Social Security: When to Claim at 66

SSA-image-2My Comments: Many of my close friends, clients and associates have long since started taking their Social Security benefits. For those of you who have not, there are probably some issues you need to explore before you sign on the dotted line.

A generation ago, 65 was the automatic full retirement age. Rembember the phrase Full Retirement Age or FRA; it’s that point in time when it first all comes together for you. Based on your past contributions to the system, the FRA represents the base line number to determine how much you’ll receive for the rest of your life.

Start at age 62 and you get considerably less; wait until age 70 and you’ll get a lot more. But there’s a catch. You have to remain alive to get more since the SSA is not going to intentionally send a monthly amount if you’re dead.

I have access to software that will help you explore the various options, and there are more than you think, that will help you make the best timing decision less confusing. Here are a few to start you thinking.

by Donald Jay Korn JUL 6, 2015

“It’s most common for our clients to begin Social Security benefits at age 66,” says Brandon Jones, a senior wealth manager at Accredited Investors, a fee-only planning firm in Edina, Minn.

If sexagenarian clients still have substantial earned income, starting earlier would trigger an earnings penalty. When they reach 66, seniors now reach “full retirement age (FRA),” for Social Security purposes. (Any reduction in cash flow from the earnings penalty may be temporary, as seniors subsequently will get makeup benefits.)

FULL RETIREMENT AGE
“At 66, someone can earn any employment amount and still receive the full Social Security benefit,” says Marilyn Capelli Dimitroff, director of wealth management and principal at Bloomfield Hills, Mich.-based Planning Alternatives, a wealth advisory firm.

“Therefore, the 66-year-old who waited receives a significantly higher monthly check than the 66-year-old with the same earnings record who began payments at 62, the earliest starting date. The differential continues for life.”
Starting at 66 avoids the 25% benefit reduction imposed at age 62, so the early bird with a $1,800 monthly check could have received $2,400 a month by waiting until 66.

“For the majority of people, postponing the receipt of Social Security to at least FRA is a smart move,” says Dimitroff. “Most seniors will need to work to 66 or later to maintain financial security in very old age.”

IMMEDIATE GRATIFICATION
Waiting even longer, until as late as age 70, would increase benefits even more, yet many clients start at 66 anyway. “We human beings value a ‘bird in the hand,'” says Dimitroff, so some people want to collect from Social Security as soon as practical.

In addition, Dimitroff notes, monthly Medicare premiums are due for many people, starting at age 65, and it’s easier to have the payments subtracted from Social Security direct deposits rather than writing checks periodically. “A third reason for starting at 66,” she says, “is that most people underestimate how long they are likely to live.” Some people just invest their unneeded Social Security checks, she adds, hoping to exceed the 8% annualized increase they would have received for waiting beyond age 66.

SPOUSAL STRATEGIES
Moreover, 66 can be a key milepost for spousal claiming strategies. For married couples, says Dimitroff, delaying the benefit start from 62 to 66 increases the spousal benefit as well as the worker’s benefit.

“For a one-earner couple,” says Jones, “we may recommend that the earning spouse file at FRA and immediately suspend the benefit, allowing the other spouse to begin claiming a spousal benefit. Meanwhile, the earning spouse’s benefit continues to grow, with the intent of beginning benefits at age 70.”

Jones adds that a similar strategy can work if one spouse has considerably more lifetime earnings than the other spouse.

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