Older adults across the country are bombarded with invitations to attend seminars that allegedly will clue them in on a supposed “secret” to maximizing their Social Security benefits. Well, if you’re one of those folks, I can save you the trouble of getting out of the house and traipsing across town to take in one of these little gatherings. Because here is the “secret” you will learn: “Wait as long as possible, preferably to age 70, to file for your Social Security benefits.”
This can be good advice if you think you’re going to live until a ripe old age because then, in the long run, you will reap more benefits out of the Social Security system (especially with the augmented benefits — up to about 30% — you get by waiting until 70) to make up for the money you lose by not signing up for benefits earlier.
And it’s also good advice if your goal is to leave your surviving spouse (and this almost always means a surviving widow) with a higher Social Security benefit. And that’s because the widow’s rate includes the augmented benefits you get for delaying the start of your benefits beyond your full retirement age.
But of course, everyone’s situation is different. And there may be times when it just makes more sense to start your Social Security benefits at an earlier age.
I’m a good example of this. My wife and I each took our benefits at age 62. Why? Primarily because we had other sources of income and our Social Security benefits were just a smallish part of our retirement nest egg.
Today’s questions give other examples that buck the conventional wisdom of waiting until age 70 to start receiving your Social Security benefits.
Q: I just turned 67. I was planning to wait until 70 to start my Social Security. But I recently got some terrible medical news. I have stage 4 cancer and I probably have less than a year to live, so I just signed up for my Social Security last week. I’d like you to pass on this information to your readers. Let them know that you just never know what’s going to happen and they might want to rethink their plans to delay filing for Social Security.
A: I’m so sorry to hear about your medical diagnosis. But thanks for sharing your story. And if you didn’t do this, make sure you sign up for the maximum six months’ worth of retroactive benefits. I recently wrote about why I’m puzzled when retirees file for retroactive benefits, but yours is a situation where it makes perfect sense to do so.
Q: I am 69. My husband died about 3 months ago at age 71. I can’t get widow’s benefits on his record because my own Social Security rate is higher than his was. But I wanted to make this point. Against my advice, my husband was bound and determined to wait until 70 to file for his Social Security. He wanted that 30% bonus you get for doing so. But he only got Social Security checks for a little over a year before he passed away. There is so much pressure on older adults to wait until 70 to take our Social Security. I wish my husband had not listened to these people and had started his benefits at an earlier age.
A: I’m sorry for your loss. And once again, thanks for sharing your story. I’m sure that financial planners and other so-called experts will tell you that statistically, seniors benefit from waiting as long as possible to file for benefits. But your husband’s case shows that is not always the best advice. Of course, no one knows how long he or she is going to live. So, deciding when to start your Social Security benefits is always just a gamble. Each person just needs to consider their situation and make a decision he or she feels comfortable with.
Q: I am 65. I plan to delay starting my Social Security until I’m 70. My full retirement age benefit is $2,600. If I wait until 70, I’d get $3,432. My wife is 62. She wants to file for her Social Security now. She’s due a much smaller benefit. It would be about $787 if she files now. I say she should wait until she is her full retirement age of 67 and then file on my record, because if she files for reduced benefits now, that reduction would carry over to the spousal benefits she will eventually be due on my record. So, who is right?
A: I think your wife might be right. Let’s compare the two options. We’ll take yours first. In your scenario, no one would get anything until you turn 70 and sign up for Social Security. At that point, you would get $3,432. At about the same time, your then 67-year-old wife would sign up for her full retirement benefit, which should be about $1,050. And she would also file for spousal benefits on your record, and get an additional $250, for a total of $1,300. (A spousal benefit is always based on your full retirement age rate, not your augmented age 70 rate.) So, your wife will get her retirement benefit supplemented to 50% of your $2,600 rate, or $1,300. In other words, in the option you think is best, neither of you would get any benefits until you are 70 years old at which point you would start getting $4,732 per month in combined benefits.
Now let’s look at what your wife wants to do. She wants to start taking her reduced retirement benefits now. So, she would get $787 per month for the next five years. That’s $47,220 you guys would forfeit if you did nothing until your 70th and her 67th birthday. And what happens then? Well, you would get your $3,432 monthly check. And then your wife can claim some extra spousal benefits on your record. You are right that she will suffer a bit of a reduction in her spousal benefits because she took early retirement on her own record. But it’s not as much as you think. Here is roughly how they will figure out what she is due. They will take her full retirement rate, or $1,050, and subtract that from one-half of your full retirement rate, or $1,300. The difference, or $250, will be added to her reduced retirement benefit. So, her combined retirement and spousal benefits will be $1,037 (as compared to the $1,300 she’d get in your preferred option.) In other words, your total combined benefits would be $4,469, not all that much less than the $4,732 in your option.
So, if you guys go with your choice, you’d get an extra $263 per month from your 70th and her 67th birthday on. But you would have given up the $47,220 in reduced retirement benefits your wife would have been due starting at age 62. It would take you about 180 months, or 15 years, to make up that money you would have lost if your wife doesn’t file now. I think you two should talk about that.
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