What is the best way to take Social Security?
Figuring out how to make the most of your and your spouse’s Social Security is one of the most challenging retirement-planning decisions you may make in your lifetime. You may not only find yourself between a rock and a hard spot, but you can expect some blind curves and steep hurdles thrown in for good measure!
Collect Some Now or Collect More Later
First, there’s the rock: You may be tempted to begin taking Social Security as soon as you’re able. But the hard spot means that the earlier you begin taking it, the less monthly income you’ll receive over your lifetime, and the smaller your cost of living adjustments (COLA) will be over time. Longevity risk – the risk that you end up living a long time in retirement – could throw you additional blind curve.
I know: You’re probably not used to thinking of “liv ing a long time” as a risk. But when you’re pushing the pencil around on your retirement planning, that’s exactly what it is. If you live to 95 or 100 years old, you could potentially spend 30–40 years in retirement, during which you’ll want to be able to depend on your retirement income to see you through.
Let’s examine what those numbers might look like. Here are typical monthly payments you could expect under current circumstances:
If you begin taking Social Security at …
Expect to receive about …
As you can see, by waiting those eight extra years between age 62 and 70, your monthly payment amounts increase dramatically, by about 8 percent per year. Plus you receive future COLA increases on the higher amount. In short, unless you have compelling reasons to receive smaller monthly payments earlier on, longevity risk usually means you’re best off waiting.
Two Windows of Opportunity, Closing Fast
As if the question weren’t complicated enough, there’s a new hurdle, recently introduced. You may have heard the news that two key strategies for claiming your Social Security benefits are being eliminated following last fall’s passage of the Bipartisan Budget Act of 2015. These are: file-and-suspend strategies and restricted application for spousal benefits.
This Slott Report is one good source (of many!) that defines the terms and describes the impact of these legislative changes in more detail. Here’s one more by Michael Kitces of Nerd’s Eye View that includes a handy table summarizing the many moving parts.
For most investors, the strategies already are history, with two exceptions: First, if you are already using them, you are grandfathered in and can continue using them. Second, if you are 65 ½ or older as of October 30, 2015, you have until April 30, 2016 to employ these expiring options if they are advantageous to you. If you fall into that second group and you’ve not yet considered your opt ions, you have no time to waste.
We Can Help
Whether or not you qualify for taking advantage of these fast-closing windows of opportunity, there are a number of questions and calculations to consider when determining your next best steps. We encourage you to take advantage of an advisor who can help you identify your personal circumstances and “work” the financial planning software with you, to determine your own ideal strategy for navigating the shifting landscape that is Social Security planning.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No fo llow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail firstname.lastname@example.org.
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