Claiming a correct social security filing strategy can be low hanging fruit – meaning that it’s an easy decision to make and can have an enormous positive impact on retirement if done correctly. However, be careful to navigate common pitfalls like filing too early (or too late), or else that low hanging fruit could turn out to be rotten.
I have one client we can call Susan, who I recently helped achieve an opportune social security filing strategy. Susan had an ex-spouse from many years ago that subsequently passed away. Susan is 62 and just became eligible for early Social Security benefits. While she thought that her deceased ex-husband didn’t have any benefits, I still encouraged her to call the Social Security office to confirm, as even a small benefit could be better than none. After reminding her of this, she found her ex’s Social Security number and gave the Social Security office a call. Thirty minutes later she called me with the exciting news – she was eligible for almost $1,000 per month in benefits that she didn’t know she had from her deceased ex-husband! With this low hanging fruit, we discovered almost $100,000 in unknown benefits (plus the compounded interest on these benefits over a lifetime), while also letting her maximize her own benefits – talk about a win-win! While not every case is this dramatic, it is not uncommon to have one benefit strategy lead to over $100,000 in additional lifetime benefits vs. suboptimal strategies. With that in mind, here are a few factors to consider regarding your social security filing strategies.
Early Benefits: Individuals can file as early as 62 for their own social security benefits. This can result in a 20-30% reduction in monthly benefits, depending on when you were born. Often that lifetime reduction in benefits isn’t worth the tradeoff in the extra early payments, but in some cases like Susan’s it makes sense to file early.
Delayed benefits: Today’s retirees typically have a full retirement age close to 67. However, they can delay benefits until up to age 70. This produces Delayed Retirement Credits, or DRCs, which increase a person’s social security benefits by 8% per year. So if delaying from 67 to 70, you would have a 24% higher benefit for life!
Benefits for Couples: Whenever a couple has benefits to consider, the equation gets trickier. Competing factors make the math more complex, so it is very important to seek professional guidance when choosing a filing strategy.
All else equal, here are some reasons for filing early or later:
• If you expect to live longer, that is more reason to file later. If you expect to have a short lifespan, that is more reason to file early.
• If you expect high inflation, that is more reason to delay benefits. If you expect low inflation, that contributes to the decision to file early.
• If you expect high investment returns, filing early is more attractive; lower investment returns make delaying more attractive.
Any time there are financial decisions that are made once, but have a lifetime impact, it is important to review, understand, and seek professional guidance to make sure that you obtain the best result. Social Security is one of those pivotal decisions to seek professional advice. These benefits can be highly unique to individuals and couples –seek a CERTIFIED FINANCIAL PLANNER™ professional for advice on how to best proceed with an optimized filing strategy.
Published in the Victoria Advocate
David Faskas is a CFA and CFP® professional with KMH Wealth Management, LLC.