Butler County Times Gazette
  • Financial Planning: When should I collect Social Security?

    • email print
  • For most people, Social Security benefits are a very important part of their retirement income plan. However, the rules of the social security system can be complex and oftentimes people are not aware that there are strategies to consider when claiming.
    You can collect your un-reduced earned benefit at your full retirement age. Your full retirement age is determined by when you were born, but currently it falls somewhere between age 65 and 67 for everyone. You can begin collecting as early as age 62 or delay taking your benefit as late as age 70. Every month you begin collecting before your full retirement age, your benefit is reduced. Every month you delay collecting after your full retirement age, your benefit is increased.
    Many people are tempted to begin taking their benefit as early as possible. However, for people who anticipate living a long life, this could mean leaving tens of thousands of dollars on the table. You also need to consider your spouse’s potential life span. If you are married and have earned a larger social security benefit than your spouse, then he/she will be able to continue collecting your full social security benefit for the remainder of their life as well. This is known as a survivors benefit.
    The increased benefit you receive from delaying social security until age 70 is significant over time. Think of it this way, if you live a very long life there is a chance that you could outlive the money that you saved. However, you cannot outlive your social security benefit. It will continue to pay until the day that you (or as mentioned above, your spouse) pass away. So, while delaying social security may require you to take some money out of your savings earlier in retirement, you will ultimately be purchasing yourself longevity protection in the form of higher monthly income for the remainder of your life.
    For married couples, there are some creative claiming strategies that can be deployed in order to avoid completely delaying social security until age 70. If you are married you have the option of claiming your own benefit or a spousal benefit. The spousal benefit is half of your spouse’s earned benefit at their full retirement age. Similar to claiming your own benefit, a spousal benefit will be reduced if you claim it before your full retirement age. There is no reason to delay a spousal benefit past full retirement age as you will not earn delayed credits. The spousal benefit is very helpful for households where only one spouse worked or where one spouse earned significantly more than the other spouse.
    However, the spousal benefit can also be useful for couples who have earned similar sized social security benefits. Once you reach your full retirement age you can choose to file for your own benefit OR a spousal benefit. A commonly used strategy is called file and suspend. In this strategy, spouse 1 (we will call him Tom) will file for and then immediately delay his social security benefit. This enables spouse 2 (we will call her Susan) the option to file a restricted application for spousal benefits only. Susan will then collect a spousal benefit from her full retirement age until age 70. At age 70 Susan will switch to her own delayed social security benefit. Tom, who filed and suspended, will also begin collecting his own delayed benefit at age 70. In this way, both individuals have maximized their social security income by delaying until age 70. The bonus, of course, is that Susan was able to collect some social security while they waited. It is very important that you do not attempt to collect only a spousal benefit before you reach your full retirement age. Prior to full retirement age you do not have a choice between your own benefit and a spousal benefit. If you file for a spousal benefit before your full retirement age you will be deemed as having filed for all of your benefits and you will have lost the option to earn delayed credits.
    Page 2 of 2 - The strategies laid out above are only a sample of the options that can be considered when filing for Social Security. Social security is a complicated system and choosing the most advantageous claiming strategy can be confusing. Several factors play into the decision such as financial security, health and expected longevity and the age difference between yourself and your spouse. Taking the time to understand your options is important and can help you choose a strategy that may pay you significantly more money over your lifetime. You can find more information about social security benefits on the Social Security website at www.ssa.gov. You may also consider reaching out to a Certified Financial Planner™ in your community to discuss your own personal situation with a professional who is trained to help.
    Jorie Pitt, CFPR is a financial planner for AHC Advisors in St. Charles, Ill. She is a graduate of the University of Illinois, Champaign, which she attended as a Chick Evans Scholarship Recipient. Jorie has been a member of the Financial Planning Association for many years and has previously served as the chair of special events and the director of public awareness. She is excited to continue her involvement with FPA-IL in 2014 as treasurer. She can be contacted at joriepitt@ahcadvisors.com.
      • calendar