The image of Social Security recipient as senior citizen wrapped in blankets and dutifully clipping coupons to stretch their monthly check it long gone. Active, healthy boomers have combined with longer life spans to fuel a retirement revolution of second careers, education and travel that defy past generations, and nowhere is this more felt than with Social Security.
Consider—in 2015, over 59 million Americans received almost $870 billion in Social Security benefits. Nine out of 10 individuals age 65 and older receive Social Security benefits. An estimated 165 million workers are covered under Social Security. Retired workers and their dependents account for 72 percent of total benefits paid. Disabled workers and their dependents account for 15 percent of total benefits paid.
The government program is therefore incredibly popular, one of the few such programs that can confidently claim that mantle. Today’s beneficiaries can choose from eight separate benefits and thousands of possible claiming strategies that include such variables as age, marital status, income, life expectancy, children and many (many) more. It all leads to the central question of when the individual should begin receiving Social Security. If the answer is simply “at retirement,” the individual is sorely misguided, as the aforementioned retirement revolution makes the phrase essentially meaningless, or at least defined differently according to a recipient’s specific situation.
Claim right and the strategy can increase benefits and overall retirement income for years, and in some cases decades. Claim wrong and the chances of an individual outliving their retirement resources skyrocket. It’s an increasing complex, and critically important decision. Thankfully resources are here to help.
More financial advisors are capitalizing on technology and utilizing software specifically designed to maximize the amount an individual or couple receives in Social Security benefits. Mainly algorithm-based, such programs can determine a general strategy with a few simple inputs. However, the more information added, the more specific the strategy becomes, further increasing the odds that the strategy is optimized.
Pre-retirees would do well to spend some time with the software, says Cory Chapman, managing partner and financial advisor with El Segundo, California-based EFC Wealth Management, a firm that specializes in Social Security claiming strategies.
It’s easy to see why. The most popular age to begin benefits is age 62, the earliest possible. This means early withdrawal penalties that result in far less than the amount to which many workers are entitled. Delaying until full retirement age (currently age 66) or, better yet, delaying until age 70 (the maximum allowed) results in far more total benefits over the course of what is quickly becoming 20, 30 or even more years spent in retirement. Indeed, the difference between beginning payments at ag 66 and just for years later at age 70 results in an 8 percent annual return each year (or 32 percent total), far greater than what’s available in the private market. It can be thought of as an annuity, but one paid for by the federal government.
“The individual will get 25 percent less over the course of their retirement in they begin at 62 and 32 percent more if they are able to wait until age 70,” says Chapman, whose firm is currently offering a free Social Security evaluation. “And there’s no market risk. The rationale and incentive for doing so are there, it’s just a question of illustrating it to the recipient.”
With major changes afoot, most recently the discontinuation of two claiming strategies known as “File and Suspend” and “Restricted Application” the programs, and how benefits are received, remain fluid, which furthers the case for professional assistance when figuring it all out. The stakes—a successful and affordable quality of life in retirement for the majority of American—are simply too high otherwise.