The Insider’s Guide to Social Security

Insider’s Guide to Social Security with stack of coins and clock in background.

By Tom Kennedy, CFP®

According to Bankrate, there are at least 567 different ways for couples to take social security distributions. In fact, questions about social security are brought up in nearly every meeting we have with clients. The two most popular questions include whether social Security will be solvent when a client is ready to retire, and when should they take social security.

History of Social Security

Social Security was enacted in 1935 to be a social safety net for retirees. It offered the elderly a means of avoiding financial destitution by keeping a roof over their head, food on the table, and clothes on their back but it was never really designed to be the sole source of someone’s retirement income.

In the past, retirees often relied upon a combination of social security, savings and pensions to cover their retirement costs. Today, less than 20 percent of private companies are still issuing pensions. To compensate, people are relying more on social security.

From an actuarial standpoint, most people in 1935 were only going to live a couple more years once they retired and began taking their social security benefit.  Today, there is a large misconception about the safety net social security can provide retirees. Most Americans live much longer than they did in 1935, causing people to rely upon the benefit as an important part of their retirement planning strategy. We can see from this scenario how this dynamic has affected the system – there are more people taking out than putting in.

Will Social Security Go Bankrupt?

What many people don’t know about social security is that it already went bankrupt in 1982. To cover a shortfall, Congress borrowed 12 billion dollars from Medicare. In 1983, tweaks made like taxing SS based as income have helped it hum along. As history tells us, Congress probably won’t address the solvency situation until they absolutely must do so.

The health of the social security trust fund is anticipated to go bankrupt again between 2030-35. Congress will, however, make some more tweaks along the way to ensure it remains viable. One likely adjustment will be to the benefit age. As it currently stands, if you reach the age of retirement in 2030-2035, and Congress has not made any significant changes to the program, you can expect to receive about 80 percent of the social security that was promised. Of course, this number is dependent upon changes in the economy and demographics. You can see why maximizing your benefits is so important.

When Should I Take it?

Today, social security makes up about 40 percent of retirement income for most Americans. To be eligible for social security benefits you or your spouse must have worked for 10 years to become insured into the system. About 40 percent of retirees take the payout at age 62 and only 1 percent take it at age 70. While you can wait until age 70 to earn the maximum social security benefit, if you pass away in your 70s, you would have received less total benefit than had you claimed it sooner.

Like an insurance policy, social security is based upon whether you believe you will reach the actuarial date or whether you believe you will live far beyond that date. Based upon current demographics, the actuarial date associated with social security is generally about age 83. If you think you’ll live past this age, you may decide to wait. If you’re not sure if you’ll reach age 83 because you’re not in the best health and your parents passed before age 83, your family genetics may drive the date you decide to take it. There is no magic number, and everyone is different. Thinking about it in these terms can help with the timing strategy of when you begin taking these benefits.

Some of the more popular timing strategies

As we noted above, there are hundreds of ways to take your social security benefits. Here are several options worth considering:

Delay your benefit start date. Full retirement age is currently 66, but it is rising to 67 for those born in 1960 or later. Social security benefits increase about 7 percent each year past age 62 that you delay the start date. If you delay taking payouts until after your full retirement age, the benefit will increase by 8 percent each year, up until age 70.

Swapping a lower-paid year with a higher-paid one. Social Security is based upon 35 of your highest-earning years. If you are earning a good income, each year you delay replaces one of your lower-paid years.

Spousal benefits. For lower earners, you could get more from taking a spousal benefit. These benefits can be as much as 50 percent of what that higher earner would receive at their full retirement age.  The high-earning spouse would need to be receiving their payout in order for the partner to get the spousal benefit. When one spouse passes away, the survivor will receive the larger of the two checks. This could result in a substantial loss of income for the surviving spouse and should be taken into consideration when planning the claiming age. For instance, had the high earner put off claiming their benefit until age 70, it would result in a larger check for the surviving low-earner spouse.

Divorced spouse benefits. If you’re unmarried but your previous marriage lasted 10 years or longer, you could qualify for the ex-spouse’s benefit. The benefit collected could be up to 50 percent of the benefit at their full retirement age. If, for example, a spouse stayed home raising the children before going back to work, and then became divorced, the ex-spouse’s 35-year basis may mean a larger benefit. Should you remarry, the benefit stops.

Do-Over provision. Sometimes people ask us if they can go back and redo their benefits. In an instance where you’ve inherited a lot of money or win the lottery, or perhaps retirement sounded great, but you quickly got bored and are reentering the workforce, there is a do-over provision built in.  If you start taking your social security benefit and decide you made a mistake, as long as you withdraw your application within 12 months and pay back everything you took within that 12 months period, the Social Security Administration will wipe the slate clean. With that, you’ll be able to receive either the 7- or 8-percent annual increase from delaying your benefits as described above.

Suspension of benefits. As of 2015, once you’ve reached your full retirement age, you can suspend your benefits. This will provide delayed credits. You should understand that if you suspend your benefit, any spousal benefit based upon your work history will also be suspended. If you claimed your social security benefit early at age 62, you could still suspend them once you reach your full retirement age.

Retiring early. If you retire early, you’ll need to determine what will fill in the gap until you qualify to receive the social security benefit. Many considerations can come into play that will have an effect on how you’ll draw down your 401(k) or assets.

What to Watch Out For

Leaving money on the table. The largest mistake is to take social Security in isolation, without consulting with a financial planner. With so many different ways to take social security, you could be leaving money on the table.

Natural biases. The second mistake is to allow biases to color our decision by discounting future income. Hyperbolic discounting bias means we tend to want to take things we can get now without regard for their worth in the future. Because of this bias, we may take social security earlier than we should.

Earning more. If you continue earning money while collecting benefits before reaching your full retirement age, you’ll have some penalties. If you are under your full retirement age, for every $2 you earn above a specific threshold set each year, $1 will be deducted from your benefit. In the year you reach your full retirement age, for every $3 you earn above the threshold, $1 will be deducted from your benefit. Once you reach your full retirement age, no earning restrictions are in effect.

There’s simply no right or wrong way to decide when to take social security. For deeper insight into the subject, you can listen in to the Your Money Momentum podcast on Social Security and Medicare.


Tom Kennedy is a financial advisor located at Global Wealth Advisors 520 Post Oak., Suite 450, Houston, TX 77027. 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 (832) 649-8111 or at

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