This browser is not currently supported. Please upgrade to a newer version of Google Chrome, Mozilla Firefox, or Internet Explorer 9 through 11 for the best experience.
News, research and market insights from our team of experts.
Millions of Baby Boomers have or will soon reach the age when they need to make decisions regarding their Social Security benefits. Since these benefits can total well over a million dollars depending upon longevity and earnings record, it is important to be aware of the many nuances involved to determine the optimal manner and time to file for these benefits. Consider some of the factors that need to be addressed when evaluating benefit claiming strategies, including:
Before discussing some specific claiming strategies, let’s review the following important ages to remember:
Earliest age to receive widow(er) benefits, although they would be reduced significantly if claimed prior to the Full Retirement Age (FRA), which is age 65-67 depending upon your birthdate.
Earliest age to claim your own or spousal retirement benefits, again at a reduced amount.
Earliest age to receive 100% of your own Primary Insurance Amount (PIA) or 50% spousal benefit, or 100% widow(er)’s benefit (Make sure to go ahead and apply for Medicare at age 65, however, or you will be subject to increases in premium payments if you fall outside the application window).
Latest age you should delay benefits, as there are no additional increases from Delayed Retirement Credits (DRCs) beyond age 70 (PIA is increased at 8% per year between FRA and age 70).
Now let’s look at some common (but often overlooked) claiming strategies that could significantly enhance lifetime benefit amounts.
File and Suspend
Strategy where the higher earner files for benefits at his/her FRA, but immediately suspends benefits until age 70 in order to allow their spouse to claim spousal benefits (50% of spouse’s PIA) while their own retirement benefits continue to grow. In fact, benefits increase by 8% each year between your FRA and age 70 – not a bad guaranteed annual return.
Strategy for the higher earner to claim spousal benefits at his/her FRA (if their spouse is already receiving benefits), then switch at age 70 to his/her own retirement benefits. This strategy has two goals: maximizing expected lifetime benefits while minimizing longevity risk.
Great care should be taken to document your filing and to ensure you are not deemed as applying for two benefits at the same time (own & spousal) or it could result in a permanent reduction of your retirement benefit. Mistakes have been known to be made by the government, so be prepared to be your own advocate.
Finally, let’s say you’ve employed one of the claiming strategies, but circumstances have changed or you later change your mind. There are a couple of alternatives that might be available.
Withdrawal of Benefits
You may request cessation of benefits within the first year, pay back any benefits received, and wait until a later age to restart benefits at a higher level, thus basically erasing your early filing status.
Start Stop Start
If you filed early but later determine you do not need benefits yet, you may request your benefit to be suspended until age 70, allowing your benefits (albeit a reduced amount) to increase from the DRCs until age 70.
Here are a few other things to consider as you prepare to collect Social Security benefits:
In general, for those not needing these monthly benefits to support their living needs, it is usually advantageous to defer the higher earner’s receipt of retirement benefits until age 70 to allow at least one spouse to benefit from the maximum DRCs (which can amount to a 32% permanent increase!). Then, based upon your specific situation, decisions can be made regarding if and when you should apply for spousal benefits.
Of course, decisions will vary for each individual based upon their marital status, health history, earnings record and cash flow needs, with additional considerations necessary if a divorce or early death is involved. Therefore, you should discuss your specific variables with your financial advisor to determine the most optimal manner and timing for your particular situation. Do not depend on the employees of the Social Security Administration to offer advice on optimal strategies, as they are only to provide information on the rules, not make recommendations regarding your personal plan.
*earning limits applicable for calendar year 2015Print