Did you know that nine out of ten people age 65 and older are receiving Social Security benefits? Also, social security benefits represent about 39% of the income for the elderly population. Among elderly Social Security beneficiaries, 22% are married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income. Everyday tens of thousands of people are making their decision to receive their social security benefits however many do not know what options are available to maximize their benefits.
The social security office is well staffed and very well trained. The Social Security Administration answers questions correctly but they are instructed to NOT give advice. Their job is to answer questions and implement decisions. Understanding your social security benefit claiming options is an essential part of your retirement plan. An uninformed choice continues for life and can only by corrected within a year.
Generally, the higher wage earner should delay benefits
When one spouse is the higher wage earner it typically makes most sense to delay starting social security benefits until the age of 70.
Delaying is a great strategy for two reasons:
- Social Security increases your benefit for each month between age 62 and 70 that you delay the start of your earned benefit. This increase in benefit is called delayed retirement credits. If you were born in 1943 or later your benefit increase is 8%.
- When the higher wage earner dies, the surviving spouse will receive his/her monthly social security benefit which will equal the income amount that the higher wage earner was receiving during his or her lifetime which reflects the delayed retirement credits. Therefore, to maximize your benefits after you pass away, delaying your benefits until 70 is a good strategy.
Important Note: If you decide to delay your retirement, be sure to sign up for just Medicare at age 65. Keep in mind, if you do not sign up, in some circumstances your Medicare coverage may be delayed and cost more.
On November 2nd, 2015 Congress passed the Bipartisan Budget Act of 2015 which phased out 2 popular social security claiming strategies for married couples. Therefore, determining when you should begin receiving your social security benefits is not an easy question.
The Social Security Administration eliminated “file-and-suspend” and “restricted application” in an effort to reduce costs. These 2 strategies were viewed as loopholes that allowed married couples to claim up to an extra $50,000 in lifetime Social Security benefits.
Who will be affected?
The restricted application option will no longer be available to anyone who has turned age 62 by the end of 2015. However, if you attained age 62 in 2015 or before you are in luck. If a married couple is already taken advantage of the file-and-suspend and the restricted application they will be grandfathered in and be unaffected. However, married couples eligible for file-and suspend have only 180 days from the date the Bipartisan Budget Act of 2015 was signed into law which is April 30, 2016.
Consider the health of the non-primary breadwinner
The optimal strategy for deciding when to receive your social security benefits often depends upon your health. Spouses in poor health should start their benefits early and spouses in excellent health may want to delay their social security benefits. Keep in mind, Social Security benefits for a non-working spouse cannot be started until the working spouse begins his or her own benefits.
Drawbacks to taking your Social Security benefits early
It can be tempting to take your social security benefits as soon as possible at the age of 62. Guaranteed monthly income is nice however there are disadvantages to receiving your social security benefits early. Your monthly benefit is reduced by 25% and your spousal benefits are lower. Also, when you pass away your spouse will also receive less. Your annual cost-of living adjustment (COLA) is based on your monthly payments therefore if you begin benefits at 62 your COLA will be lower as well.
Therefore, waiting to take your benefits may be the best option. But, make sure you review your other income sources in retirement. If you have sufficient income to delay your social security benefits to the age 70, your payout will be higher. However, if you need the income sooner due to expenses and health issues delaying may not be your best option.
Changing your mind
If you are receiving social security benefits you have the option to change your mind. You can then restart benefits at a later date to take advantage of a higher payout. However, you only have a 12 month window to make this election. After 12 months you cannot withdraw your application and you are limited to one withdrawal per lifetime. Keep in mind; you must repay all the benefits. For more details about repaying your benefits the following link is a great resource – If you change your mind.
The Bottom Line
If you are in excellent health and have adequate income to sustain your lifestyle until full retirement age (FRA) or to the age of 70, it is probably best to delay your social security benefits. There are many factors to take into consideration when deciding to take your social security benefits. Therefore, it would be in your best interest to meet with a financial professional who can walk you through your claiming strategies to maximize your benefits.
Investment Advisory Services offered through John P. Dubots Capital Management, LLC.
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