Rules of Thumb” for Social Security. I say few because they are just that.
A few “Rules of Thumb”:
- You are always paid your own “worker benefit” first if you have one.
- Social Security will not contact you-be proactive
- There is no advantage to defer spousal or ex-spousal benefits past full retirement age
- There is no advantage to defer survivor benefits past full retirement age
- There is no advantage to delay starting benefits past age 70
There are other factors you have to consider but having the answers to the above questions will give you a solid foundation to make your informed decision.
There is one more item I would like to cover, and I call it the “Do Over” provision. If after you have made your informed decision and your life changes, for example you receive a large inheritance or go back to work, you do have the opportunity to recast your decision as long as that is done within 1 year of claiming benefits. You can file a “Request for Withdrawal of Application”- Form SSA-521. The caveat here is you need to repay all of the benefits you have received, including spousal and children’s benefits, along with Medicare premiums and voluntary withholding. Very few people utilize this option, but it is available.
In future articles I will go into more depth in relation to the “Foundation” questions.