How to decide when to start receiving Social Security benefits
Should I start receiving Social Security benefits at 62 or wait a few years? How does my decision affect my spouse’s benefits?
Every day tens of thousands of people are making decisions about when they’ll start receiving Social Security, but many people don’t know what options are available to maximize their benefits.
Here are some guidelines to help you decide when to start receiving benefits.
Benefits of delaying
Although you can start receiving benefits at 62, it typically makes the most sense to delay until 70. Delaying is a great strategy for two reasons:
• Social Security increases your benefit for each month from age 62 to 70 that you delay the start of your earned benefit. This increase in benefit is called delayed retirement credits. If you were born in 1943 or later, your annual benefit increase is 8%.
• In a married couple, when the higher wage earner dies, the widowed spouse will receive a monthly survivor’s benefit. The amount will be based on the Social Security income that the higher wage earner received during his or her lifetime, which will reflect any delayed retirement credits. Therefore, to maximize benefits for your spouse after you pass away, delaying your benefits until 70 is a good strategy.
Additionally, your annual cost-of-living adjustment, or COLA, is based on your monthly payments; if you begin benefits at 62, your COLA will be lower as well.
Important note: If you decide to delay your retirement, be sure to apply for Medicare only at 65. Otherwise your Medicare coverage may be delayed and cost more.
It’s important to take health into consideration. Spouses in poor health should start their benefits early, and spouses in excellent health may want to delay. Social Security benefits for a nonworking spouse can’t start until the working spouse begins his or her own benefits.
Unless you absolutely need the income sooner, delaying is generally the better option.
Changing your mind
If you start receiving Social Security benefits, you can change your mind and then restart benefits later to take advantage of the higher payout. However, you have only a 12-month window after you start receiving benefits. If you take advantage of this one-time option, you must repay all the benefits you’ve already received.
Loopholes eliminated
Last November, Congress passed the Bipartisan Budget Act of 2015, which phased out “file-and-suspend” and “restricted application.” Those two strategies were viewed as loopholes and allowed married couples to claim thousands more dollars in lifetime Social Security benefits than they ordinarily would have.
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The file-and-suspend strategy allowed the higher-earning spouse to file for benefits upon reaching full retirement age, then suspend those benefits. This allowed the benefits to grow at 8% annually, while also allowing the recipient’s spouse to begin receiving spousal benefits, which are half the amount of the higher-earning spouse’s benefits.
Restricted application allowed recipients who are at full retirement age to receive their spousal benefits and then switch to their personal benefit at age 70 as a way to maximize benefits.
The restricted application option will no longer be available to anyone born after Jan. 1, 1954. Married couples already taking advantage of these strategies will be grandfathered in.
The bottom line
If you are in excellent health and have adequate income to sustain your lifestyle until full retirement age or to age 70, it’s probably best to delay your Social Security benefits. It’s a good idea to meet with a financial professional who can help you maximize your benefits.
Blake Fambrough, CFP, is a financial advisor with Dubots Capital Management in Temecula. He is an advisor at NerdWallet, a personal finance website.
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