Social Security is a bedrock program in the United States. Social Security is an entitlement program that pays millions of people an income each month.
This is part of a 4 part Social Security series.
Part 3 - Social Security: Claiming Strategies
Claiming Is Important
Claiming a Social Security benefit “locks in” the monthly benefit. Therefore it should be done purposefully within your retirement planning.
The earliest someone can claim their Social Security is age 62.
If filing pre-FRA, your benefits would be permanently reduced.
If filing post-FRA, your benefits would be permanently increased.
Maximum benefits are available at age 70. There is no reason to delay claiming Social Security past this age.
Wages offsetting Social Security
Any wages pre-FRA (Full retirement age), are subject to offsets in Social Security benefits. These breakpoints can be found here each year.
For 2021:
Therefore, most people wait until they are finished working to claim benefits.
Working Longer
A common tactic for people who are under-saved is to work longer. This provides more cash flows, time to save, and also can increase Social Security! Remember, the highest 35 years go into the Social Security formula.
Spousal Benefits
Your benefits will always be paid first, but there is an opportunity to get “spousal benefits.” This benefit effectively allows a spouse to get up to 50%. This often happens to spouses where one stayed at home.
E.g. If a primary beneficiary is receiving $2,000 a month and their spouse is receiving $400 a month, the spouse can receive $600 in spousal benefits to increase their benefits to $1,000/month (50%).
Two things to note
These are also reduced if you file pre-FRA.
In order to receive spousal benefits, the other spouse must have filed for Social Security.
It’s important to note, DRC (Delay retirement credits) do NOT apply for spousal benefits and therefore they do not increase post-FRA.
Ex-Spouse benefits
Ex-spouses may receive spousal benefits. To receive there are important markers:
The marriage lasted for 10 years or longer
The ex-spouse must be un-married
Been divorced for 2 continuous years
The ex-spouse is not notified when an ex-spousal begins claiming spousal benefits.
Survivor Benefits
When one spouse passes away, the surviving spouse receives the highest available amount. This could be a reason why a person would choose to wait until age 70 to file for benefits.
Social Security Strategies
In 2015, much of the fancy Social Security strategies went out the window. No longer are people able to use “file-and-suspend” or “restricted applications.”
These were tools and strategies to maximize what people could get from Social Security. Now, it’s no longer about maximizing benefits, but rather how Social Security fits into your retirement cash flows and the personal health of the people involved.
This is where tax planning can come into play. For example, a client with a large IRA balance may want to spend that down and delay Social Security to have more tax flexibility in future years.
Medicare
While Medicare is a part of Social Security, it’s important to note that filing for Social Security benefits and Medicare coverage are 2 separate things.
In general, Medicare should be applied for when no longer working at age 65 and above. Medical insurance may permanently cost more if delayed further.
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