YOUR FINANCIAL FUTURE / Should I Defer My Social Security Benefits?

With 10,000 persons retiring a day in the USA, there is a lot of interest in the best timing strategy to begin to collect Social Security benefits. Yes, baby boomers are moving on to the next stage in their lives.

Are you aware that a couple with high wage earnings could receive $84,000 a year in Social Security benefits if they deferred collecting until age 70? To receive the same income, they would need a personal portfolio of approximately $2 million to accommodate withdrawals of 4% a year without dipping into their principal. Social Security payments are guaranteed by our government, are indexed to inflation and receive some federal and state tax benefits. What a deal!

You may have heard that for those at full retirement age, which is age 66 for individuals born between 1943 and 1954, the benefit increases by 8% a year until age 70. That sure beats the 0.2% one is earning in their bank account today. Their Social Security benefit will be a whopping 32% larger when they start collecting their benefit and that amount will be indexed to inflation going forward.

A decision to delay collecting Social Security is a trade-off; you give up benefits at an earlier age to collect a higher benefit in the future. There is a break-even period where you earn more than you gave up which has to be adjusted for inflation and the time value of money.

There are many factors into making a decision whether to delay benefits; it is more complicated for couples. First, the delayed retirement credits increase a person’s own retirement benefit as well as a potential survivor benefit. The breakeven can be attained as long as either person remains alive long enough! Delaying benefits becomes even more attractive as the odds of a least one person remaining alive is higher than the single life expectancy of either person.

Second, one needs to be aware that the delaying tactic isn’t relevant if the surviving spouse has a larger benefit of their own. “In fact, a higher-earning spouse means it is less valuable to delay at all, as the other’s person’s survivor benefit may overwrite the delayed benefit altogether and thus the couple losses if either member of the couple passes away too soon!” **

Finally, it is usually best for the highest earning spouse to delay their benefit as long as possible as it benefits them as long as either person is alive. Start the lower earning spouse’s benefit as early as possible.

When I am working with clients we first review their assets, cash flow needs, insurance coverage and the like to determine if they can afford to delay their benefits. One of the most important questions I then ask has to do with their health status. The other has to do with longevity in their families. Face it, we don’t know how long we will live, but if a client can afford to wait, their health is good and they have longevity in their family history, then considering delaying Social Security benefits makes good sense.

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples

**Michael Kitces Blog, July 8, 2015 “Joint Social Security Breakeven Periods and Why it Rarely

Pays For Both Spouses to Delay Benefits”

The sheer number of us is having an impact on the program.

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