The Complex World of Social Security

March 7, 2014

We frequently get phone calls at our office about Social Security planning, both from clients and other pre-retirees.  Despite a vast amount of information at the Social Security Administration (SSA) website and other online resources, seniors and pre-retirees still seem confused by their options with this very valuable retirement income program.  Here are some interesting items you may not know:

  • Although many people want to file for benefits at age 62, most financial experts and the SSA itself state it is generally better to wait until your Full Retirement Age (FRA) normally 66-67 to file for benefits (except maybe for married couples, see below).  The SSA reduces your benefits permanently if you file earlier than your FRA.
  • You cannot “buy back” higher benefits anymore.  Prior to 2010, if you filed early, then later changed your mind and wanted higher FRA benefits, you could pay back the income you’ve received and get a “do-over” for your Social Security income election.   This little-known technique was disallowed in 2010.
  • Prior to your FRA, if you file for benefits and continue to work, some of your benefits are withheld (roughly $1 for $2 earned).  The withheld benefits are not lost, however. They will be credited back to you for future benefits once you’ve actually reached your FRA.
  • Divorce may have significant impact on Social Security planning.  If you’ve been married at least 10 years, you can claim your own benefit or 50% of your ex-spouse’s benefit, (whichever is higher).  Whether or not your ex-spouse remarries has no effect on this option, though if you remarry, your spousal benefit with your former spouse is no longer available.  In addition, if you are the second, third or even fourth spouse in line, as long as you’re married for 10 years to that one person, you still have this option. (If you are the fifth spouse though, you’re out of luck!)
  • In general, a married couple might maximize their collective benefits by coordinating their benefits and timing of their individual filings.  As an example, a younger wife may apply for her reduced benefit at 62, add on the spousal benefit at her FRA at 66 (as long as her husband files, even if he suspends to age 70) and then she can claim higher survivor benefits if he predeceases her.  By using smart strategies, the couple may realize more aggregate benefits from Social Security over their combined lifetimes than if they filed for benefits individually and without planning.

Social Security benefits are significant assets to a retirees.   If you’re unsure about how to strategize your retirement and Social Security income, give us a call and let us assist with our experience and specialized analysis tools.