It’s a challenging task for those deciding when to claim their Social Security benefits. Kiplinger’s recent article, “5 Keys to Your Social Security Benefits Strategy,” says it’s up to you to make the most of this inflation-adjusted income stream that you can’t outlive. You’ll need to figure out if it’s more important to have some income sooner rather than later, or wait for a bigger benefit.
- Pin Down Your FRA. Begin by figuring out your full retirement age (FRA), which varies by birth year. This year, those born in 1955 are turning 62—the first to face the transition to a full retirement age of 67. Those who turn 62 this year must wait until age 66 and 2 months to reach their FRA. (Every year for the next six years, the full retirement age for those turning 62 will climb by two months until reaching age 67.) No matter when you were born, you can claim a retirement benefit at 62 but, if you turn 62 in 2017 and take benefits, it’s a deep cut to your benefit. Those with a FRA of 66 who claimed at age 62 received just 75% of their full benefit, and the percentage drops for those turning 62 in 2017 (to 74.17%). It eventually falls to 70% of a full benefit for those whose full retirement age is 67. Your benefit rises 8% a year, if you start receiving payments after your full retirement age. Those with a full retirement age of 66 can bump up their benefit by up to 32% by waiting until age 70.
- Think About Your Marital Status. You qualify for a retirement benefit based on your personal earnings record once you have 40 quarters of coverage, working in covered employment (jobs or self-employment where earnings were taxed by Social Security) for 10 years. Your benefit will be based on your 35 highest years of earnings, but depending on your marital status, you may also qualify for a spousal benefit or a survivor benefit. If so, you may be able to mix and match benefits to add to your financial security.
- A Disappearing Strategy. Your birth year and your marriage status also determine if you qualify to “file and suspend.” If you turned 66 by April 29, 2016, you had the option to use the old rules, allowing one spouse to claim spousal benefits while the other delayed receiving benefits to earn delayed-retirement credits. This also allowed beneficiaries who suspended to bank forgone benefits and claim them as a lump sum if they changed their mind about delaying. (A reversal would forfeit any delayed-retirement credits.) If you took advantage of this, your spouse can claim a spousal benefit at age 62 even if you’re not receiving payments. I If you became ill or for some other reason decide delaying was a bad idea, you can claim your lump sum.
- Consider Your Life Expectancy. The longer you or your spouse is expected to live, the stronger the argument for delaying benefits as long as you can. The higher benefit earned by delaying makes it less likely you’ll run out of money before you die. But for nearly everyone who is in average health, the smartest strategy is to have the higher earner delay benefits and the lower earner claim benefits early. That brings money into the household while waiting for the larger benefit check.
- Designate the Higher Earner. The closest thing there is to an absolute rule for maximizing benefits is to delay the highest benefit you are entitled to so that it can grow as much as possible. For married couples, this means figuring out who is the higher earner, whose benefit will continue for as long as either spouse is alive. The lower earner’s benefit will disappear after the first spouse dies. Delaying to age 70 gives an extra boost from delayed-retirement credits—worth up to 32% extra.
Reference: Kiplinger’s (January 2017) “5 Keys to Your Social Security Benefits Strategy”