“One’s philosophy is not best expressed in words; it is expressed in the choices one makes.” ~Eleanor Roosevelt
Question: I am confused, when is the best time to file for my social security benefits?
Answer: Welcome to the great debate. There are numerous strategies for “maximizing” the receipt of your benefits. The short answer is that most people will be better off to delay filing for Social Security to provide for a higher lifetime income, maximized survivor benefits and longevity protection.
Longer life spans make the decision of when to file more important than ever. Choosing when to turn on the income faucet depends on many variables including financial need, health, and projected life expectancy. If we knew our individual “expiration date,” financial planning would be so easy. Some people feel strongly that “a bird in the hand is worth two in the bush,” and file for benefits sooner than later even though it may be better in the long run to wait. Ultimately, the choice is personal, and there are no guarantees.
Not to be a wise guy, but the best time to file is whenever you need the extra income. If you need the money at age 62, then that’s the right time to file. If you’re fortunate enough to have savings and/or other sources of income, then you may want to consider delaying filing until at least your full retirement age (FRA) which is either 66 or 67, depending on when you were born, at which time you’re entitled to the full or maximum benefits.
According to the Social Security Administration (SSA), these monthly payments make-up 40% of many retirees total income with savings, pensions and retirement plans accounting for the balance. Strategizing to optimize the value of this component of your total retirement income is important.
My husband and I recently reviewed his Social Security income options. One piece of information we focused on is that each year between the ages of 62 and 70 that filing is delayed, benefits are expected to grow approximately 8%, with future benefits likely incorporating cost of living increases. Filing before FRA locks in permanently reduced benefits for the rest of your life, and could limit survivor’s benefits paid to your spouse if you were the higher earner.
As you get ready to retire there are several things you and your spouse (if you are married) should consider. The age you claim affects your options for receiving benefits. At FRA, there are more choices and creative strategies. Collecting before FRA reduces your adjusted spousal benefits. Your spouse’s claiming age does not affect your spousal benefit. Couples have options as to how each will independently claim benefits in order to optimize the amount of money you both collect over your lifetimes. If you’re married and your spouse is the higher earner, you can collect up to 50% of what they are entitled to at full retirement age (if that person is at least 62 and has already filed for benefits).
If you’re under FRA, receive a salary and have started claiming benefits, you’re subject to something called the earnings limits. That means if you make over $15,720 in 2015, Social Security will withhold $1 from your benefits for every $2 you make over the limit. Don’t worry; your benefits will be recalibrated once you reach full retirement age and include the withholdings. If you continue to work past FRA, you’ll receive all of your benefits no matter how much you earn. This is what Peter chose to do since he’s a healthy man with a long life expectancy. Plus, he’d get in way too much trouble if he quit working!
There is an option where you can claim a “mulligan.” Don’t try this on your own because it can be complex and could backfire. If you’re interested, seek professional advice before filing an application that you will withdraw within 12 months. Then you will need to pay back all the benefits you’ve received (ouch!) so you can delay benefits until a later age for higher checks. If you claimed benefits on your own record before FRA, you can suspend payments.
As you can see, benefits depend on your age, marital status and employment. With all the complexities, it is wise to get professional help when calculating different scenarios and determining what filing strategy works best for you. Stay focused and plan accordingly.
The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Consult with a tax professional and your financial advisor before implementing any Social Security strategy.
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This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. Call or email Darcie at 239-389-1041 or firstname.lastname@example.org with questions or suggestions for future columns. Visit her website: www.raymondjames.com/Darcie