With Social Security, there are always plenty of
questions to answer, 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 — and
with the lowest monthly benefit possible — at age 62?
Wait until your full retirement age for full benefits? Or
put it off until age 70 to earn delayed retirement credits
and get about 75% more per month than if you had
retired at 62?
To explore what might be the best option for you, let’s
take a look at three people’s own personal decisions
and the factors that helped drive them. Compare their
life’s stories to your own to get some ideas of where to
start when answering this critical Social Security
question for yourself.
1. A Cancer Survivor’s Decision to Take Benefits
In 2000, I had a client who was 59½ and found himself
experiencing many life transitions. He was a two-time
cancer survivor. His wife suffered two mini-strokes,
and then she had a major stroke and died. He had
always thought his wife would predecease him.
At age 59½, the company he worked for offered him
early retirement with a generous severance package
and health care for life. The severance funds he was
awarded would take him to age 61. In general, I advise
my clients to keep six to 12 months of cash reserves.
Candidly, he had closer to six months’ worth, but with
his annual leave/sick leave and incentive pay, that
brought him up to 12 months. I told him that it was OK
for him to take time off. He needed the time for himself.
I assured him that he didn’t need to just take any job,
rather he could be selective.
He did end up taking Social Security early, at age 62. I
was a younger adviser, only in the business one year,
but I learned so much from working with this client.
He eventually remarried. Cancer struck again, and this
time it had spread to his liver. He passed away just shy
of his 66th birthday. I attended his memorial service,
and his wife told me, “Rita, thank you for being here.
Most importantly, thank you for the five amazing years
we had together. I miss him so much, but I thank you
for the incredible memories. We visited Europe twice
together before he became too ill to travel.”
Many experts advise against taking Social Security at
age 62 because their benefits would be permanently
reduced. Today’s 62-year-olds will see a 27%
reduction (and if you were born in 1960 or later, it
would be 30%). But if you have health concerns or a
medical condition and don’t expect to live as long as
the typical Social Security beneficiary, it may make
sense to claim early. For my client, it gave him the
freedom to live the last years of his life happily.
Aside from health concerns, another key reason
people may decide to take their Social Security
benefits early is lifestyle or quality of life. Some retirees
may not be able to delay benefits because they rely on
them to maintain their standard of living.
One thing to keep in mind if you're weighing the
decision to take Social Security benefits before your
full retirement age and still plan on continuing to work:
If you make too much, your benefits can be reduced. In
2018, people receiving Social Security benefits can
lose $1 in benefits for every $2 earned that exceeds
the $17,040 per year limit. In the year when individuals
reach full retirement age, Social Security will reduce $1
in benefits for every $3 that they earn above $45,360
in 2018. Social Security only counts earnings before
the month that beneficiaries reach their full retirement
age. What’s your full retirement age? Social Security
has a chart that spells it out.
2. An Independent Woman Waits Until Full
My client, who is single and 64, retired at age 62 but
she didn’t start taking Social Security then. Instead,
she set a goal to start claiming at her full retirement
age of 66, in order to get 100% of the benefit she has
coming to her. She is in amazing health. Her dad is 88,
and still going strong. Susan has minimal debt, about
$45,000 left on a 15-year mortgage, which she will pay
off by the time she is 67. She lives modestly and is a
great saver. She contributed the maximum amount to
her 401(k) on a pre-tax basis (no catch-up though) and
the maximum amount to her Roth IRA (including catchup
Susan is very forward thinking. She purchased longterm
care insurance through a group plan even before
I met her (she started retirement planning with me
when she was 54). Because she doesn’t have children,
she was 100% comfortable purchasing a LTC policy.
She didn’t want to be a burden to her siblings. She is
mainly concerned with longevity risk and wants to
make sure her savings will last, but she also likes the
flexibility of her plan.
First, I think it’s important to decouple the decision to
retire from the decision of to start claiming Social
Security. Susan’s case shows how these decisions are
separate and distinct. And she built in some wiggle
room: Even if she decides she can’t wait until her full
retirement age, she won’t experience as significant of a
reduction in her benefits as she would have if she had
started taking them when she retired. For her, the
middle of the road is the right place to be.
3. Why My Dad Decided to Wait
My dad decided to delay taking Social Security. I write
about my family a lot. I am a financial planner because
of my dad. Dad was a scientific developer who entered
the emerging field of IT in the 1960s. Dad was always
thinking one step ahead. My parents are 14 years
apart in age.
My dad was healthy, active and fit until he was struck
with Parkinson’s disease. He realized that by deferring
his benefit to age 70, he would lock in a larger benefit.
He knew that most likely he would predecease my
mom. So, by deferring his benefit, he was providing the
largest benefit possible for her. My dad battled the
disease for nine years and died in 2015. Mom misses
him, but I am pleased to report that she is doing well
financially and has someone special in her life.
For married couples, it’s absolutely important to
discuss Social Security claiming strategies. It makes
sense for the spouse with the larger benefit to delay
until at least their full retirement age to lock in the
largest benefit for the surviving spouse. If you have
longevity in your family and/or there is a large age
difference between the spouses, it may also make
sense to delay benefits.
The bottom line is that Social Security is more than a
monthly check. It’s a valuable income stream that
provides the following:
Social Security is the foundation of a retirement
income strategy. The benefits provide security, and
they receive preferential tax treatment. Finally, while
the rules about claiming Social Security have changed,
the rules for survivors (widows and widowers) have
not. There are still major opportunities to help
individuals when they are most vulnerable.
The decision of when to collect Social Security is very
personal. Every client situation is unique. It may sound
silly, but stories like this inspire me to listen to the
goals, dreams, fears and concerns of every client.
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