5 Things to Know About Timing Your Social Security Retirement Benefits
Here’s an important thing to keep in mind about Social Security retirement benefits: it is a government program, meaning that it almost by definition must have convoluted rules for how the program dispenses benefits.
It’s not as simple as “at 62, you get reduced benefits, at 66, full benefits.” The rules in place allow retirees to time their benefits withdrawal in ways that are advantageous.
Recent changes to the law mean that even if you thought you had a good handle on things before, it’s time to revisit the program and see how these changes could affect your decision-making, as it relates to receiving taking Social Security benefits.
1. Don’t collect early
Retirees can begin taking Social Security benefits at the age of 62, even though the current retirement age is 66. The catch is that the Social Security Administration (SSA) will deduct ½ of 1% for every month you receive your benefits early.
So, if a retiree begins taking their Social Security benefits at age 62 (with a retirement age of 66), they will receive 75% of their retirement age benefit. However, younger individuals born after 1960 with a retirement age of 67 will only receive 70% of their retirement age benefit at age 62.
2. Delay, if you can
Social Security will essentially pay you to delay receiving benefits. If you were born in 1943 or later, the SSA will increase your benefits 8% for every full year you delay beyond 67 (or, 2/3 of 1% per month).
Using these “Delayed Retirement Credits,” if a retiree is eligible for $1,200 at their normal retirement age of 67, but delay receiving benefits until age 70, their new benefit will be $1,500.
NOTE: you cannot receive additional credits beyond age 70. At that point, you must begin drawing your benefit.
3. You are allowed a Mulligan
Let’s say a retiree begins taking their benefits upon retirement at age 67. Then, 9 months later, she realizes she shouldn’t have; that she has sufficient funds and could have delayed if they’d wanted to.
Under these circumstances, she can repay all of the benefits she’d already received, and become eligible for the Delayed Retirement Credit. It must be done within a year of first receiving benefits, however.
4. Married couples should have a strategy
Married couples should always consider Social Security as a coordinated strategy aimed at maximizing their lifetime benefits, and they should consider a range of options.
If you’re married, you or your spouse, but not both, can receive spousal benefits after reaching full retirement age while deferring taking your (non spousal) retirement benefits and, thereby, letting them grow.
It’s a way of receiving benefits on one account while taking advantage of the Delayed Retirement Credit on the other. This typically work best when the “lower-benefit spouse” takes benefits as early as possible (if not working) and the “higher-benefit spouse” delays filing until age 70 in order to earn delayed credits.
This is a great strategy if you can afford it.
5. Divorced? You may still be able to take benefits from your former spouse’s account.
For those former couples whose marriage lasted more than 10 years and remained unmarried afterwards, the ex-spouse may qualify for benefits. Under certain circumstances, he or she may begin drawing benefits even before the main account holder is able.
To qualify, a divorced spouse must:
- have been married to you for at least 10 years;
- have been divorced at least two years in cases where you have not filed for benefits;
- be at least 62 years old;
- be unmarried; and
- according to the SSA, “Depending on the circumstances, not be entitled to or eligible for a benefit on his or her own work that is equal to or higher than half the full amount on your record.”
The SSA has a substantial online library of resources. However, many of the ins-and-outs that may be of significant benefit for retirees are not easily understood. Be sure to contact a financial advisor to help you navigate the law and ensure that its complexities work in your favor.