And people frequently aren’t confident that they’ve saved enough on their own to retire comfortably. It’s no wonder that a recent survey of Baby Boomers found that 61% of respondents fear outliving their retirement more than death. Think about that for just a second. People would sooner DIE than outlive their retirement. This uncertainty is coloring a lot of people’s decision to cash in on Social Security while they know they still can. A recent survey by BMO Retirement Institute found 83 percent of retirees were influenced to start their benefits because they were concerned about the viability of the program.
Can you apply for benefits and then change your mind?
Not anymore. And that’s my next guiding rule: Don’t take Social Security until you’re sure you want it. Up until December 2011, the Social Security Administration had a “do-over” strategy that had allowed seniors to file for benefits and then later repay them, without interest, to get a bigger check. In effect, you got eight years—from 62 to 70– to change your mind about taking early benefits. You could even use a do-over as a way to get an interest free loan from the government. But since December 2011, you have only 12 months to change your mind after initially filing for benefits.
Any other advice?
Well, this next guideline is a little grim, but part of being a smart financial planner is answering tough questions like “How long do you expect to live?” A calculator on the Social Security website will give you your average life expectancy. It predicts a woman turning 62 this coming year will live to an average of 85.5 and a man of the same age to 83.4. But what about your health and your genes? There are a bunch of websites that calculate your life expectancy while taking into account your health, family history, exercise, eating, drinking and driving habits and even social relationships. If you’re not in great health and you want to get some of your tax dollars back, it can make sense to start claiming Social Security as early as possible.
So you’re saying that, in general, unless you’re not feeling so great, you shouldn’t claim benefits early.
That’s right. Things get a little more complicated if you’re married.
When a married person claims benefits, they’re eligible for what they’ve earned or up to half of their living spouse’s full retirement benefit, whichever is higher. A low earning spouse who is relying on spousal benefits takes an even bigger early claiming hit than a primary wage earner–if he or she claims benefits at 62, they get just 35% of the primary earner’s full retirement age check, instead of 50%. On the other hand, there are no extra benefits for waiting past full retirement age to claim that spousal check. That means this is the one case where no matter how you slice it, waiting past the “full retirement age” of 66 doesn’t net you an extra dime.
The catch is that a spouse can’t claim benefits until the earner makes a claim. So let’s say a high-earning husband and non-working wife both turn 66 this year. The best financial plan is for the husband to begin claiming his benefits so his wife can collect. But not so fast! We already covered that he’ll receive a bigger benefit if he waits until he’s 70. He can still wait and cash in on that delayed payday by requesting that his claim and his benefits be immediately suspended. That way, he then can continue to wait for a bigger benefit, while his wife is now eligible to claim her spousal benefits.
This is tricky business!
I’m not going to sugarcoat it: It’s complex! But if you familiarize yourself with the basic rules, you’ll be okay. Another thing to remember for married people: If one partner dies, the survivor can claim the deceased spouse’s check instead of his or her own, assuming the deceased spouse’s check is bigger. The general rule of thumb for married couples is that at least one partner (usually the higher earning one) should delay benefits well past 66. This is “longevity insurance” for you both.
One final thing to remember: Regardless of when you take Social Security and when you stop working, you need to enroll in Medicare when you first become eligible at 65, or you could face financial penalties in the form of higher premiums.