It’s the ultimate example of delayed gratification: Start taking Social Security benefits at age 62, when most people qualify, or wait until you turn 70, capturing as much as 76 percent more for the rest of your life.
It’s not as simple as it seems, and there are many ways to have your Social Security cake and eat it, too, depending on your work history, marital status and other factors.
A Government Accountability Office report delivered in April 2014, “Challenges for Those Claiming Social Security Benefits Early and New Health Coverage Options,” spelled out in stark terms the payoff for waiting: A 62-year-old who started taking benefits in 2014 would have received 25 percent more by waiting until age 66, and 44 percent more by waiting until age 67.
This bonus is due to the 8 percent credit you snag for each year you wait after the full retirement age: Your benefit at age 68 would be 8 percent more than your benefit at age 67, and so on.
Yet other factors can overwhelm even those compelling numbers. The GAO report found that taking benefits early could be a rational strategy for workers who had physically demanding jobs, had already been working at least 35 years or did not expect to live much past their mid-70s.
If that sounds like the situation facing you, your partner or a loved one, and if continuing to work simply isn’t an option, be sure you know what you are trading away, says Charlie Jeszeck, director of education, workforce and income security for the GAO. “”Make sure you understand the financial implications,” he says.
The new Social Security wisdom is to somehow manage to delay taking Social Security until the last possible moment, according to financial advisors who specialize in Social Security strategies.
You will want to think this through well before you approach the first date you can start taking benefits, because there are so many moving parts to this decision. You may end up applying short-term tactics during your 60s to trigger long-term Social Security benefits. These three steps will help you get started.
1. Adjust your attitude. That’s job No. 1, says Laurence J. Kotlikoff, co-author of “Get What’s Yours.” The emotional reaction to a pending early retirement date is to figure you deserve some of what Social Security has been taking from you for your whole working life. But that assumes you’ll die sooner, when your life span may actually be longer, Kotlikoff points out.
“Most people look at this the wrong way. They think they’ll die on time, but you can’t count on that,” he says. “Think of it as a last chance to buy additional insurance” that pays off after age 70, “like participating in a government longevity insurance plan,” Kotlikoff says.
2. Research the options based on your marital status. Two-earner couples face a complex series of decisions, says Brian Doherty, author of “Getting Paid to Wait.” “Every married couple should consider how to maximize the bigger benefit, which will end up being the survivor benefit. You will reduce the probability that the surviving spouse — the wife — will be in poverty,” he says.
Make sure you know your options as a widowed or divorced person. You may be able to ride the coattails of your former or deceased spouse’s earning history to boost your benefits, especially if you take one benefit earlier and save the other for the age 70 milestone. Doherty and Kotlikoff recommend running “what if” scenarios based on combinations of either or both spouses working full time, part time or retiring in sequence.
3. Think in terms of cash flow to bridge the Social Security transition from earnings, if possible. “Every year you work is another year you don’t have to finance in retirement,” Kotlikoff says.
If you want to ratchet down your time at work, consider replacing part or all of your earned income with a mix of these tactics, Kotlikoff and Doherty say.
— Consider renting out the home you want to retire in and living for a few years in a much smaller, presumably rented, place. This can free up cash for living, especially if your house is mortgage-free. There’s a sunny side to this tactic as well, Kotlikoff says, which is if you move for a few years to a very low-cost overseas locale. When you turn 70, boot out the renters and move back into your house.
— Examine the option of taking your retirement benefit early to activate it for a spouse or child, then suspend it at your full retirement age, and restart it at age 70, Kotlikoff says.
— Make sure you tap your retirement savings accounts in the right order, Kotlikoff says. Draw down your non-Roth accounts first.
— Run “what if” scenarios to understand the tax implications of taking various types of income in combination with Social Security at various points, Doherty and Kotlikoff say.
Try to think of delaying taking Social Security not as working longer, but as a victory lap, Doherty says. “Top off the account,” he says. “Those additional years insulate your savings and build your savings.”
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3 Ways to Delay Taking Social Security originally appeared on usnews.com
