Free Money from the United States Government?


First, let’s be clear. Social Security may be the best source of retirement income since it protects against market downturns, interest rate declines, inflation and longevity risk. It also provides benefits for a spouse and survivor. It’s not exactly free, but there are ways in which to maximize your benefits.

Second, you get to choose when you start the benefits. Choosing to start Social Security at age 62 can allow you to delay tapping into other retirement assets, including your IRA and, if you are lucky, your pension. But wait! Is that the best idea? Maybe not!

For example, let’s say that you are approaching 62 years old and FINALLY starting your monthly Social Security benefit payment is right around the corner. Cash flow has been tight and Uncle Sam is about to come to the rescue–by offering to pay you this amount for the rest of your life. It can’t get any better than this, right?

But, did you know that you get about an 8% increase in the monthly payment each year you wait? Or, said another way, if your full retirement age is 66, then your benefit will be reduced by about 25%. If your benefit at age 66 is $2,000, then you will get about $1,500 at age 62. If you wait until age 70, your benefit would be $2,640: 76% more than you would get at age 62. This does not include the cost-of-living increases that apply to the benefit, whether you start them or wait.

If you are single, it may be hard to wait to get the maximum benefit. Everyone’s case is different. It depends on many factors, including how much you have saved, what kind of investor you are, your health and how long you may live. Unfortunately, there is no magic formula to tell you the right answer.

If you are married, the game gets a little more complicated and the opportunity to maximize benefits is greater. However, it also depends on many factors, including how much each spouse has earned over their career, the age difference between the two spouses, the amount saved, what kind of investors you are, and how long you each may live.

But, if you are married and your monthly benefit is less than your spouse’s, you can either claim your own benefit or a spousal benefit. If the lower earner first claims benefits at full retirement age, then the spousal benefit is 50% of the other spouse’s benefit. The lower earner cannot claim a spousal benefit until the other spouse files for his/her benefit.

Actually, the spousal benefit is made up of two parts. The lower earner’s own benefit plus a supplement that totals one half of the higher earner’s benefit. For example, Joe and Mary are both age 66, their full retirement age. Joe is eligible for a $2,000 monthly benefit and Mary is eligible for a $600 benefit. Mary’s spousal benefit is one half of Joe’s or $1,000 per month. So she receives her $600 benefit plus a $400 supplement that totals $1,000, assuming that Joe files for his benefit at full retirement age as well.

However, there is another option. The higher earner can “file and suspend” his/her benefit so it can continue to grow. In this case, Joe can file and suspend which allows his benefit to continue to grow at 8% per year, but it allows Mary to start her benefit plus the spousal supplement. Joe can wait until he turns 70 to get the maximum $2,640 Social Security benefit. One of the reasons this may be beneficial is that in the event that Joe precedes May in death, Mary inherits Joe’s $2,640/month Social Security benefit while losing her $1,000 benefit. Had Joe taken his benefit at age 66, then Mary would have only received the $2,000 monthly benefit.

Of course, the decision of when it is best to begin taking benefits depends on your individual and family situation. That is why sitting down with a financial advisor to review all the different options available is important to help you maximize your benefits. If you have questions or would like to discuss what options are available, give me a call.


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