Claiming at Age 70 vs. Full Retirement Age
Though full retirement kicks in at age 66, clients can begin claiming Social Security benefits as early as age 62 or as late as age 70.
Who should claim at age 70? Married couples, advisors say. For couples, claiming at that age is a good choice for at least one spouse. The increased benefit can act as supplementary life insurance because the surviving spouse will receive the larger of the two benefit amounts.
Click through to see the data or view as a slideshow here for more planning strategies that focus on Social Security from On Wall Street stories, including those published in our recent 30 Days/30 Ways series.
Claim Twice to Boost Your Benefits
To maximize their Social Security benefits, married couples may claim benefits twice. Even if one spouse is still working, if both are at full retirement age of 66, but need additional income, one can claim 100% of their benefit while the other collects "spousal benefits" on their spouse's account.
As an example: a married couple, Hillary and Doug, are both 66 years old. Their individual Social Security benefit is the same -- $2,000 a month.
At 66, Doug retires and claims his full Social Security benefit. Hillary files for spousal benefits and receives $1,000 per month (half of Dougs benefit amount).
She also continues working until she is 70 years old, growing her full retirement benefit to $2,640 (adding an extra 8% every year).
By waiting to claim her own Social Security benefit, Hillary receives considerably more at age 70.
Caution For Those Who Can't Wait
Early retirement could result in a permanent benefits reduction.
If Jim Spalding was entitled to a $3,000 monthly Social Security benefit at 66, he'd get only $2,250 a month by starting at 62. Thus, waiting from 62 to 66 increases Jim's basic lifetime benefit by 33.3% (from $2,250 to $3,000 a month) in four years, or roughly 8% each year.
Don't Forget the Kids
Social Security makes 50% to 75% of a parent's benefits available to dependent children. They can claim the benefits until they turn 18, but can continue until age 20 if they are still attending high school. According to the government, some 4.4 million children across the country receive about $2.5 billion in Social Security benefits every month as the dependents of parents who are retired, disabled or deceased.
Divorced or Remarried Couples? Time in a Relationship Matters
The length of your client's last marriage and when they divorced matters in claiming spousal divorce benefits. Ten years is the minimum to be eligible to receive Social Security benefits or survivor benefits on their ex-spouse's record.
If your client remarried, they will not be eligible to claim benefits based on their ex's record. If your client went through more than one marriage that lasted 10 years and resulted in divorce, both exes' records are in play as potential claiming strategies.
Combined Income Could Help Save Tax on Social Security Benefits
You can deploy a construct called either "combined income" or "provisional income" to help clients save.
To get this amount, add adjusted gross income (AGI) to any nontaxable interest income and one-half of Social Security benefits. For example, with AGI of $30,000 plus $10,000 of tax-exempt interest and $18,000 of Social Security benefits, combined income is $49,000 ($30,000 + $10,000 + $9,000).
Depending on filing status, a series of combined income thresholds ranges from $25,000 to $44,000; the portion of Social Security benefits subject to income tax grows from 0% to 85%, as combined income clears those thresholds.
When clients have combined income in the threshold range or slightly higher, tactics to reduce AGI may have the extra advantage of lowering the tax on Social Security benefits.
A client who retires and claims benefits at 62 can still reverse that decision within a year. He or she can repay the benefits received without penalty and then wait to get higher benefits. But after 12 months, this is no longer an option.
Plan To Help After Youre Gone
Among couples, the higher earner should avoid taking Social Security early. Advisors need to make survivor benefits part of any client discussion about Social Security.
A 62-year-old married man considers filing for Social Security. Assuming a benefit of $750 per month at 62, if he waits until 70 to collect, his benefit (in constant dollars) will be 76% higher, about $1,320 per month.
Should he wait until age 70 to claim, he'd have to live past 80 to earn the 96 months of benefits, or about $72,000, that he could've had earlier.
He decides to hold off until 70 to file for his benefits because has a healthy spouse who likely will outlive him, and has a lower Social Security benefit amount. She then will be able to collect his maximum survivor benefit of $1,350 per month after he passes.
Disability Benefits for Young & Old
Though there is no minimum age requirement to receive Social Security disability benefits, it pays off if you have worked for a period of time. This can range from at least 2 years of work at 30 years to 9.5 years at 60.
The program, also referred to as SSDI, offers benefits to people who are unable to work due to physical or mental limitations, irrespective of their age.
In 2013, around 11 million people collected from this program.
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