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Five Strategies to Get the Most From Social Security

What to consider when deciding when to claim your benefits

By Robert Powell and MarketWatch

(This article appeared previously on MarketWatch.com.)

President Barack Obama wants to eliminate, as part of his proposed fiscal year 2015 budget, aggressive Social Security claiming strategies “which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits to maximize delayed retirement credits.”

That plan to stop upper-income beneficiaries from claiming and then suspending Social Security benefits may or may not become a reality. But what remains a reality, at least for now, is this: The incentive for waiting to claim Social Security until age 70.

And that incentive, according to a series of just-released fact sheets from National Association of Social Insurance (NASI), is significant.

Getting 132 Percent of Your Benefit

Consider: If you claim Social Security at age 62, you’ll get just 75 percent of the monthly benefit you would have received had you waited until Full Retirement Age (which is between 66 and 67, depending on when you were born). But if you wait until 70, you’ll get 132 percent of what would have been your Full Retirement Age benefit.Or put another way, if your Full Retirement Age benefit is $1,000 a month, you’d get just $750 a month if you claim at age 62; $1,320 if you wait until 70.

The decision about when to claim Social Security decision is, for most people, not an easy one. To do it right, you need to consider many factors and try to answer many questions, some of which are, frankly, unanswerable.

The NASI addressed many of the factors and questions in its just-released tool kit, Social Security: It Pays to Wait, which includes a three-minute video: Social Security: It Pays To Wait; a one-page fact sheet, When Should I Take Social Security?; and a 16-page brief, When Should I Take Social Security? Questions to Consider.

It’s well worth reading and studying the NASI’s tool kit. It’s also worth learning what experts participating in an email discussion had to say about the it and what they think beneficiaries need to consider before taking Social Security. Five tips:

1. Take the claiming decision seriously. What’s especially difficult about choosing when to claim Social Security is that you have to make up your mind in your early 60s, long before you know the answers to your questions about your health and life expectancy.

“Unfortunately, some decisions have to be made early in the game, such as the decision about when to take Social Security, or what option to take from the defined benefit plan, and once made, are generally irrevocable,” said Chuck Yanikoski, president of Still River Retirement Planning Software and RetirementWORKS.

“Other decisions can be put off, or modified, but once made limit one’s future choices. So the further a person gets into retirement, the fewer options they have — and not only because of past decisions that they can’t take back, but because of declining health, fewer or no opportunities for re-employment, possibly declining asset balances, and generally no likelihood of other new sources of income or assets,” he adds.

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Yes, there’s a continuing need to reassess and modify your plan as things change during retirement, but that cannot be an excuse for not doing the best possible job at retirement, Yanikoski said.

“Planning around the time of retirement has a much bigger impact than individual course corrections during retirement. So it is best to do that planning as if you were only going to get one shot at it,” he said.

2. Don’t use your break-even age. Advisers sometimes suggest, as part of the process, that you determine the age at which you would come out ahead if you delay Social Security. In other words, the experts want you to determine your break-even age.

The break-even age, according to an analysis by Rande Spiegelman, a vice president of financial planning at the Schwab Center for Financial Research, depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting.

In his analysis, Spiegelman calculated the break-even ages for a top wage earner turning 62 in 2013 with monthly benefits (in 2013 dollars) at ages 62 and one month of $1,923; 66, $2,591; and 70, $3,447. What he found was that the break-even age is between:

  • 77 and 78 for the top wage earner deciding whether to take Social Security early at age 62 vs. age 66, the Full Retirement Age
  • 80 and 81 for those deciding whether to take Social Security early at age 62 or 70
  • 83 and 84 for those deciding whether to take Social Security at Full Retirement Age vs. age 70
Robert Powell writes about retirement issues for MarketWatch.com and produces the Retirement Weekly subscription newsletter. Read More
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