Ten Tips for Social Security Planning
Here are some things to keep in mind as you approach the age where certain decisions need to be made; and elections need to be taken relative to the mighty Social Security Administration.
Many folks are faced with a bewildering array of options regarding their social security benefit. When should you start taking the benefit? At the earliest possible age of 62; or should you wait [can you afford to wait] until age 70?
These tips are merely general principles, not intended as specific legal advice. Here are some things to consider:
1. Spousal Benefits. If you are married, and at full retirement age , you and your spouse, but not both, can elect to receive a spousal benefit while deferring on your retirement benefits, thereby enabling those retirement benefits to grow. If you are the low-earning spouse, however, it could make more sense to take your benefit at the earlier age of 62, then switch to your [presumably higher] spousal benefit upon reaching full retirement age.
In general, there is no advantage to waiting to start collecting either spousal benefits or survivor benefits after you reach your full retirement age.
2. "Start Stop Start" Strategy. Complicated, but worth it, this strategy involves electing to take your social security benefit at an early age, say 62, then suspending the benefit at the full retirement age of 66, if you can afford to do so. Then, at age 70, you start the benefits back up, taking advantage of a much higher [over 30% higher] monthly benefit checks for the balance of your life.
3. One-Year Repay Option. This one is interesting. If you elect to begin taking your benefit, but later decide it was not the right move, you have one year to pay back all the benefits you received. Then you can re-apply for [higher] benefits at a later point in time.
4. Working Into Your 60s. If you are blessed with good health, and are fortunate enough to be in a profession or job you can handle deep into your 60s, the result will be a significantly higher social security benefit when you finally do hang up the cleats. This benefit will also accrue to any spousal and child benefits; so your family will benefit as well. If you opt to receive benefits at an early age , you could be locking in on a permanently lower benefit.
5. Divorced? Depending on the length of your marriage, you or your ex-spouse may be able to file for benefits based on each other's work histories. This is beneficial for the divorcee that was married to a high earner.
6. Federal Income Tax Exposure. When it comes to calculating your income for tax purposes, disbursements from a Roth IRA are not counted [because you already paid the taxes], but withdraws from a regular IRA, 401(k) or 403(b) are included as income. Therefore, it may make sense to stage your withdraws on these accounts, taking disbursements from the tax deferred accounts prior to your social security election. Also, as a general principle, it would make sense to deplete your tax-deferred accounts first.
7. Survivor Benefit Election. Widowed? Some folks will want to elect to receive their survivor benefits at age 60, and to take their retirement benefit after full retirement; others will benefit by electing to take their retirement benefit at age 62, and deferring the survivor benefit until full retirement age. The difference depends on individual circumstances and the projected benefits. A careful calculation is needed here and a professional should be consulted in most cases. The differences in strategy could be significant.
8. Beware of the SSA's Benefit Calculator. The SSA's on-line benefit calculator does not adequately handle spousal, divorcee, child, mother, father, widow or widower benefits. Because the benefits calculator does not factor-in wage growth or inflation, a projected benefit output for a younger worker performing a calculation will be distorted; the worker's actual benefit could be much less than anticipated. The best practice is not to rely on these calculations as accurate benchmarks.
9. Children's Survivor Benefits. Provided they are under the age of 18 [age 19 if still in high school], your children can receive a survivor benefit from your deceased spouse, or ex-spouse.
10. Enjoy Your Retirement! This tip is the most important in this post. You have worked your entire life; now it's time to take your foot off the gas and cost a bit; take a look at the scenery. By all means take care of your family, but remember that you cannot take it with you. So be sure to spend at least a portion of your retirement on yourself.