It’s been a few years since Title 8, Section 831 of the House Budget Bill (aka Bipartisan Budget Act, aka Loophole killer) was passed in November 2015. However, I still find myself fielding questions at my annual Social Security benefit maximization workshops regarding old loop-holes such as the “File and Suspend,” “Claim Now – Claim More Later,” and “Restricted Applications.” While those social security claiming strategies are no longer available, I want you all to know, there are plenty still alive and kicking.
With Social Security, there are always plenty of questions to answer when it comes to benefit maximization, but perhaps the most fundamental one can be boiled down to one word: When. When should you start taking benefits?
When do you turn on the income stream that is a lifeline for so many folks: As soon as possible, at age 62? Wait until your full retirement age? Or wait until age 70?
Many times, the best option is the simplest one. Allow me to share three personal stories with their respective outcomes. Compare these to your own situation for ideas on where to start when answering this critical Social Security question for yourself.
In 2012, I had a client who was 61 and found himself experiencing many life events. He was a two-time cancer survivor. His wife suffered two mini-strokes and ultimately passed away the following year. The company he worked for offered him early retirement with a generous severance package and health care for life. However, the severance awarded was not enough to cover the next 12 months of living expenses. And he was showing signs of on-going health issues. So, we decided to activate his benefits at the earliest possible window – age 62. The strategy here was to file early knowing that he can voluntarily suspend his benefits as soon as he hits his FULL RETIREMENT AGE (the age in which he can receive 100% of his benefits determined by your birth year). During the deferment, his benefits would grow at a pace of 8% per year for the next four years. This is known as DELAYED RETIREMENT CREDITS.
In his case, collecting early made sense. However, if his circumstances had been different, and chose to wait until he turned age 70 to collect, his benefits would have multiplied by 132%.
He passed away 3 years later.
In 2015, I had a client who decided to retire at age 65 and wanted to know the best time to claim her benefits. She had a clean bill of health, no debt, minimal ongoing expenses, and was a diligent saver since she was in her 20’s. I explained to her that she would be eligible for 100% of her benefits by the time she hit her full retirement age. She immediately asked two questions– Are you saying there’s a chance I won’t get 100% of my benefits? And – What is my Full Retirement Age? My response was a simple – Yes to the first question and it all depends on when you were born, to the second. Here’s the strategy: If you can afford to wait until your full retirement age, then you can expect to receive 100% of what is owed to you. She had saved enough through her retirement accounts to be able to delay Social Security and still satisfy her monthly obligations and enjoy her retirement. She decided to wait until she turned age 70 to take advantage of the Delayed Retirement Credits.
It’s important to separate your decision to retire from the decision to start taking your Social Security benefits. They are mutually exclusive events.
Last year, I had a client who found himself working into his late 60’s. 68 to be exact. As an engineer who started working for an aerospace company right out of college, he was fortunate to have experienced a steadily rising income for almost five decades and religiously contributed towards his company’s retirement account since the enrollment window opened to new hires. By the time he retired, he was able to receive a large pension from the company and had a sizeable 401K plan as well. As you can imagine, claiming Social Security benefits as soon as it was possible was not his main concern. The strategy for this client was to delay the benefits if possible. He was pleasantly surprised to discover that he would receive a boost to his benefits by delaying through a process called “Delayed Retirement Credits.” Further, I advised that he should not wait past the age of 70 to claim since there was no incentive to delay past that age.
Not only was he able to lock in a larger benefit by delaying, but as a married man, he would be able to leave a larger widow’s benefit should he pre-decease his wife.
Social Security is the classic foundational retirement income for most Americans who have a minimum of 40 credits to their name. While the rules about claiming benefits have changed, the ability to maximize benefits has not. There are plenty of Social Security claiming strategies out there that can still help you grow your benefits before you claim them. Again, the question you want to ask yourself is “When?” When is the best time for YOU?