Social Security Questions: When Should I Apply For Benefits?Submitted by Reby Advisors | Certified Financial Planners | Danbury, CT on December 4th, 2014
Now that you have a fair idea of how your Social Security benefits are computed (see previous article) the question that is probably on your mind is when you should apply for benefits. To answer this question, it is crucial to understand that there are no hard and fast rules.
Applying for benefits earlier than your peers has its advantages, just as applying for benefits at a later point in time has its own set of benefits. What works for one person may not necessarily be ideal for you and your needs.
Consider your health when determining when to apply for Social Security benefits. In order to determine the best time to apply for benefits, you have to carefully assess several factors. These include your health status and life expectancy, your need for income, whether you intend to retire fully or take on part-time work, and the needs of your loved ones/survivors.
The trickiest part here is determining your life span as you cannot really tell how long you will live and when you are going to die. The closest thing that you can do to help yourself decide is to give your current health status a critical look.
If you have a chronic illness, then it may be advisable to apply for benefits early on. However, if you are relatively healthy, it pays to wait a bit longer. Another thing to consider is how long your parents and grandparents lived. If you have relatives who have lived up to their 90s or up to a hundred years of age, be conservative and assume that you’ll have a longer lifespan.
Some financial advisers tell their clients to determine a specific age which serves as a break even date. If you happen to live beyond that date, you’ll end up getting more money.
Do you plan to work during retirement?
Another crucial point to consider is whether you want to retire completely or you want to work on a part-time basis. When you apply for benefits before your full retirement age, and you are still earning some income, the pay-outs will be smaller.
If you are earning beyond the annual limit of $14,160 imposed by Social Security, the pay-out you’ll receive will be $1 less for every $2 beyond that limit. On the year that you are about to reach full retirement age, the earning limit is increased to $36,120 and the deduction is pegged at $1 for every $3 in excess of that limit.
Upon reaching full retirement age, social security will then make the necessary adjustments which reflect your additional income.
The importance of considering a spousal Social Security strategy
This is a complicated topic—as is most aspects of Social Security—so it’s best to consult your financial advisor before engineering a spousal Social Security strategy. But here are a few important points to consider:
· When one spouse dies, the surviving spouse will receive the greater of their own benefits or that of the deceased’s.
· By delaying the higher earning spouse’s social security, it is possible for the surviving spouse to receive years of higher benefits.
· When one spouse has claimed benefits, the other spouse—if at the full retirement age—may defer their own claim and claim benefits off the first spouse’s Social Security, resulting in the collection of two monthly checks off one account, while deferring the second spouse’s benefits for significantly higher monthly benefits at a later age.
If this sounds confusing, that’s because it is!
In fact, there are 567 ways to claim Social Security. And we’ve helped families add six figures to their expected lifetime benefits. For clarification on the right strategy for your family, contact us now at firstname.lastname@example.org or (203) 790-4949.
Why should I wait to claim Social Security benefits?
The simple answer here is that the longer that you wait before applying for benefits, the bigger the pay-outs that you will receive. In particular, you will notice the impact of your decision on the amount of COLAs that you’ll receive.
Early application for benefits translates to lower benefits, and apart from that, the pay-outs you’ll receive and you COLAs will remain lower for the remainder of your life. In contrast, if you wait longer, you’ll receive a larger pay-out, which will also mean that your survivors earn more.
Again, these are just some key points to consider. It’s not possible to give ironclad advice on a complicated personal financial issue in any article, so please contact your financial advisor.
You’ll want to weigh the pros and cons of applying for benefits early (or late), the risks of each strategy, and how it affects your peace of mind and overall life goals.
For more custom advice, contact us now: email@example.com or (203) 790-4949.