Start Social Security Too Soon?
Submitted by Larry Frank Sr. on Fri, 09/06/2013 - 12:00pm
Social Security officials often encourage starting benefits as soon as you
are eligible. But they can’t counsel you on filing strategies. Convenient for
them but inconvenient for those who don’t know the ins and outs of filing
and may file too early in life.
If you or someone you know started benefits early, strategies exist to
still enhance monthly benefit checks or even let the recipient take a job
without losing benefits. Knowing the filing rules helps maximize retirement
Even if you started Social Security early, you can suspend your benefits
after you reach the Full Retirement Age (FRA) of 65 to 67, depending on
your birth year, then restart your benefits anytime up to age 70.
Though starting Social Security early cut your benefit, by suspending your
benefit after reaching FRA you still get a juicy 8% annual increase on your
benefit, called the Delayed Retirement Credit (DRC). For someone born
after 1942, for example, a four-year suspension equals a 32% benefit
increase and a two-year suspension equals a 16% benefit increase. You’ll
have a hard time safely securing an 8% annual guaranteed benefit
increase anywhere else today.
For couples, the spouse who did not file and suspend at FRA can file
and restrict their filing to spousal benefit only, even though their spouse
suspended their benefit as described above. This offsets not getting the
full benefit amount because of this suspension by the other spouse.
When the couple reaches age 70 – or any earlier age if need be – they
restart their full benefits with DRCs applied, resulting in a larger monthly
payment. Couples increasing retirement benefits this way also maximize
survivor income from Social Security.
Singles or couples may combine these filing tactics with a bridge strategy
to provide income for these couple of years of lower, or no, Social
Security benefits. Delay is worth that price: Higher Social Security
benefits by age 70 take pressure off the portfolio to sustain income,
potentially for many more years, because benefits payments increase
enough to forestall dipping into securities holdings for income.
In another scenario, someone receiving Social Security finds a good job
before they reach their FRA. Should they take the job and lose their
Social Security because they’ll make more a year than the earnings test
limit of $15,120? (In the months leading up to FRA, benefits are reduced
if earnings go over this limit. Above FRA, people can work and still
receive fill benefits.)
Those months they don’t get their Social Security benefits won’t hurt
benefit amounts later, however, and may actually increase those later
benefits. Social Security updates the earnings history each year you
work even after you start benefits; when you reach FRA, suspend your
benefits to get the DRCs.
These examples of Social Security strategies only scratch the surface of
how decisions affect benefits. Everyone’s different and other strategies
merit your attention. Point is, don’t look for answers in the Social Security
office – but know as many as you can before you walk in.
Follow AdviceIQ on Twitter at @adviceiq.
Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California)
in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has
an MBA with a finance concentration and B.S. cum laude in physics with
which he views the world of money dynamically. He has peer-reviewed
research published in the Journal of Financial Planning and writes Better
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