“When should I file for Social Security?

This is a common question we receive here at Strategence. My typical response is that “it depends.” I recently read Social Security Made Simple, by Mike Piper CPA⁽¹⁾. Even after reading the book, I find myself returning to my highlighted and bookmarked pages for reference, as the Social Security rules can be convoluted. In the book, the author highlighted six rules of thumb when it comes to Social Security that can help simplify your filing decision.

Without further ado, here are the author’s five rules of thumb that can help you navigate the complicated world of Social Security. (The author’s sixth rule had to do with deemed filing, which was eliminated with the Bipartisan Budget Act of 2015.) What follows is my paraphrasing of his central points.

5 Rules of Thumb

Rule #1 – The longer you expect to life (or the more worried you are about running out of money), the better it is to delay taking Social Security benefits. In my attempt to simplify the rules of social security, in general, this rule will help guide you to an easy decision on when you should file.

Rule #2 – An unmarried person trying to decide whether they should file at 62 or wait until age 70, the breakeven point is approximately 80 ½ years of age. For reference, the life expectancy of a 62-year-old male is 82, while a 62-year-old female is 85⁽²⁾. So, if you’ve never married, and expect to live past 80 ½ years, you would be better off to wait until 70 to collect your monthly paycheck from Uncle Sam.

Rule #3 – If you are married, it may make sense for the person with the higher primary insurance amount to delay receiving benefits. This strategy will increase the monthly amount you, as a couple, will receive while either of you is alive.

Rule #4 – Here is another rule for you married folks out there. Delaying the benefit of the person with the lower primary insurance amount will only increase the monthly benefit while both of you are alive. This makes it less attractive for this person to hold off on taking benefits.  A word of caution: before you march into the Social Security office and demand your monthly check, if you are worried about running out of money in retirement or if both individuals have a long life expectancy, it may make sense to delay claiming your benefit.

Rule #5 – The higher the real rate of return (after inflation) that you can earn on your money, especially on your bonds, the better it becomes to file early for Social Security. Unfortunately, as of this writing, interest rates are near an all-time low, so delaying your Social Security benefit and spending down your investment portfolio may be a good option. For every year you wait past your retirement age, until 70, you will receive an 8% bump in your monthly social security benefit. That’s as close to a guaranteed return as one can get today.

Keep in mind…

There are many variables that go into the decision process on when to file for your social Security benefits. The rules above are general guidelines and depending on your situation it may make sense to not follow one or more of these rules.

At Strategence Capital, we have the tools and expertise to examine your unique situation and help determine an appropriate claiming strategy for you. As always, operators are standing by. Click here to contact me.

(1) Source: “Conclusion.” Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less, by Mike Piper, Simple Subjects, LLC, 2019.

(2) Source: http://www.ssa.gov/OACT/STATS/table4c6.htmlPeriod Life Table, 2016 | Last Updated: June 13, 2019

The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice. The strategies mentioned here may not be suitable for everyone.

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The problem

A recent survey by MassMutual, a life insurance company, and Age Friendly Advisor found that 40% of retirees receiving Social Security wish they had waited to file for benefits until later. That’s because every year one delays up to age 70 the benefits incrase, and retirees may leave money on the table, depending on when they file for benefits.

Importantly, 60% of those surveyed got no advice on when to file, and “only 8% filed as the result of consulting with a financial advisor.”

Possible solutions

We have some powerful tools that can help you make the right decision if you haven’t yet filed to receive benefits. Even if you have already claimed your benefits and want to change your mind, you may have options.

A common way of looking at claiming benefits is by calculating one’s “breakeven” age, the age one must life to before the increased (delayed) benefits exceed the earlier-claimed benefits. So, one might calculate a breakeven age of 84, and decide to take benefits earlier because of a family history of poor health.

While this is one way to look at it for a single person, a married person must also consider the age of his or her spouse, and that complicates the breakeven concept, as there is a range of age combinations…and spousal benefits come into play.

Our tools take all of that into consideration and produce a matrix of age combinations that look like the chart above, where the wife’s life expectancy is on the vertical axis, the husband’s on the horizontal.

From that and more, the earliest claiming strategy is compared to other scenarios to consider lifetime benefits and arrive at a hopefully optimal claiming strategy. We would be happy to perform this analysis for you, we just need copies of Social Security benefit statements for both you and your spouse, which you may access at this link.

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