Why Claiming Social Security at 64 or 67 Could Be a Big Mistake

Most Americans in good health benefit by delaying claiming Social Security retirement benefits to age 70 because their benefit increases with each year of delay past age 62 (up to 70), the first year of qualification. Social Security provides inflation-linked longevity insurance and, up until Covid, life expectancy was increasing in the U.S. You can outlive your investments but not Social Security. 

One can choose any time between age 62 and 70 to begin collecting benefits. But, like most Social Security claiming decisions, one needs to be very strategic. Specifically: 

• The benefit retirees get for delaying their Social Security claim does not increase at a consistent rate; it rises in steps.
• The benefit of claiming after step years is much larger than other years.
• This strategy is particularly valuable for women.

"The bonus retirees get from waiting to claim Social Security income benefits increases in two steps. These steps... result in differences as high as $10,000 in the incremental value of waiting an additional year...."

This is how the increases work: 

The percentage increase is 5% year from 62 to 64. After age 64 the yearly increase is 6 2/3% up to the full retirement age (67 for someone born in 1960). After age 67, the bonus increases to 8% a year until age 70. 

The percentage increase from deferral should rise gradually each year instead of increasing at ages 64 and 67. These two steps mean that the gain from waiting an additional year is higher the first year of each step. 

So if you are planning to claim SS at age 64 it is beneficial to wait one more year to age 65. If holding out until age 67 (full retirement age for younger boomers), wait until age 68 to maximize benefits. "The second step from age 67 to 68 is even more valuable to all groups of retirees than the first step from 64 to 65."

The full article provides convincing dollar amounts to illustrate these points. Thanks to Dr. Michael Finke but this valuable information. You can read his full article at: https://www.thinkadvisor.com/2022/02/15/why-claiming-social-security-at-64-or-67-could-be-a-big-mistake/

Free Open-source Social Security Strategy Calculator

 Deciding when to claim Social Security retirement benefits can be simple for single, never-married persons but complicated for the rest of us. If you've been divorced, widowed, have a disable child or a child still in high school Social Security decisions are complicated. Even married couples are well advised to use a calculator to help them decide the best claiming strategy. 

Most of us, especially if we expect to live longer than the average American, will benefit (greatly!) by waiting until age 70 to claim SS retirement benefits but you need to get expert advice before you make this extremely important decision.

A free calculator Open Social Security https://opensocialsecurity.com/ was developed by Mike Piper, CPA and author of several personal finance books.

The Open Social Security site was recommended by Wade D. Pfau, Ph.D., CFA, is the curriculum director of the Retirement Income Certified Professional program at The American College in King of Prussia, PA. He is also a principal and director at McLean Asset Management and RetirementResearcher.com.

Check out the website of the Open Social Security calculator: author, Mike Piper, Oblivious Investor (simple, low-maintenance Investing): https://obliviousinvestor.com/

5 Rules for Claiming Social Security Benefits After Divorce

"Even in the best of times, Social Security is a maze of complicated rules and notable exceptions. For a divorced spouse who wants to claim benefits on their ex’s record, it can get even trickier."

Here are five key rules from an advisor and a Social Security expert who specializes in divorce, by Ginger Szala. https://www.thinkadvisor.com/2021/04/02/5-rules-for-claiming-social-security-benefits-after-divorce/

1. The ex-wife making the claim will get 50% of the ex-husband’s primary insurance amount. It doesn’t matter when he claims.

2. The spousal benefit amount ‘tops up’ the claiming spouse’s own benefit.

3. The ex-husband’s Social Security benefit isn’t reduced. In fact, he may never know she’s made the claim. (works for both men and women)

4. If the ex-husband dies before FRA, the ex-wife still can claim benefits on his record.

5. If an ex-wife claims her own benefits before FRA, it reduces not only her own payout but also her spousal top-up.

Read the full details: https://www.thinkadvisor.com/2021/04/02/5-rules-for-claiming-social-security-benefits-after-divorce/

 

 

 

 

 

Pros & Cons of a Social Security Lump Sum Settlement

"Those who delay Social Security benefits until after their full retirement age will have the option of taking a retroactive lump-sum payment. The lump-sum option can make sense for a retiree who is struggling to make ends meet, but the decision will reduce future benefits and potentially increase the recipient's tax bill." (Retirement Security SmartBrief, 1/22/20.


