What I’m Doing About My Social Security

I woke up in the middle of the night thinking about Social Security.  While this is not the topic you want to keep you up at night, I did think my thought process might be helpful to others who must make the important, and often irreversible, decision about when to begin taking Social Security retirement benefits.  I was thinking, “Full retirement age is 66 and I’ll be 65 this summer”.  Clearly not fully awake, I pulled out my iPad and did a quick calculation and realized that, “No, I turn 66 this summer!”

To fully set the stage, my wife, Kathie, who has a successful career in real estate, turns 66 next summer.  Age 66 is important because under Social Security rules, that’s when you reach full retirement age and can begin taking benefits without any penalties (for people born 1943-1954…full retirement age rises for people born after 1954).  If you choose to take benefits earlier, you receive both a reduced benefit and you lose one dollar of benefits for every two dollars of earnings over $16,920.

For example, if your ‘full retirement age’ benefit is projected to be $24,000 per year but you begin taking your benefit this year at age 62, your benefit would be reduced to $17,784 per year (a 25.9% reduction).  If you had earned income of $36,920, your benefit would be further reduced to $7,784 because you lose one dollar of benefits for every two dollars of earnings over the $16,920 limit.

The flip side of this is that if you postpone taking benefits beyond full retirement age, your future benefit increases 8% per year until age 70, when you must begin taking benefits.

This brings me back to my own strategy.  My plan is a two-tiered approach:

  1. I’ll postpone my benefits until age 70 thus increasing my benefits by 32%.
  2. Next year I’ll have my wife begin her benefit based on her full retirement age.

Why this makes sense

  • I plan to continue working so I don’t need my Social Security for income.
  • Historically women outlive men. If I predecease Kathie, she gets to step into my place and receive my larger benefit for the rest of her life.  As a footnote, I have excellent longevity in my family with my father still living at age 99 and my mother who lived to age 89, so between Kathie and me, there’s a good chance one or both of us will live a long time.
  • By having Kathie begin her benefits at age 66, I can file a ‘restricted application for spousal benefits only’ and receive one-half of her benefits while I’m delaying my benefits until age 70. This is a hedging strategy that allows us to collect significant benefits while we wait for even higher benefits beginning at my age 70.

Obviously, everyone’s facts are different which is why it’s vitally important that you seek advice from a professional who understands the nuances of the Social Security retirement and benefits system.  In consulting with our clients, we have worked extensively with staff at the Social Security Administration and have found them to be both very knowledgeable and helpful.  You can call them and schedule either a face-to-face appointment or a scheduled conference call (800-772-1213).

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