Maximize Your Social Security Returns
When approaching retirement age, one of the decisions faced by workers and retirees is when to begin claiming Social Security benefits. A misstep here could actually cost hundreds of thousands of dollars over the course of a long life. Here are some considerations. Naturally, individual circumstances require individualized planning.
Claiming at Age 62 – the Results. The earliest age when a non-disabled worker or former worker can claim for Social Security retirement on his own earnings record is age 62, four years earlier than current full retirement age which is 66 and eight years earlier than the maximum benefit at age 70.
By claiming at age 62 on his or her own work record, the worker takes a reduced lifetime monthly benefit. If he or she keeps working then and earns more than $14,640 per calendar year, then $1 of Social Security is deducted for each $2 earned. During the year when the person reaches full retirement age the deduction drops to $1 for every $3 earned. This means two deductions for the wage earner above $14,640 per year at age 62 until age 66. First a reduction in the lifetime monthly benefit and second reduction of Social Security received that year and following years until age 66. Therefore, the first advice might be not to collect at age 62 if you intend to continue at regular higher paying employment.
The second question regarding collecting early is both simpler and more difficult.. That is when do you figure you might die.
Long Life vs. Short Life. Some Social Security planning must be based on reasonable assumptions otherwise known as “guesswork.” The worker might conclude, based on his or her own health and the longevity of parents and grandparents that he will have a longer or shorter life but, the fact is, without knowing when you might die, it is not possible to calculate with pinpoint accuracy the benefit. About 73% of potential retirees take the money early and this might be a mistake.
The two most common attitudes could be characterized as the “take the money and run” approach and the “this is the insurance to last me a lifetime” approach. If you have a serious medical condition that could shorten your life or if you need to take the money now because of a layoff from employment, it might make sense to take Social Security earlier. However, if you can afford to “let it ride,” especially if you or your spouse might have a long life and especially since employer pensions are almost a thing of the past, the added security of a higher guaranteed monthly benefit for the remainder of your life could be preferable.
Social Security beneficiaries may need to take into account not just their own lives but their spouses as well.
Claiming on Another Lifetime Earning Record – Derivative Benefits and “File and Suspend.” Social Security decisions affect not only the worker but the worker’s spouse and, in some cases, the worker’s child or children and possibly even a parent.
A spouse who has been married to you for the requisite period of time could at the right time, claim either on her own earnings record or, if yours is much higher, on one-half of yours. Husbands and wives might even at different times claim on different benefits. A strategy known as “file and suspend” gives added flexibility. Here is a comparison.
Suppose you are two years older than your wife and your benefit is more than one-half of hers. Neither of you earn more than $14,640 per year after you begin to collect at age 62 and both of you die when she is age 70. Because of your short life spans, by definition you collect more than if you wait to collect until age 70.
However, as just one example, take the same scenario except that you continue to work until age 70 and die at age 85 while your wife lives to be 90. You can let your wife collect on your earnings record as early as her age 66 by filing for benefits at your age 68 (the same year) and “suspending” your benefit. You file for Social Security but do not collect. At age 70, you take your own higher benefit. The higher benefit also gives your wife higher income at your death.
Obviously this is complicated but, at a time when investments are paying 1% and lower, Social Security planning can make a sizeable difference.
For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.