Advice from many experts today is that people should delay claiming their Social Security benefits for as long as possible, or until age 70, when they have to claim them. But what should retirees do who have delayed taking Social Security even after reaching full retirement age (FRA), and when they make the claim, the government offers them a lump-sum retroactive payment up to six months? Should they take it or not, and what’s the downside, if there is one?

Although this lump sum may be a tempting choice for retirees in financial need, it may not be the right one. The six-month, one-time lump sum offer is only available to those who have reached FRA. The lump sum retroactively resets the benefit amount to the lower benefit of 6 months earlier.

“The answer depends. The main factor is expected longevity. By opting to take the lump-sum option, one rolls back the clock six months for when benefits are calculated. Depending on anticipated longevity (see links in this blog to online calculators) one needs to determine the breakeven point for that to make sense,” he explains. A retroactive lump sum reduces the monthly benefit with a 10- to 12-year catch-up period, so generally it is not prudent if you think you will live another 10-12 years.

If you are married and your spouse is much younger than you with a lower Social Security benefit amount, you may not want to lock in a lower social security benefit over both lives.

 
“However, if you have bills, debt or having trouble making ends meet and the choice is retroactive lump sum or retirement account withdrawal, the retroactive lump sum may be better, even in the long run, because the retroactive lump sum creates less income tax than the retirement account withdrawal. The retirement account withdrawal is taxed dollar-for-dollar, and the retroactive lump sum is taxed at most $0.85 on the dollar, possibly $0.50 on the dollar or maybe even tax-free depending on the family’s other taxable income,”

Taking a lump sum sets the start date back to an earlier age and therefore all future benefit checks will be reduced. However, if one has been diagnosed with a life-shortening disease, taking a lump sum may be the best choice.

According to financial planning analyst C.J. Miller, “It is almost never in the best interest of the client to take the lump sum. The payment eliminates the monthly benefit increase gained by delaying in the first place, which is usually 8% a year. Additionally, taking the lump sum is a taxable event. Many people that elect the lump sum end up paying a higher tax rate and getting less for the benefit than they would have if they had claimed earlier. Most people that delay benefits do it for a reason, and the lump sum eliminates that.”

https://www.thinkadvisor.com/2020/01/10/should-clients-take-a-lump-sum-social-security-payment/

Social Security and divorced spouses

My ex-husband is 60 years old. I am 62. Can I file for benefits now based on his work record?

No. Most workers need to be at least 62 years old to file for Social Security retirement benefits. (Exceptions include survivors and people with disabilities.) That requirement applies to divorced spouses, too.

Before you can claim benefits as a divorced spouse—you must be 62 or older and your ex-spouse must be “entitled” to Social Security. Your ex-spouse must be at least 62 to be eligible for benefits but he doesn’t have to have filed. He just needs to be at least 62 (unless disabled).

Further, if your former spouse hasn’t applied for SS retirement benefits, you must be divorced for at least two years before you can claim benefits on an ex’s work record.

Source: Glenn Ruffenach writing in The Wall Street Journal, Ask Encore, 2/28/19

The 7 most common Social Security mistakes

"Social Security is a complicated element of anyone's retirement plan. Here are the most common mistakes individuals tend to make and how to avoid them." by Scot Landborg.

