Many people race in as early as age 62 to file for their social security retirement benefits. After all, they surmise, this is the smartest thing to do, right? Sure, most financial advisors encourage people to defer taking benefits up to as late as age 70, if they can afford to, in order to maximize their benefit payments. Nevertheless, many people have opinions such as "I paid into this system my whole life and I want my money back as soon as possible". "What if I die young and I don't get all the money I paid in back"? "What if social security goes bankrupt"?
Then, a few years go by and they realize "maybe I jumped the gun". My spouse and I might have a 20-30 year retirement and maximizing our guaranteed lifetime social security benefit payments may have been a better decision. Although they are concerned that social security may go bankrupt they reassess this view and decide that it probably won't happen in their lifetime. More than anything, however, they may now be more acutely concerned about the risk of outliving their money.
So now what? Is there anything they can do?
Well, once you file for benefits there are few options available to remedy your situation. This is why it is so important to review as many possible options available to you BEFORE locking yourself into what may be a sub-optimal filing strategy.
One example of this was a couple who were referred to me a year ago. They had both filed at age 62 and we're both now age 66. They realized that by filing so early they had left tens of thousands of dollars in eligible benefits on the table. In addition they could no longer take advantage of some potential spousal benefits, other little known filing strategies available to increase retirement benefits and other "free money" available in the social security system to maximize lifetime income.
Nevertheless, I was able to share one strategy with them that was now available since they had both obtained their full retirement age (FRA), which for them was age 66. Even though they had filed early and taken reduced benefits, they could each now opt to suspend receipt of their benefits up to age 70 if they chose. By doing so they would each be eligible to receive an 8% guaranteed annual increase in their benefits from age 66-70, plus any cost of living adjustments. Once they reached age 70 they could once again resume receipt of their benefits which would have increased by 32% plus COLA.
This strategy was definitely worth considering. Then the husband shared a very personal health matter with me. He had been diagnosed with cancer and was undergoing chemotherapy and radiation treatments to hopefully put the cancer in remission. Now what should I do, he asked?
He had liked my suggestion that they suspend their benefits in order to increase their payout amounts at age 70 and thereafter. He said he was going to tell his wife to suspend her benefits to allow them to increase and he was going to continue to receive his benefits. Actually, I said, you are better off doing the exact opposite. I suggested that his wife continue to receive her benefits and he should suspend his benefits. This is because his benefit amount was higher than hers. By letting his benefits grow to age 70 he would not only maximize his own benefit but, by doing so, he would also be maximizing her survivor benefit. Since she was statistically likely to outlive him, she would eventually switch from her own lower benefit to his higher benefit, assuming he pre-deceased her. He liked the idea and set out to do just last. Knowing that she would receive maximum survivor income in retirement helped to put his mind at ease.
In summary, the best way to determine which social security filing strategy would be most suitable for your own situation would be to work with a social security specialist who will do, among other things, review all your available options. That review should include a detailed "break-even analysis" and also a "tax minimization analysis". In addition, by co-ordinating your social security benefits to suit your individual situation, you can obtain a customized filing strategy that addresses all your specific needs and circumstances.
Early filers should note that it may not be too late to revisit your social security options and identify possible strategies to further maximize your benefits. The impact of a few potential adjustments to your filing strategy could result in an increase of tens of thousands or even hundreds of thousands of dollars in increased lifetime social security benefits and a filing strategy that best suits your needs and objectives.
Ash Ahluwalia, NSSA, CCSCA, MBA