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The Journey: Social Security numbers to know

McClathcy-Tribune Information Services

January 22, 2018


The 2 percent cost-of-living hike in Social Security benefits this year isn’t the only number affecting workers and retirees.

Workers will pay more into the system – the taxable maximum rises to $128,400, an 8 percent increase from just two years ago.

Earnings thresholds for withholding benefits of recipients under full retirement age also are increasing, meaning they can earn more before their Social Security checks are temporarily reduced. For people born in 1943 through 1954, benefits are reduced by $1 for every $2 earned above $17,040. The limit for people turning 66 this year is $45,360. Above that amount, $1 in benefits is deducted for each $3 earned.

Beyond decoding how these inflation-linked numbers affect your situation, now is a good time to think about the other numbers involved with Social Security planning.

While the government has been chipping away at some of the more popular claiming strategies in recent years, it still pays to consider carefully the best time to file, experts say, particularly if you were ever married a decade or longer, qualifying for spousal benefits.

Consider a sixtysomething couple. They don’t know the most important number of all in terms of knowing when to claim benefits – their dates of death – so they’ll need to ponder a host of other factors:

1. Speed kills. Grabbing benefits the moment they are available, even if they aren’t absolutely needed, can be a big mistake.

"So many people just never learned delayed gratification," said William Reichenstein, research director for Social Security Solutions Inc. and a Baylor University finance professor.

I asked Reichenstein and Marcia Mantell, founder of Mantell Retirement Consulting Inc., to walk through the claiming strategies for a hypothetical couple. One member of the couple is a high earner, still working and on pace for maximum monthly benefits of around $2,700 at full retirement age. The spouse is due to receive about $1,000 at full retirement age. For simplicity’s sake, they didn’t consider inflation or the impact on benefits of working before full retirement age.

If these spouses both claim as soon as possible, at age 62, and live at least until age 85, they’ll earn almost $100,000 less in benefits than they would have if the low earner had claimed at 62 and the high earner waited for delayed retirement credits by filing at 70, according to an analysis by Reichenstein.

2. But, so does waiting too long. Taking the opposite approach, delaying as long as possible for both spouses, isn’t the best strategy, either, said Mantell. People born before 1954 still have the option to file a so-called restricted application at full retirement age, giving them the right to claim either their own benefit or half of a spouse’s. In these situations, a couple would be better off claiming when the higher earner reaches full retirement age, with the lower earner (a little younger) filing at the same time for a slightly reduced benefit. In that case, the higher earner could file for just a spousal benefit, equal to half of the lower earner’s full benefit, and then switch to the higher earner’s benefit at age 70, qualifying for delayed retirement credits, Mantell said.

3. Finding the just-right strategy. Striking a balance and filing at or near full retirement age could be the ultimate sweet spot, Reichenstein said, particularly now that the restricted application option has closed for people born after Jan. 2, 1954.

Under this scenario, the low earner would file at age 62 for reduced benefits of $750 per month. The higher earner claims at full retirement age, giving the lower earner a bump up due to spousal benefits to $1,100. If they both live to at least age 77, this strategy will have generated more lifetime benefits than both spouses claiming early. Going forward, the strategy will mean higher total benefits, compared with the other strategies, through age 83, Reichenstein said.

For many people, "winning" at Social Security might mean having collected the most during the most-active years of retirement.

4. Back to death. What if one partner dies before reaching full life expectancy? Then the just-right strategy above could still be the best option, Reichenstein argues. Say the partner dies at age 80. If the couple had begun both benefits at 62, their lifetime benefits at that point would amount to about $679,000. If one partner had begun at 62 and the other delayed to age 70, they’d have collected about $674,000 when the death occurs. The couple who started one benefit at 62 and the other at full retirement age had collected the most, $706,800. The strategy generates the highest amount of the three options through the survivor’s age 84, when delaying to age 70 finally becomes the strategy to generate the most total benefits.

The question becomes, then, at what point in life do you want to "win" the claiming game?