Putting things off until tomorrow is not usually a recommended course of action, unless you’re talking about Social Security. The longer your clients delay the start of their Social Security retirement benefit (up to age 70), the larger their monthly check will be.
There are three options for claiming Social Security retirement benefits:
Social Security checks will equal 70%-75% of the client’s full retirement benefit.
Checks will equal 100% of the client’s full retirement benefit.
There is an 8% credit per year for waiting, up until age 70. At that point, the check can equal up to 132% of the client’s full retirement benefit.
The chart below shows how to determine each client’s FRA, which is the time at which they will be eligible for their full retirement benefit.
|Year of Birth*
|1955||66 and 2 months
|1956||66 and 4 months
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months
|1960 or later||67|
* If born on January 1 of any year, refer to the previous year
Source: Normal Retirement Age. Office of the Chief Actuary, Social Security Administration, October 2017.
Let’s look at an example of how delaying benefits could affect a couple’s income. We’ll assume:
Note: When a spouse dies, the surviving spouse inherits the larger of the two retirement benefits.
While delaying Social Security benefits can help a wide range of clients increase their monthly retirement income, there are two types of people who may have a special incentive for delaying.
Married couples often have a greater chance than a single person of benefitting from delaying Social Security. This is because the number of Social Security payments received depends on the lives of both spouses.
Additionally, many wives outlive their husbands, and most widows receive their husband’s higher monthly benefits in place of their own. If the husband takes benefits early, it will permanently reduce the payments not only to the him (while he’s alive) but to his widow after he dies. Delaying benefits may be a way to secure a higher survivor benefit for the wife.
Individuals with long life expectancies may receive a more significant advantage from delaying. This is because Social Security calculates the reductions and increases to payments so that, regardless of when individuals begin benefits, they will have received the same amount of money at the time they reach their average life expectancy. Living beyond average life expectancy results in income that exceeds the amount calculated by Social Security.
There are special incentives for delaying Social Security income until or past FRA if a client is still working.
As clients decide when to begin their Social Security retirement benefits, they may want to refer to this helpful decision tree, which sums up many of the important considerations reviewed above:
The above is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current law, which is subject to change at any time. Clients should consult with their accounting or tax professional for guidance regarding their specific financial situations.
Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.
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