In two short years, the oldest members of Generation X will be eligible to claim Social Security retirement benefits. The full retirement age for those born in 1960 or later is 67, but the government allows workers to begin reduced benefits at 62.
Before Gen X members make any hasty decisions, though, they should understand the ins and outs of Social Security claiming strategies. That’s especially true since these retirement benefits will likely be crucial later in life.
People say they don’t want to depend on Social Security in retirement, according to Joe Conroy, a certified financial planner and owner of Harford Retirement Planners in Bel Air, Maryland. “Then we run the numbers, and we get a 0% success rate,” he says.
“Your nest egg is a finite amount of money,” says Charles Hoff, a financial literacy educator with DFCU Financial, a credit union with branches in Michigan and Florida. Even if your retirement savings run out, Social Security will continue to provide monthly payments year after year.
For those reasons, you want to make a smart decision about claiming Social Security. Here’s what Gen X needs to know.
— Earlier is not always better.
— Double-dipping may not work before age 67.
— Retirement doesn’t have to mean starting Social Security.
— It pays to stay married.
— You can take a mulligan on some decisions.
— Social Security isn’t going anywhere.
Earlier Is Not Always Better
Some people are inclined to take Social Security benefits as soon as they can, even if they don’t necessarily need the money or plan to quit working.
“People say they will take the money and invest it so it can grow,” Conroy says. In reality, he doesn’t see that happen. “There are a million things you can spend money on. Taking Social Security early increases your lifestyle and decreases your income.”
Claiming Social Security may give you a short-term boost in your monthly income, but it can reduce how much you receive from the program over the long term. That’s because those beginning Social Security at age 62 will have their payments permanently reduced by 30%.
“If you have any inclination that you might have a long life (and you claim early), you could be shooting yourself in the foot,” says Krisstin Petersmarck, founder and president of New Horizon Retirement Solutions in Bloomfield Hills, Michigan.
It’s especially important for those with smaller savings and lower incomes to wait until full retirement age or later to claim Social Security. “A lot of financial advisors give them a pass,” Hoff says, “but they are the ones who need to still be working.” Social Security will be a larger part of these retirees’ income, so they can’t afford to take a 30% cut to their benefits.
[Read: How Privatizing Social Security Would Impact Retirees]
Double-Dipping May Not Work Before 67
You especially don’t want to claim Social Security early if you plan to continue working. The government doesn’t want people double-dipping before their full retirement age — that is, receiving Social Security while also working full time — so they withhold the benefits of those who earn income above a certain threshold.
In 2025, the government will withhold $1 in Social Security benefits for every $2 you earn above $23,400. Those who will reach their full retirement age in 2025 can earn up to $62,160 before the government starts withholding $1 for every $3 earned above that amount. Once someone is their full retirement age, they can earn as much as they want without penalty.
Money withheld by Social Security does eventually make it back to retirees after they reach their full retirement age. “It’s doled back to you slowly,” Hoff says, so don’t expect to receive it as a large lump sum.
Retirement Doesn’t Have to Mean Starting Social Security
Just because claiming Social Security at age 62 may not be a good idea for everyone, that doesn’t mean you have to keep working.
“We’re not telling you not to retire at 62,” Hoff says. Rather, people should think of other ways to fund their retirement at that age. For instance, these might be good years to make withdrawals from retirement funds that could later be subject to large — and taxable — required minimum distributions.
Hoff thinks that many people tend to retire too soon, however. “They think they are going to die sooner than they do,” he says. For those who work in physically strenuous jobs, he suggests pivoting to new positions or fields that are less taxing on the body.
Social Security is based on a person’s 35 highest earning years, and the government will insert zeros into the calculation if your work history isn’t that long. For this reason, those with a limited work history should continue to work in some form. “If you have zero years, replace them,” Hoff says.
[Read: What Happens to Social Security Benefits When You Die?]
It Pays to Stay Married
Staying in an unhealthy marriage for Social Security probably isn’t wise, but having a spouse does come with benefits as far as retirement is concerned.
“Keep your marriage together for at least 10 years,” Hoff says. In other words, if you are thinking about a divorce and you’ve been married nine years and six months, maybe wait a few months before filing to dissolve the marriage.
The reason for this is that even people who are divorced are entitled to spousal benefits so long as they were married for 10 years and don’t remarry before age 60. They can also receive survivor’s benefits should their former spouse pass away.
Meanwhile, a happily married couple can coordinate their benefits to provide a steady income while maximizing how much they receive from the program.
For instance, a lower-earning spouse could begin their benefits early while a higher-earning spouse could wait until age 70 to claim Social Security, Petersmarck suggests. For every year they wait past their full retirement age until age 70, workers get an 8% boost in their benefit amount.
You Can Take a Mulligan for Some Mistakes
If you claim Social Security at 62 and then have second thoughts, you can reverse your decision. If you contact Social Security within 12 months to stop benefits and pay back all the money you received, it will be like you never filed a claim in the first place.
“That’s something you’ve got to understand,” Petersmarck says. “After the 12-month mark goes by, there is no going back.”
At that point, you are stuck receiving reduced benefits until you reach full retirement age. However, at age 67, you can choose to suspend your benefits and allow them to grow in value until age 70.
“You’re allowed one stop and one restart,” according to Hoff.
The Social Security Administration cautions that suspending benefits means anyone receiving benefits off your record, except a divorced spouse, will also see their payments paused. What’s more, you’ll need to make your Medicare premium payments directly since they can’t be withdrawn from suspended Social Security payments.
[Read: Here’s How Much Money You Could Lose if Social Security Goes Bankrupt]
Social Security Isn’t Going Anywhere
The Social Security retirement trust fund is expected to be depleted in 2033, and that may lead some Generation X members to think they need to claim their benefits as soon as possible. However, financial experts believe the government will come up with a solution before then.
“Politically, it’s suicide to cut and gut Social Security,” Conroy says. He advises people to be conservative about Social Security income in their retirement planning but doesn’t think it needs to be discounted entirely.
“If you go back to what they did in ’83, they moved the full retirement age from 65 to 67,” Hoff says. He suggests that any upcoming changes to Social Security may entail something similar to those 1983 amendments, which only affected workers younger than 55.
And in a worst-case scenario, Gen X retirees will still get Social Security even if the trust fund runs dry. “You’re still going to get 80% of your benefit if nothing else changes,” Petersmarck says.
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What Gen X Gets Wrong About Claiming Social Security originally appeared on usnews.com
