The Social Security Dilemma

“When should I begin receiving Social Security benefits?” This is a popular question without a “one size fits all” answer. Careful consideration of your personal circumstances and the Social Security rules will help you to make an informed decision about the optimal strategy for claiming your Social Security benefits.

We Are Living Longer

Assuming you have met Social Security’s minimum requirements, you will have a choice of collecting: a) reduced payments as early as age 62; b) full payments at Full Retirement Age (FRA), which is between age 65 and 67; or c) increased payments, if you postpone collecting to age 70.

More than two thirds of those collecting Social Security start early, resulting in payments which are as much as 30% less than if they waited until their FRA. According to the Social Security Administration, average life expectancy for a 65-year-old male is 84.3 years and 86.6 years for a female, with one in four living to 90 and one in 10 living past 95. These statistics highlight the importance of considering what starting date will maximize payments and minimize the risk of running out of money during your lifetime.

Key Considerations

Your health. If you think you’ll beat the average life expectancy, delaying payments might be a good option. If you have a serious illness or a family history of early deaths, beginning payments as soon as you are eligible may be optimal. If you’re married, don’t forget to take your spouse’s age and health into account, particularly if you’re the higher earner. The amount of survivor benefits for a low-earning spouse could depend on the deceased, higher-earning spouse’s benefit—if the higher-earner delays collecting his/her benefit, it is better for the surviving spouse.

Your plans. If you are working and do not need the payment stream, you may be better off delaying. Social Security applies an earnings test: if you are under your FRA, benefits are reduced $1 for every $2 of earned income above $16,920 (2017). If you are working in the year that you will reach FRA, the reduction is $1 for every $3 of earned income above $44,880 (2017). After reaching FRA, individuals can receive full benefits with no limit on earnings. This earnings penalty is not a tax, but Social Security payments are subject to taxation if your income exceeds certain limits.

Your Marital Status. Even though recent law changes phased out two popular claiming strategies for married couples, claiming decisions are still complex and warrant careful analysis. Assuming both spouses are in good health, it might make sense for spouses with equivalent work histories and life expectancies to delay their benefits to age 70. In other situations, especially when there are material differences in work history, it might be beneficial for the lower-earning spouse to file earlier while the higher earner waits until age 70. There are many claiming strategies for married couples, so be sure you understand all of the available options.

If you are single, the longer you wait, the higher your benefit. Singles with short life expectancies who will not lose benefits to the earnings test may want to begin collecting early. Those with long life expectancies can maximize their benefits and minimize longevity risk by deferring the start to age 70.

You Can Change Your Mind

Deciding to begin receiving Social Security payments is not an irrevocable decision. If you start receiving Social Security benefits, you can change your mind and then restart benefits later to take advantage of the higher payout. However, you have only a 12-month window after you start receiving benefits for this “do over” choice, and you can do it only once in your lifetime. And, you must repay all the benefits you have already received.

Do Your Homework

There are numerous resources available on the Social Security Administration website www.SSA.gov. Your financial advisor should also be able to walk you through the process and help you arrive at the best decision.

Barbara M. Ollinger, CFP®

Barbara joined HTG in 1998. As a senior advisor, she counsels clients on their financial planning concerns and designs and implements investment portfolios to meet her clients’ objectives.

Barbara has been a CERTIFIED FINANCIAL PLANNER™ practitioner since 2007. She received her BS in Business Administration from the University of Maine and her MBA from the University of Connecticut.