Planning Ahead: Is Uncle Sam Keeping Your Unclaimed Cash

By Beth Donner

Due to living longer, decreasing pensions, volatile stock market returns and low interest rates, smart retirees/pre-retirees are looking for ways to maximize their Social Security (SS) income and are seeking guidance with the decision-making.

From review of your SS statement, you might think there are only three reasons for when to take your SS income:

1. at the earliest age possible (age 62); 

2. at full retirement age (FRA), which for most is age 66; or 

3. delaying SS as long as possible (age 70). But there are actually hundreds of possible real-life scenarios of how and when to file for SS benefits depending on whether you’re married, single, widowed or divorced.

Just because you can start drawing SS at age 62 doesn’t necessarily mean you should.  Claiming SS at the earliest possible age of 62 means your monthly payment will be reduced by 25 percent from the FRA amount, and despite popular perception, this 25 percent reduction lasts for the rest of your life; you do not get the 25 percent added back in once you turn your FRA age. Delaying SS income from your full retirement age (age 66/66+) until age 70 increases the monthly benefit by 32 percent.

To illustrate this, if your FRA monthly benefit is $1,000 per month, then filing for benefits at age 62 would reduce your monthly check to $750, but delaying SS to age 70 would increase your monthly check to $1,320. Obviously, the difference in taking early SS versus delaying to age 70 nets you an additional $570/month or $6,840/year. With retirements lasting 25 to 30 years or more, this grows to substantial amounts of money. Despite the awareness that delaying SS benefits significantly increases lifetime income, many retirees still claim the benefit as soon as they can, at age 62.

For those who have been through the exercise, it becomes clear that there’s much more to SS than deciding whether to start drawing income at age 62, 66 or 70. In addition to the delay-to-age-70 tactic, there are the lesser known and even greater income increasing strategies such as file and suspend and coordination of spousal benefits. Knowing when and how to communicate with the Social Security Administration can make a difference of tens of thousands of additional dollars during retirement. For higher wage earners and particularly married couples, a carefully crafted decision about how and when to execute SS benefits can boost joint lifetime income by $100,000, $200,000 or more!

Americans also need to be reminded that deciding when to retire from their job and when to claim SS benefits are two separate decisions that don’t necessarily need to occur at the same time.

Social Security maximization has quickly become the new hot topic in retirement planning.  Treat your Social Security claiming strategy as you do all other parts of your retirement portfolio.