Think before you file for Social Security

Social Security is not simple, and you may be perplexed by the maze of rules and options that come with it. Deciding when to begin taking benefits, however, is a major financial decision. The age at which you apply for benefits can make a significant difference in what you will end up receiving. If you are married, there are additional options to consider for maximizing your total combined lifetime benefits.

You will qualify for Social Security retirement benefits if you worked for at least 10 years and earned the 40 total required credits. Even if you never worked, you can qualify for benefits based on your spouse’s or ex-spouse’s earnings record. A widow or widower can receive benefits based on what his or her spouse was receiving.

It pays to delay taking benefits. Let’s unpack why. Social Security determines your full retirement age (FRA) from the year you were born, and it will generally fall between age 66 and 67. If you file a claim at your FRA, you will receive an unreduced benefit. If you file a claim before your FRA, your benefits will be permanently reduced. Taking your retirement benefit at the earliest age allowed (age 62) instead of at your FRA (say, age 67) will shrink your benefits by 30 percent. On the other hand, if you put off taking benefits beyond your FRA, you will get 8 percent more for each year you delay until age 70. There is no benefit to delaying benefits beyond when you reach 70.

An example of what this looks like might be helpful. If your monthly FRA benefit at age 67 is $2,000, taking Social Security at 62 instead of 67 will reduce your benefit 30 percent, from $2,000 to $1,400. But delaying your benefit until age 70 will increase your monthly payment to approximately $2,520. The difference between claiming Social Security at 70 instead of at 62 amounts to an extra $1,120 per month for the rest of your life. If you live to age 95, that’s $336,000. And the larger your own benefit, the more a spousal benefit can be.

A spouse can receive up to 50 percent of your benefit, but the spousal benefit will be discounted if your partner applies for benefits before his or her FRA. Social Security is first calculated on each person’s own work record. However, if the spousal benefit is greater, your partner will receive the higher amount. To claim a spousal benefit, you need to apply for your own benefits first. If you are at or past full retirement age, you can then request to have your benefit suspended, where it will accrue delayed retirement credits and grow 8 percent per year until age 70. In the meantime, your spouse can receive a spousal benefit based on your earnings record.

There is a caveat. The law recently changed and unless you are age 66 by April 2016, this option to “file and suspend” and allow your spouse to receive benefits is going away. After that date, no one can collect on your earnings record during the suspension period.

A second strategy to increase household income is to have one spouse file only for spousal benefits at full retirement age, then switch to his or her own higher retirement benefit later. Your spouse has to be receiving benefits or have filed and suspended for you to file this “restricted” application. Under the new law, this strategy will be allowed if you were age 62 by December 2015.

If you filed at age 62 and now regret that decision, you can repay all the benefits you received and be treated as if you had never started benefits, but only if you are within 12 months of first filing. If you are beyond that 12 months, once your reach your FRA, you can voluntarily suspend your benefits and receive credits for delaying your income when your restart your benefits in the future, until age 70.

Many people file for Social Security at age 62 because they are anxious to receive a benefit. However, filling at 62 can significantly reduce your lifetime income and may not be the best course of action. Think before you file and develop a plan based on your personal situation.

This commentary originally appeared April 2 on

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© 2016, The BAM ALLIANCE

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Connie Brezik, CPA/PFS, CFP®

As a wealth advisor at Buckingham Strategic Wealth, Connie works with clients to form a comprehensive financial plan tailored to their individual circumstances, one that includes portfolio management, tax strategies, wealth transfer considerations, retirement analysis and education planning. She welcomes the chance to help clients work through difficult situations, finding solutions that they may not have thought of and guidance about what to do if their plans don't work out as anticipated.

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