Financial Abundance

As a “leading edge” Baby Boomer, I am often asked: “When should I begin taking Social Security benefits?” The answer to this question is dependent upon many variables. However, the key is to understand how the complex Social Security benefit rules can be used to maximize your family’s retirement income. In the following scenario, we see how understanding the complex Social Security rules can increase a couple’s Social Security benefits by over $60,000.

George has just turned 66, his full retirement age (FRA), and has not yet filed for his Social Security benefits. He plans on waiting until he is age 70 to file for Social Security. By doing this, he will receive “delayed retirement credits” that will provide him with 132% of his full Social Security retirement benefit. This will allow him to collect $2,640 per month instead of the $2,000 per month he would get at age 66.

George’s wife, Barbara, has recently turned 62 and would like to start collecting her Social Security benefits. At age 66, her benefit would also be $2,000 per month. However, at age 62, Barbara will only receive 75% of her full retirement benefit or $1,500 per month.

When George and Barbara meet with their financial planner, they discovered a little known way for George to get a benefit now and still receive the full delayed benefit of $2,640 when he reaches age 70. George can immediately file for a spousal Social Security benefit and receive $1,000 per month. This amount is 1/2 of Barbara’s FRA Social Security benefit, since George is already at his FRA. Together, George and Barbara will receive $2,500 per month, until George turns 70.

When George turns 70, he will apply for Social Security benefits based on his earnings. He will then receive his delayed retirement benefit of $2,640 per month. When George turns 70, their combined Social Security benefit will increase from $2,500 per month to $4,140 per month.

There is another important advantage to this approach. If George dies before Barbara, a likely scenario since he is four years older and a male, Barbara may apply for “survivor benefits.” This will allow Barbara to receive George’s benefit of $2,640 per month instead of her $1,500 per month, for the rest of her life.

Assuming both George and Barbara live until they are age 80, this approach will provide George and Barbara $59,520 more in Social security benefits than if George had merely filed for his full benefit at age 66. In this scenario, I assume that there is no inflation. When inflationary increases are included, the increased amount of additional Social Security benefits collected are even greater.

This approach may not suit your needs. However, it demonstrates that Social Security is a very complex system. The decisions that you make on when and how to receive your Social Security benefits can have a significant impact on the retirement income that you will receive.

Before you file for Social Security, meet with a fee only financial planner who understands the vagaries of the Social Security system. By analyzing your financial situation this expert can help you choose when and how to take your Social Security benefits.