1. Turning on Social Security at 62 while you’re still working.

2. Not utilizing the restricted application strategy (if you are eligible).

3. Remarrying without understanding the consequences. 

4. Waiting on a spousal benefit until 70. 

5. Thinking if you were to die at 70 you would have been better off collecting early.

6. Neglecting to plan in case of death of spouse.

7. Not understanding how Social Security is taxed. 

Read the details by Scot Landborg at: https://www.kiplinger.com/article/retirement/T051-C032-S014-the-7-most-common-social-security-mistakes.html

 

 

 

 

 

 

Mistakes to avoid when claiming Social Security Retirement Benefits

This is one of the best articles I've read about factors to consider when claiming SS retirement benefits. It is critical to focus on SS as longevity insurance and recognize that each individual and each couple is different. There is NO one size fits all answer to when to claim SS. Although targeted at CPAs, this article is readily accessible to anyone contemplating retirement and when to claim SS. Retiring and claiming benefits are two separate decisions and don't necessarily need to take place at the same time.
Take the time to read:

Top seven mistakes when claiming Social Security benefits

By Paula S. McMillan, CPA/PFS, CGMA

December 1, 2018

https://www.thetaxadviser.com/issues/2018/dec/seven-mistakes-claiming-social-security-benefits.html?utm_source=mnl:a
dv&utm_medium=email&utm_campaign=03Dec2018

Understand Social Security before deciding when to claim retirement benefits

"Is it better to delay and get fewer years of higher income, or start early and get more years of lower income?" First, make sure you understand how Social Security benefits are calculated. Next estimate your expected longevity with a couple online calculators. Are you better off claiming benefits on your own record or your spouse's (or ex-spouse's) earnings history? Bradford M. Pine explains: "Every year you delay taking benefits 'earns' you 8% in additional Social Security income in the future."
http://www.kiplinger.com/article/retirement/T051-C032-S014-social-security-delay-or-hit-go.html
Also, read: How well do you know Social Security? http://www.kiplinger.com/quiz/retirement/T051-S001-how-well-do-you-know-social-security/index.html  

Maximizing Social Security Retirement Benefits

Social Security is the bedrock of retirement income security so it is absolutely essential that you understand how the system works in order to maximize your financial security in later life. For younger readers, consider educating yourself so that you can ensure that your parents are making wise decisions so they don't depend on you to support them. One of the best websites that clearly explains options is "The Social Security Guide" written by SS expert extraordinaire Laurence J. Kotlikoff. https://www.moneygeek.com/retirement/resources/social-security-guide/
Get the most from the benefits you've earned. Don't jump to file for benefits as soon as you are eligible unless you are desperate or expect to die young. 
Consider buying Kotlikoff's  book: Get what's yours: The secrets to maxing out your Social Security. Available as paper or ebook: http://www.simonandschuster.com/books/Get-Whats-Yours/Laurence-J-Kotlikoff/The-Get-Whats-Yours-Series/9781476772318

Making the Most of Social Security Retirement Benefits for Couples

"Longevity risk has become a major concern for planners as life expectancies continue to rise. Consider a married couple where both spouses are 65. There is now a 50% chance one will live till 92, and a 25% chance one will make it to 97." ouch! Paul Norr explains strategies that couples can use to maximize their SS retirement benefits in light of recent changes.
"The restricted filing strategy remains available for anyone born before Jan. 1, 1954. This approach works best when each spouse has a significant work history. Restricted filing allows a person at least 66 years old to claim spousal benefits while simultaneously allowing benefits based on his or her own work history to continue to accrue delayed retirement credits until age 70. At that point, he or she switches to his or her own, higher, benefit."
Norr also explains the spousal benefit, how to plan for a surviving spouse, and benefits based on an ex-spouse earning record
A link to a slide show of SS benefits for persons of all ages and life stages is included.
http://www.financial-planning.com/news/pre-post-or-ex-nuptial-making-the-most-of-social-security

What would you gain in dollars by delaying Social Security?

