I recently met a couple who had a strategy for their retirement investments, but no strategy for claiming Social Security. Using advanced software, I projected they would potentially increase their lifetime income sufficiently by using the replay strategy highlighted in “Get What’s Yours, The Secret to Maxing Out Your Social Security”. In this instance, the wife would qualify for a benefit equal to half her husband’s “Full Retirement Age” benefit. Then, when she reaches 70 years old she would switch to the benefit based on her wages.
- Retirement benefits at 70 are now 76% larger benefits than at 62
- Spousal benefit at 66 are now 43% larger than at 62
- Widow(er) benefit at 66 are now 40% larger than at 60
Why so many claim social security so early
In “The Irrational Retirement Choices We Make” Richard Eisenberg of Next, cites research that 50% of Americans claim their Social Security at age 62 or within two months of leaving the labor force. Moreover, 80% of retirees claim benefits before their full retirement age. Instead of getting more because they waited until age 70, they got a permanent reduction in benefit.
So why don’t people wait? Eisenberg highlights:
- “It’s my money!”.
- I contributed to Social Security all these years and I want to be sure I get some of my money out…
In my experience, another factor is the current comfort factor for married couples. It’s easy to feel comfort when you are receiving two checks. However, when one of the spouses dies, then there’s only one check. Unfortunately, the bills typically don’t cut in half.
There are gotchas like the earnings test. If you start taking Social Security prior to your full retirement age, you give up a dollar in benefits for every $2 you earn from employment income that exceed a designated amount. For 2017, that amount is $16,920.
Do you have a money maximizing social security claiming strategy?
If you wait until after your full retirement age to start receiving Social Security benefits, your benefit amount will be increased.
Year of Birth Yearly Rate of Increase
1943 or later 8.0%
Even if you have sufficient assets, the more income you have the less you will have to pull from those retirement assets. As life expectancies continue to rise, you may have to pull from those assets for a longer period than you expected. The more money you have in inflation adjusted Social Security the less you’ll have to draw from your investment accounts. It’s easy to forget the impact of inflation over time. Having your Social Security inflation adjustment applied to a higher income amount, will not only provide inflation adjusted income but also decrease the amount you will have to pull from your retirement assets.
Drawing down isn’t a smooth process either. If you leave your money invested in the market, certainly there will be ups and downs. Pulling money from a counselor down accelerates their depletion. If you have a desire to pass your assets on to heirs or to charities, you want to decrease the pressure on your portfolio assets.
When should you take social security to maximize your benefits?
Social Security is enormously complex. Social Security’s Handbook has 2,728 separate rules governing its benefits. Laurence Kotlikoff, Philip Moeller and Paul Solman wrote “Get What’s Yours The Secret to Maxing Out Your Social Security.” While developing a software program to help sort this out, Kotlikoff and one of his engineers calculated that for an age-62 couple there are over 100 million combinations. Consider the various combinations created by marital status: Married, Divorced, Widowed, Single and Partnered.
Overlay that with maximizing strategies such as:
- Delay benefit collection
- Collect one benefit early while letting another benefit grow
- File and suspend to get lump sum option
- File and suspend to activate spousal benefit for spouse
- Suspend retirement benefit after FRA and restart at 70
- Start/stop/start retirement benefit to activate spousal benefit for spouse
- Retire early to activate child and child-in-care spousal benefits
- Take widow benefit before retirement benefit
- Take retirement benefit before widow(er) benefit
To “Get What’s Yours”, you can use software like Maximize My Social Security. Kotlikoff provides a DIY tool for individuals. Alternatively, you can work with us. We use a combination of tools that include Kotlikoff’s professional version.
Why consider working with a CERTIFIED FINANCIAL PLANNER™ like us vs. DIY? This excerpt from disclaimer from Maximize My Social Security sample output for individuals says: “Maximize My Social Security and the creators of Maximize My Social Security and any derivative products are not certified, registered, authorized, or any other type of financial planners. Maximize My Social Security and its derivative products are simply tools for helping you think through your economic futures.”
Click here to get started working with us.
Laurence Kotlikoff, Philip Moeller and Paul Solman are not affiliated with Envision Wealth Planning or LPL Financial.