Make the most of what you’ve worked for.
Along with any defined benefit, defined contribution plan and personal savings you have, Social Security plays a key role in a good retirement plan.
Since Social Security replaces about 40% of pre-retirement income for the average worker, it pays to maximize when you elect to receive benefits. If you’re married, you’ll also want to partner with your spouse on the timing of benefits, and how to get the most, depending on your lifestyle. Any discussion about your options for applying for Social Security should include your financial advisor. And you’ll want to iron out any potential tax implications with your accountant.
65 is No Longer the Norm
You become eligible for benefits at age 6,2 but it pays to wait to collect until your full retirement age (FRA) and pays even more if you delay your benefits to age 70. For workers with an age-66 FRA, for example, benefits are credited with an 8% increase each year you delay collecting until age 70.
Your FRA depends on when you were born, and it’s not always age 65, as once thought. For those born between 1943 and 1954 the FRA is 66. For those born from 1955 to 1960, the FRA increases by two months each year – 66 and 6 months for someone born in 1957, for example. For those born in 1960 and later, their FRA is 67.1
Whether you decide to claim early could depend on whether you’re planning for a shorter retirement and have a lower life expectancy. Taking benefits early, however, has significant implications on how much you’ll receive. If you turn 62 in 2017, your benefit will be 25.8% lower than it would be at a FRA of 66 and two months, according to the Social Security Administration (SSA). This decrease is usually permanent, the SSA says.2
Retirement benefits are based on your highest 35 years of earnings. If you don’t have that long of a work history, delaying filing for benefits and continuing to work in your early to late 60s will increase your benefit amount. On the flip side, if you’re collecting Social Security benefits before your FRA and still working, your benefits will be lower by $1 for every $2 you earn above $16,920 (this annual amount is set each year). This changes to $1 for every $3 you earn above $44,880 at FRA.3
Planning with Your Spouse
There are more options to claiming Social Security benefits when two work histories are involved compared to a single, unmarried earner. Based on life expectancy, a higher-earning spouse may want to delay taking benefits as long as possible to maximize the benefit for the surviving spouse–if family history and other factors indicate the lower earning spouse will outlive the higher earner. This leaves a higher benefit for the surviving spouse since survivors receive the higher of the two Social Security benefits at death. The amount of survivor benefit is reduced if your spouse claimed benefits before FRA.
Couples also may want to consider if they qualify for spousal benefits and when to apply. A lower earning spouse, for example, can get a spousal benefit at FRA worth up to 50% of the higher-earning spouse’s benefit. In this example, a lower earning spouse receives their own retirement benefit (which is less than the spousal benefit) plus the additional dollars to equal the higher spousal benefit. In order to quality for spousal benefits, your spouse will have had to already filed for retirement benefits.
Before new rules went into effect in 2016, couples had the opportunity for a higher earning spouse to file and suspend their benefits. This allowed the other spouse to collect a higher spousal benefit while the spouse who suspended their benefits was still able to build up the annual 8% delayed retirement credits up to age 70.
This strategy is no longer available because “deemed” filing rules were extended to apply at FRA and beyond. When you file for either your retirement or your spouse’s benefit, you’re deemed to file for the other benefit as well and can only collect the higher of the two benefits.1
A form of the file and suspend option is still available to individuals born on or before January 1, 1954. They can restrict their application for benefits and apply only for their spouse’s benefits. They then delay filing for their own retirement benefits to earn the 8% delayed retirement credits.
As you can see, deciding when you want to begin receiving Social Security benefits depends on a number of factors. You’ll want to consider whether you’ll continue working during retirement, if you have more immediate cash needs, your health and family longevity history. And for married couples, you’ll want to discuss how to maximize benefits during your lifetime and how much money could be available to a surviving spouse.
1-“Retirement Benefits,” Publication No. 05-10035, June 2017, Social Security Administration.: https://www.ssa.gov/pubs/EN-05-10035.pdf (accessed July 6, 2017).
2-“When to Start Receiving Retirement Benefits,” Publication No. 05-10147, January 2017, Social Security Administration.: https://www.ssa.gov/pubs/EN-05-10147.pdf (accessed July 6, 2017).
3-“2017 Social Security Changes,” Fact Sheet, Social Security Administration: https://www.ssa.gov/news/press/factsheets/colafacts2017.pdf (accessed July 6, 2017).
Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory Service offered through BCJ Capital Management. World Equity Group, Inc. and BCJ Capital Management are independently owned and operated. BCJ Capital Management is a (SEC) registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. BCJ FG 17-511