Does delaying social security make sense?

Presented by Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC®:

The most common questions individuals have about social security strategy include: Is delaying social security benefits a good idea? Why should I consider spousal benefits? How can I maximize my spouse’s survivor benefits? The information below is designed to help guide you through the answers to these questions.

 Does delaying social security make sense

If you are at full retirement age (FRA) and choose to delay receiving benefits, you will be eligible to receive delayed retirement credits. These credits increase your retirement benefit by a predetermined percentage of your primary insurance amount (PIA) for each month that you delay receiving retirement benefits, up to the maximum age of 70.

Example: A covered worker’s FRA is 66, and her PIA is $1,000. If the woman starts collecting benefits at age 62, her cumulative benefits will be $252,000. If, however, she waits to begin taking benefits until age 70, her cumulative benefits will increase to $316,800—a $64,800 difference.

For Covered Worker

Age        Mo Amount            Cumulative Benefits Until Age 90
62           $750                                    $252,000
63           $800                                    $259,200
64           $867                                    $270,504
65           $933                                    $279,900
66           $1,000                                 $288,000
67           $1,080                                 $298,080
68           $1,160                                 $306,240
69           $1,240                                 $312,480
70           $1,320                                 $316,800

Assuming covered worker’s PIA is $1,000, FRA is 66, and life expectancy is 90.

How spousal benefits are calculated

Even if you have never worked under social security, you may be able to receive spousal benefits if you are at least 62 years old, as long as your spouse has already claimed his or her own retirement benefits. [1]

Keep in mind, however, that if you elect to take spousal benefits before your FRA, your benefits will be reduced permanently by a predetermined percentage (based on how many months earlier you elected to take spousal benefits). If you choose to collect spousal benefits at your FRA, you will be eligible to receive full spousal benefits.

Example: If a nonworking spouse files for benefits at age 62, he will receive a cumulative benefit of $117,600. If, however, he waits until FRA, he will receive a cumulative benefit of $144,000, an increase of $26,400. 

Nonworking Spouse

Age        Monthly Amount [2]       Cumulative Benefits Until Age 90

62           $350                                    $117,600
63           $375                                    $121,500
64           $417                                    $130,104
65           $458                                    $137,400
66           $500                                    $144,000
67           $500                                    $138,000
68           $500                                    $132,000
69           $500                                    $126,000
70 [3]    $500                                    $120,000

Assuming covered worker’s PIA is $1,000, FRA is 66 for both spouses, and life expectancy is 90 for both spouses.

Choosing the right strategy for collecting benefits relies heavily on your life expectancy. In the previous example, we assumed that the life expectancy was 90 years. Below, the graph represents the point at which it is more beneficial to collect an early benefit. If the person collecting spousal benefits expects to live beyond age 74, he or she is better off waiting until FRA to collect. If not, he or she should consider taking an early benefit.

Source: https://www.ssa.gov/

Who qualifies for survivor benefits

If you are the widow or widower of a qualified person under social security, you may receive survivor benefits starting as early as age 60.[4] If, however, you elect to take benefits prior to your FRA, your benefits will be reduced.

Example: If the surviving spouse elects to collect benefits at age 60, she will have a cumulative benefit of $257,400. If, however, she waits to collect benefits until age 70, her cumulative benefit will be $316,800, a $59,400 increase. 

Surviving Spouse

Age        Surviving Spouse[5]         Spouse’s Cumulative Benefits Until Age 90
60           $715                                    $257,400
61           $763                                    $265,524
62           $810                                    $272,160
63           $858                                    $277,992
64           $905                                    $282,360
65           $953                                    $285,900
66           $1,000                                 $288,000
67           $1,080                                 $298,080
68           $1,160                                 $306,240
69           $1,240                                 $312,480
70           $1,320                                 $316,800

Unlike spousal benefits, however, with survivor’s benefits you may switch over to your own benefits, if they are higher, at any time after age 62. In addition, you could collect your survivor’s benefit early and allow your own benefit to grow until you are age 70.

Determining the best strategy for claiming benefits varies substantially based on age, marital status, life expectancy, other retirement benefits, and your particular financial situation. Before you can decide when to take your retirement benefits or if delaying social security is an option, it’s necessary to check with the Social Security Administration to find out which benefits you’re entitled to claim. When you are ready to choose the best strategy for you and your family, be sure to call our office.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at info@gwadvisors.net.

© 2020 Commonwealth Financial Network^®

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[1] If a spouse receives a pension as a government worker, his or her social security retirement benefits may be reduced.

[2] If the spouse is eligible for retirement benefits on his or her own work record, social security will pay that amount first. But if 50 percent of the covered worker’s PIA is a higher amount, the spouse will get a combination of benefits that equals that higher amount. The maximum spousal retirement benefit is 50 percent of the covered worker’s PIA and is reduced for filing prior to the spouse’s FRA.

[3] Spousal benefits do not benefit from delayed retirement credits.

[4] A surviving spouse caring for the deceased’s child younger than 16 qualifies for benefits regardless of age at the time of claim.

[5] A surviving spouse is limited to the benefit that the covered worker would have received had he or she lived. Example: If the covered worker claimed benefits at age 62, the maximum benefit for the worker’s survivor would be $750 if the survivor delays claiming until FRA. If the covered worker delayed claiming until age 70, the maximum benefit would be $1,320 at the survivor’s FRA.