You're probably all aware that delaying claiming Social Security retirement benefits increases your benefit by about 8% each month each year. The Center for retirement research has an online tool to help you see the benefit of delaying. As a New Year's resolution to improve your personal finances take just a few minutes to get an estimate of the value of delaying for you.
"To encourage people to plan better and to become less reliant on Social Security, the Center has developed two online calculators to help you determine how much income you’ll need in retirement and how much workers under 50 should save."
http://squaredawayblog.bc.edu/squared-away/social-security-delay-the-value-to-you/

Changes in Social Security

"The Bipartisan Budget Act of 2015 wipes away 2 key strategies smart couples have been using to maximize their Social Security payments." Jean Chatzy explains the changes in  "restricted application" and "file and suspend" which are viable until April 30, 2016. Details at:
http://www.bankrate.com/financing/retirement/jean-chatzky-social-security-and-boomers/

When to claim Social Security retirement?

Get free online help to decide the best time to collect your SS retirement benefits from the Consumer Financial Protection Bureau.  Planning for retirement—before you claim.The age you claim Social Security affects your lifetime income. We’ll help you think through this decision. http://www.consumerfinance.gov/retirement/before-you-claim/

New Rules for Claiming Social Security Retirement Benefits

Since Congress changed the rules on SS claiming strategies in October 2015, married couples need to reanalyze their strategy for claiming retirement benefits. A concise summary is available at http://maximizemysocialsecurity.com/updates-based-bipartisan-budget-act-2015 This is one website where, for a modest fee ($40) you can determine the best claiming strategy. Another similar website is: http://www.socialsecuritysolutions.com/. It is well worth the modest expense to figure out the most beneficial strategy.

Social Security Misconception

Summarized from Wall Street Journal columnist Jonathan Clements (1/11/15):
"You’re better off claiming Social Security at 62."
Yes, if you assume an unrealistically high return on your investments and both you (and spouse) plan to die early. "But this is rather like buying homeowner’s insurance, then despairing because your house didn’t burn down. The big financial risk in retirement isn’t dying young. At that point, all your money problems are over. Rather, the big risk is living longer than expected and running through your savings. Want insurance against that risk? Go for the fatter Social Security check."
Social Security provides the best, most affordable longevity insurance available. It is absolutely critical for financial security in later life that you investigate your options and compare claiming strategies before making a decision. And wives, whatever you do, don't let your husband claim early (more than 2/3 of retirees claim at age 62 thus locking in a reduced benefit for their own lives and for their spouse's life) without considering the consequences since wives typically outlive their husbands. Use this website to compare your options: https://www.maximizemysocialsecurity.com/ 

Social Security: File & Suspend Strategy

“The Social Security file-and-suspend strategy has been used primarily for couples to coordinate the delay of individual retirement benefits (earning delayed retirement credits) while making a spouse eligible to begin his/her spousal benefits. It can also be used as a partial form of "undo" for a retiree who started benefits early, and later wishes to suspend them (at full retirement age) to earn delayed retirement credits (a benefits increase that can partially or fully offset the decrease triggered by electing benefits early in the first place).”

“However, the strategy to file and suspend can also be used as a proactive planning strategy for individuals, because it creates an opportunity for the retiree to subsequently "undo" the decision to delay and "retroactively" claim benefits back to the date they chose to file and suspend (e.g., full retirement age). Thus, for someone who is approaching age 66 and isn't certain about whether it's a good idea to delay or not, choosing to file and suspend allows them to wait until age 70 to make the final decision, enjoying the benefits of the delay if it still makes sense to do so, but having the opportunity to go back and claim benefits at 66 if there's a change in health or circumstances.”

Financial planner Michael Kitces is one of the most brilliant minds in the industry. Read the details of this SS claiming strategy on his Nerd’s Eye View blog: http://www.kitces.com/blog/why-individuals-should-file-and-suspend-their-social-security-benefits-reinstatement-of-voluntary-suspension-versus-retroactive-benefits/