Social Security, If Not Now, When?

01 October 2010

In the past we have looked to Social Security to augment our retirement needs. With the economy and high unemployment, more and more of us are applying for Social Security just to make ends meet. Here are a few strategies that you might consider before filing for Social Security. We recommend that you speak with an agent of the SSA before filing. Some choices are irreversible.

1. Start Early, Get Less; Wait, Get More
   Retirees can collect benefits from Social Security as early as 62. Monthly payments are reduced by 25% compared to what they would be at normal retirement, age 66 for those who claim benefits in 2010. If you can wait past 66, the benefit will increase by 8% per year for every year until age 70. Currently the 8% annual increase only applies until you reach age 70.

2. Collect Half of Your Spouse's benefit
   Both you and your spouse need to be normal retirement age for this to work. You can collect half of your spouse's benefit now and file for your own benefits later when they will be worth more. Once you "hit" 66 (or older if born after 1954), you can get more creative with how you apply for your Social Security benefit. You can collect half of your spouse's benefit at 66 and delay filing for your own benefit until age 70 (or somewhere in between 66 and 70) when the benefit would be higher.


3. File and Suspend
   This strategy immediately boosts your income and also provides for a larger survivor benefit later. You file for your retirement benefits so your spouse or dependent child(ren) can collect their benefits based on your record. Then you immediately suspend your own benefits and begin collecting when the benefit is higher. Again, the benefit will increase by 8% per year for every year until age 70. This works well if you have dependent minor children.


4. And My All Time Favorite, Retirement Do-Over
   You may have started collecting reduced benefits at 62, but now you regret it. You are healthy and wish you could collect a bigger check. Well, you can. You must first file SSA Form 521, Request for Withdrawal of Application. Your retirement benefits will stop immediately. If your spouse receives benefits based on your record, their benefits will also stop. The Social Security Administration will send you a letter telling you how much you need to repay (including any spousal benefits). Once you repay the benefits, you can reapply for a higher benefit based on your current age, lock in a higher base amount for future cost-of-living adjustments, and maximize lifetime benefits for a surviving spouse.

   The caveat is that you must repay what you have already received. The payback is interest and penalty free. Those who repay their benefits can claim a tax credit, or a tax deduction, whichever results in a bigger tax break, for any income taxes paid on the benefits as they received them.

   Retirees have realized that it is cheaper to repay Social Security and lock in an inflation-adjusted payment for life than it is to purchase a guaranteed income in the form of the annuity. Plus it provides a higher benefit for your surviving spouse.

   If you are thinking of using this strategy, you may want to look in to doing so sooner than later. Apparently Social Security may be rethinking this policy. Of course, the federal government's Office of Management and Budget has the final say on whether the policy will be changed or eliminated.

Check with the SSA before implementing any strategy, even simple retirement. There might be a strategy available that you are not aware of. If nothing else, at least you'll know you did your due diligence and got the best deal you could find!

If you are interested in knowing what your earned benefit is, you can log in to the SSA website.
www.ssa.gov
Click on "Estimate your retirement benefits" 
Click on "Retirement Estimator"
Provide the requested information

The benefit of using the calculator is you can create different scenarios to see what your benefit might be using your historical information.

Statistically one out of four of us reaching age 65 will live past 90. One out of ten of us reaching age 65 will live past 95. There’s a thought!