The idea of choosing to delay the receipt of Social Security benefits often brings confused looks to many faces. After all, it just seems so nice to take the money and run, collecting for the maximum number of months possible. Of course there is a financial incentive to delay, with waiting bringing a sizable increase in the monthly benefit.
More sophisticated strategies become possible and potentially profitable when considering a husband and wife's situation. I've written on this topic before, but with new folks reaching the planning phase each year, I think it's a good idea to address the topic again.
In simple terms, waiting to begin Social Security benefits becomes advantageous if you live long enough to make receiving the higher payments overcome the shorter time they are received. Assessing longevity risk has now become part of the planning process with the 90-plus age group expected to quadruple in size between now and 2050.
Let's compare two individuals, each age 62 having a $1,500 monthly benefit now, or $2,640 if they wait to age 70. If they each live to age 92, electing to wait until age 70 yields a total benefit of $696,000, or about $156,000 more than taking the early benefit.
Now, let's compare a husband and wife. Bob, age 62, and Cathy, 58 plan to start collecting as soon as possible. Assuming Bob lives to age 83 and Cathy to age 90, their total benefit will be $840,600. However, a slightly more creative strategy utilizing Delayed Retirement Credits might be of benefit.
Let's say that Bob waits until his full retirement age of 66, and at that point claims a spousal benefit of $800. At the same time, Cathy, now 62, claims $1,200 a month. After four years, at age 70, Bob switches to full monthly benefit of $2,640. In this case, assuming the same lifespans as used above, they will receive a total of $1,043,520, or about $203,000 more than if they both claimed benefits as soon as possible at age 62.
The key to the success of the more complex strategy lies in the survivor benefits. If both start receiving payments at age 62, when Bob dies, Cathy would receive a survivor's benefit of $1,650 per month. But under the Delayed Retirement Credits scenario, Cathy's monthly benefit will be $2,640, or almost $1,000 more a month!
Of course, the decision and ability to delay receipt of benefits is also based in the rest of your financial situation and other potential sources of retirement income including pensions or income from your investment portfolio. To help make this decision there are some calculators available. Some are free and others cost a small amount, but may be well worth the cost considering the importance of the decision.
www.socialsecuritysolutions.com may be the best resource around, and costs from $20 to $125 depending on how much personalized help you want interpreting your report. www.aarp.com and www.AnalyzeNow.com are free, as are the tools on the Social Security Administration's website.
Keep in mind that with life expectancies being uncertain when applied to any one individual or family, these calculations are never an exact science. If you don't expect to live much past age 80, the take the money and run approach may well be for you, but the calculators can help illustrate the figures.
Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.