Social Security Benefits

Consider these situations when thinking about filing for Social Security benefits.
Steven Finkelstein

1949 was a year of firsts, including the first round-the-world flight, the first Volkswagen Beetlesale in the U.S. and the first Emmy Awards. For those born in 1949 who have not yet filed for Social Security, 2019 is also a year of firsts. This year marks the moment when they can file for Social Security and qualify for the highest monthly payment they can receive.

Social Security is complicated but, in a nutshell, works something like this. Between age 66 and 67 (depending on when you were born), a person hits their “Full Retirement Age” (FRA). At this point, that person become eligible for the full amount of Social Security benefits that they are entitled to based off of the money they’ve paid into the Social Security system over their lifetime. This seems simple enough, but there are more options than this. Under current law, people are allowed to file for Social Security anytime between the ages of 62 and 70. For those who file before their FRA, they receive a reduced benefit. For those who file after, their benefit is increased (currently at 8 percent per year) from their FRA up until age 70.

At this point, you may be asking yourself why you would ever want to file for benefits before age 70. After all, wouldn’t you always want the highest monthly payment? While filing at age 70 seems like the obvious choice, the decision of when to file isn’t as simple as it seems.

The problem with delaying your benefits to age 70 is that it causes you to miss out on the payments you could have received by filing earlier. Since the payments you can receive by waiting are higher, eventually you will end up earning the money for the payments you missed back, but that break-even point could be 10, 15, even 20 years in the future. If you’re someone who is in good health this may not be important to you, but what if your health isn’t the greatest?

Take, for instance, the fictitious John Doe. John, age 62, is a cancer survivor. Although his cancer is in remission, he’s always worried about a potential recurrence. Now that he has become eligible for Social Security benefits he is wondering when he should file. His end goal is to get the most money possible out of the Social Security system, but how should he do that?

On one hand, John could wait until age 70. This will give him the highest possible monthly benefit, but what happens if, heaven forbid, his cancer comes back and he passes away in his early 70s. By waiting to file he received a higher monthly benefit but he missed out on the opportunity for up to 8 years’ worth of payments that he could have received by filing earlier. On the other hand, what if he files at age 62 but ends up living a long, healthy life, finally dying in his 90s. In this scenario, he received the 8 years of extra payments but missed out on the larger payments he could have received had he filed later. Thus, for someone like John there are no right or wrong answers. Instead, John must weigh many competing factors when thinking about when to file.

Of course, while life expectancy is an important consideration when thinking about Social Security, it is far from the only variable. Considerations such as employment status, pensions, retirement assets and more are also crucial factors to consider when crafting a Social Security strategy. In the end, it is important to take a wholistic look at all of the many moving parts of your financial life in order to weigh the pros and cons of the various filing options.

As you can see, decisions around Social Security are complex and highly varied. There is no one-size-fits-all answer and professional guidance is strongly recommended. Should you wish to learn more about the Social Security system, Sterling Retirement Resources will be offering complimentary workshops to AAA members on Sept. 17, 2019 and Sept. 24, 2019 (register below). Also, feel free to contact our office at 763-762-3400 with questions on this article or any other situations in your financial lives.

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Registered Representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer and Registered Investment Advisor. Some advisory services also offered through AdvisorNet Wealth Management. Cetera is under separate ownership from any other named entity. Branch: 8401 Golden Valley Rd. Suite 225, Golden Valley, MN55427 Ph: 763-762-3400 This information may not be relied on for the purpose of determining your social security benefits or eligibility, or avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal professional.