Most families today, do NOT plan to live on Social Security alone. Even so, the program is extremely valuable. It’s a government-backed, guaranteed annuity with a cost-of-living increase. According to the American Association of Retired Persons (AARP) the average Social Security benefit in 2023 is $1,827 a month. To purchase this benefit would be EXTREMELY expensive, so let’s make the most of it.
First, Understand That Your Benefit INCREASES Every Year That You do NOT take it until the year you turn 70. Most people see an annual increase of up to 8% each year they wait. Remember, in the year you turn 65 you will apply for Medicare benefits, and as you are doing that you will be asked about Social Security income benefits. Be sure to tell them you want to wait until your benefit maxes out at age 70. You will get a bill for Medicare premiums from age 65 until you start taking Social Security. At that time, Medicare premiums come out of you Social Security check.
Second, Don’t Lose Six Months of Credits. When you are ready to turn on Social Security, in the month you turn 70, you might get an overly “helpful” SSA worker who offers to backdate their Social Security application by six months. This will generate a lump sum payment equal to six months’ worth of benefits. Who wouldn’t want a check for over $20,000?
But, what you may not be told is that by taking that offer you are giving up six months’ worth of delayed credits. In other words, your permanent Social Security benefit will be some 4% less than it would be if they did not take the offer. My advice is to kindly decline this offer.
Third, Suspension Is Useful for Some. A client who applied before age 70 and who is now over Full Retirement Age (FRA) can suspend their benefit and start building delayed credits. This strategy often comes into play for people who were receiving disability benefits before FRA. Once they turn FRA, the disability benefit converts to a retirement benefit, and they are now free to suspend it and build 8% annual delayed credits to age 70.
Another common usage of suspension is when a client applied early because they needed the income or didn’t realize the value of delayed credits. Once they turn FRA, they can suspend the benefit to build delayed credits.
It is not possible to receive another benefit while your own benefit is in suspension. This question has come up in relation to widows who started their own retirement benefit at 62; the advisor wonders if she can suspend her benefit to build delayed credits and receive her survivor benefit in the meantime. The answer is no.
A widow can take survivor benefits as early as age 60. They can receive survivor benefits and allow their own credits to grow. Then when they reach at 70, they can switch to their own benefit. But, they CANNOT do it the other way round. A widow who starts to claim on her own benefit, cannot switch to the survivors benefit.
Fourth, Withdrawal (and Repayment) Can Wipe the Slate Clean. A client who applies for benefits may withdraw the application within the first 12 months after filing. After repaying benefits received (minus taxes paid), their record is clear. Any reduction they took for early claiming is erased, and they may start building delayed credits as if they had never filed in the first place.
Withdrawal is often used by folks who didn’t realize how much less they would receive in lifetime benefits by applying early. It’s also used by people who retired or lost their job and then went back to work and now no longer need the income. Withdrawal is usually preferable to suspension because it clears the record—but it does have to be done within the first 12 months of filing, and the benefits do need to be paid back. If the 12-month window has shut, the closest alternative is suspension.
It can take up to five months to process a withdrawal request. Once the withdrawal request has been submitted, clients must simply sit back and wait for SSA to tell them how much they owe. They will keep receiving checks in the meantime, which, of course, they will turn around and repay to SSA.
As you can see, there are some moving parts in Social Security. Most couples benefit from a thorough Social Security Benefits Review and analysis. I also provide this analysis as part of a holistic financial plan. It gives clients a clear picture of how to maximize Social Security benefits over their shared lifetime as a couple. And it lets us plan for retirement income that can bridge the family until age 70 when they turn on their Social Security benefits.
If you would like to discuss your Social Security benefits, I would be honored to visit with you. As a fiduciary financial planner, I’m always an advocate for my clients. I love talking with new people. Reach out and we can have a get acquainted visit. Just follow this LINK to find a time that works for you.
Yes, I am a CERTIFIED FINANCIAL PLANNER™ professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice. If you would like to talk about your financial goals, I would be honored to help you. Just follow this LINK to find a time that works for you.
If this article has you thinking about your own circumstances, contact my office at email@example.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.