2 percent cost-of-living hike in Social Security
benefits this year isn’t the only number affecting
workers and retirees.
will pay more into the system – the taxable maximum
rises to $128,400, an 8 percent increase from just two
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.
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.
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.
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:
Speed kills. Grabbing benefits the moment they are
available, even if they aren’t absolutely needed, can
be a big mistake.
many people just never learned delayed
gratification," said William Reichenstein, research
director for Social Security Solutions Inc. and a Baylor
University finance professor.
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.
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.
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.
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.
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.
many people, "winning" at Social Security
might mean having collected the most during the
most-active years of retirement.
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.
question becomes, then, at what point in life do you
want to "win" the claiming game?