It Pays To Wait
The longer a person delays taking benefits (until age 70) the larger their monthly payment will be once they do start collecting. The rate of the increased benefits is 8% for each year the benefits are delayed. Years ago, this was only 1% and it didn’t make sense to wait. But today’s 8% can make a significant difference.
Let’s say a person is entitled to collect $2,000 per month in retirement benefits at the full retirement age of 66. He or she could delay collecting benefits until age 70, when they would be worth 32% more — $2,640 per month — thanks to four years’ worth of delayed retirement credits. And these would monthly payments for the rest of their life.
And of course, there’s the flip side – taking benefits as soon as possible, at age 62 would result in a monthly payments less than the $2,000 per month. As much as 25% less.
A Spouse Is Eligible for Benefits While The Couple Waits
There is an option, known as file and suspend, which allows married couples to trigger spousal benefits based on a wage earner’s benefits. In this situation, the higher wage earner can file and suspend their benefits (to reap the 8% per year benefits described above). While the higher wage earner waits, his/her spouse is entitled to 50% of their benefits ($1,000 per month for the example above). For this to work, the higher wage earner has to be at least 66 and the spouse is at least 62.
This is a great way for married couples to collect some Social Security benefits now and ensure that the higher earner collects an even larger benefit later.
Get A Lump Sum Payment if Your Situation Changes
And there’s a safety net if your situation changes while you’re waiting for the higher benefits to accrue (after filing and suspending). In the example above, an individual could change his or her mind at 68 and collect a lump sum of $48,000 ($2,000 x 24 months). After that, that person would receive monthly benefits of $2,000 per month based on the full retirement age benefit rather than a higher amount that would have included any delayed retirement credits.
In most cases, holding out for the bigger benefit will provide greater lifetime income. But if a person’s health or financial situation takes a nasty turn and longevity is no longer the primary concern, recouping a lump-sum benefit could be a great solution.
As you can see from these examples, today there are many options of how to file for social security to get the greatest benefits. These are just a few of the many options to consider. And of course, everyone’s situation is different (age, potential benefits, health, etc.). As a result, there isn’t a silver slipper solution that’s best for everyone.
Filing for social security benefits isn’t something to take lightly, as it will impact your financial situation in those retirement years. Please give us a call if you would like to review the options as they apply to your situation.
You can reach us in Bend at 541-263-2631 or in Salem at 541-610-2367. We look forward to being of service to you!