I recently had an opportunity to travel to Chicago to meet with a group of retired airline pilots. We had a great conversation on areas such as estate planning, investment planning and income tax planning given changes that occurred in January 2013. However, it was Social Security that garnered the most interest and questions for this group of retirees between the ages of 60 and 70. Specifically, the question at hand was, “When is the ideal time to start receiving social security retirement benefits?”
If you think that the IRS Code is complex, then Social Security claiming rules are a close second. Unfortunately there is a lot of confusion and misinformation. Moreover, the stakes are quite high. Perhaps at age 40 social security benefits are a distant thought, but for those aged 60+ the issue is quite ripe.
Deciding When to Claim
As with most financial planning decisions, general rules get you only so far. The key is to structure your decision, when to claim in this case, based on your individual goals and circumstances. The reason that most Americans choose to start social security retirement benefits as early as possible is because frankly they need the money now. However, for those with flexibility in timing, there are strategies that can be employed to maximize benefits, especially for married couples.
Social Security Simple Math
All kidding aside, if you know the day you will die then the decision is straightforward and is a “simple” math equation. Barring certainty on that “day” however, certain assumptions must be made. You see, social security benefits are designed to be actuarially fair or equal. Meaning, if you collect a reduced benefit starting early at age 62 you will have smaller payments lasting for a longer period of time, but if you elect to postpone receiving benefits you will collect a larger amount for a shorter period of time. If you live to normal life expectancy the math is the same.
There are a variety of software programs designed to assist in making the most-educated decision about the optimal time to claim social security retirement benefits. Please feel free to contact us if you would like assistance in making this important decision.
Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.
The information contained in this report does not purport to be a complete description of the subjects referred to in this material. Any information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.