Can a 20-Minute Decision Really Make You $30,000 or More in Extra Social Security Payments?

Retirees assiduously scrimping and saving to contribute to their IRA, HSA, and 401-K retirement nest egg accounts have received much recent attention, as the last of the Baby Boomer generation enters retirement age. Those who have managed to devote a part of their paychecks to their 401-Ks and receive matching employer contributions are maxing out for their retirement futures. Those who will receive pensions as well will be looking at a very comfortable lifestyle in their golden years.

However, all employed citizens who have paid FICA taxes during their work lifetimes also can avail themselves of Social Security benefits. Mistakenly called an entitlement, Social Security benefits are funds that workers have essentially paid into the system for their employment  duration through FICA tax withholding. 

It’s All In the Timing

Citizens who have paid FICA taxes in the past for at least 10 years are eligible to apply for Social Security benefits starting at age 62. There are several aspects to Social Security benefits that retirees should know:

• Social Security benefits are presently taxed as income, although President Trump and Rep. Thomas Massie (R-KY) are attempting to enact legislation to end this taxation.
• There are a range of increasing payment sizes (approximately 8% differential) up to the maximum by age 70. Basically, the longer one defers filing to start benefits, the larger amount. 
• The amount calculated for monthly benefits when filing for benefits is a fixed amount that is payable until the recipient’s demise
• A surviving spouse and children may be eligible for continued benefits of the deceased of between 70% and 100%, based upon age, employment status, and a few other parameters.

One should not underestimate the timing of when to file for benefits. The monthly differential between filing at age 62 and a later age can be significant, and cumulatively, can amount to $30,000 or even more, depending on one’s life expectancy, and that of a spouse. 

There are Social Security benefit calculators available online from: 

• The Social Security Administration website https://www.ssa.gov/oact/anypia/index.html
• AARP https://www.aarp.org/social-security/benefits-calculator/
• North State Bank https://www.northstatebank.com/calculator/social-security

and others. 

Take, for example, a married couple where the applicant is turning 62 this year (born in 1963) and his wife is a year younger. He earns $75,000 salary, she earns $25,000. The different benefit amounts for each age between 62 and 70 are as follows:

If the applicant files at age 62, the monthly benefit will equate to $1,898. If applying at age 66, the benefit will be $2,530, which is a $632.00 difference per month. That can equate to $7,584 per year. Over the course of 20 years, for example, that can total $151,680. That figure can be even higher if the applicant were to pass away and his widowed spouse continued to receive his benefits. If the applicant were able to wait until age 70, the difference would be $1,464 per month, which is $17,568 per year, and $351,360 for 20 years. 

The monetary advantage of delaying filing for benefits is unequivocal, but this is only one issue for applicants to consider.

Social Security In the Bigger Picture

Social Security is a controversial topic in the contemporary political debate. Democrat politicians have routinely used it as a political football to attack Republicans over a potential loss of benefits. In reality, both parties have continued to borrow against the Social Security fund for their pet pork projects, resulting in concerns over insolvency by 2034.

Ultimately, if one is approaching or is already of eligible age to apply for Social Security benefits, some questions he or she might wish to evaluate and answer for themselves in a short 20-minute pause, can include, after inputting the criteria for benefits calculation: 

• Am I worried that Social Security may go belly up, so should I try to get something now?
• Is my health and that of my spouse sufficiently good to afford waiting a few years for a higher monthly payout?
• Do our family finances require the funds ASAP? 
• Are there any medical or other family issues that can be greatly ameliorated with earlier benefits?
• Would receiving benefits now impact my tax bracket and retirement fund withdrawal schedule negatively?

Of course, every situation is different, and this article is meant to be read purely for informative use. A consultation should be sought with a retirement financial professional if a more comprehensive analysis is required. 

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