The conventional wisdom holds that you should delay taking your Social Security benefits as long as possible. Your monthly Social Security benefit will rise by as much as 8% each year you delay receiving benefits after your full retirement age (FRA) up to the age of 70, prorated monthly. First impressions suggest that receiving more money is a good thing. However, what if your situation is more complex?
I began working with a client we’ll call John two years ago. His original plan was to postpone taking Social Security until he was 70 years old because he was still working and didn’t need the extra money. For the sake of John’s long-term financial security, he should let his benefit grow as long as possible, even though he already had enough money saved up to maintain a modest lifestyle in retirement.
A few facts about John’s background completely changed the outcome of this case. Since he was born before the start of the year 1954, and had been married for over ten years and divorced for over two, he had not remarried.
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An extremely narrow loophole in the Social Security code allowed him to apply for his ex-benefits wife’s while delaying and increasing his own, allowing him to get the best of both worlds. If you were born before January 2, 1954, are still married after ten years, and your spouse is already receiving Social Security benefits, you are also eligible.
In light of his overall strategy, he decided to begin receiving his ex-benefit wife’s payments, which, while not large enough to have a significant impact on his taxes, did provide him with a few exciting opportunities, including the security of being able to retire earlier than he had anticipated.
We could have saved him tens of thousands of dollars over the course of his retirement if we had started Social Security planning with him as soon as he reached full retirement age.
It was an interesting case involving a client we’ll call Peter, who was hoping to wait until he was 70 to apply for disability benefits, as he expected to continue working well into his 70s.
Also Read: As a 70-year-old, you’re better off Claiming Social Security Benefits
He was married at the age of 66 and on the verge of completing his FRA. One of the primary reasons he stayed on the job so long was to help support his two young children’s education and the family’s cash flow. However, the information he divulged altered the course of the investigation.
Peter was married to Jessica, who was 17 years his junior, and their two children, ages 11 and 14, were the envy of their peers. Family Social Security benefits were available to the children because of their young age; they will receive an additional $20,000 per year until they turn 18 on their father’s record. Jessica was also eligible for spousal benefits because she has a child under the age of 16 in her care.
The family had to weigh the importance of immediate cash flow against the long-term benefit Jessica would receive if and when her father died first. Because of their cash flow issues, the clients decided to take their Social Security benefits at Peter’s FRA so that they could refocus on retirement savings.
An additional client’s FRA was just months away, but Elsie was dealing with more recent but chronic health issues, and her remaining days were numbered. As a result of medical expenses and time off from work for treatment and monitoring, Elsie’s cash flow had begun to fall dangerously low.
Prior to her illness, she had planned to begin collecting Social Security at the age of 70, but now her situation demanded more assistance. It was far more important to her to get her money now than it was to wait for a larger lifetime payout from the program. At her FRA of 66 years and 2 months, she received the financial assistance she needed to get through a difficult period.
Also Read: Why is my Social Security benefit higher than the Maximum Rate?
Not everyone will qualify for a special Social Security benefit, and not everyone will find themselves relying on their benefit sooner than they anticipated. If you have any questions about your financial situation, please don’t hesitate to get in touch with us.
We’d be more than happy to answer any questions you may have about your personal situation.
Natalie Brown, CFP®, is the author.
When it comes to financial planning, Day Hagan Asset Management’s Natalie Brown is the go-to expert in Sarasota, Florida. She aims to improve the quality of sleep of her clients by assisting them in creating a clear financial trajectory.
She enjoys running and playing the violin in her spare time.