Professional baseball players have a special ability for making difficult plays look easy and easy plays appear difficult. Their talent is one of many things I appreciate about baseball, including the arrival of spring! Likewise, the world of finance is full of things that appear easy. But overlook something simple and your retirement plan can be caught off-base. Social Security is one such area.
Baseball metaphors aside, most of this column’s readers know that Full Retirement Age (FRA) is between 66 and 67. Most readers know they can begin taking Social Security benefits at age 62, but will “forfeit” 6% for every year they take Social Security before FRA. Some people even know they gain 8% for every year they delay their FRA, up to age 70.
A well-informed reader will realize that the “file and suspend” opportunity no longer exists for persons born after January 1, 1954. However, there is one big exception. Surviving spouses and eligible surviving ex-spouses can still make separate claiming decisions for their retirement and survivor benefits, regardless of when they were born.
The financial planning community is aware of these opportunities and can help clients consider options. That doesn’t mean that every planner realizes the topic needs addressed. Families without planners almost certainly don’t know about the various options that should be discussed.
The Inspector General for the Social Security Administration has discovered that most beneficiaries are missing out. Writing at www.InvestmentNews.com, Mary Beth Franklin noted, “Based on a random sample, the inspector general found that 82% of current beneficiaries who are dually entitled to survivor benefits and their own retirement benefits would have received a higher monthly benefit amount if SSA had informed them of the option to delay their retirement application until age 70.” In one example, the financial difference over a recipient’s lifetime showed a 20% reduction in benefits paid compared to what was owed!
The Inspector General said the Social Security Administration (SSA) needs to do a much better job informing individuals of their benefits. Perhaps that is true. But, I put this viewpoint under the same challenge as taxes. There are two tax codes in the U.S. Most people believe one tax code applies to the rich and another applies to the poor. They are wrong. There is one tax code for the informed and one code for the uninformed. Each week, we see individuals with million-dollar investment accounts and huge tax planning (not reporting) mistakes. Apparently, Social Security is no different.
If you or a parent has lost a spouse and is taking Social Security, you should consider reviewing your options. Information is available at www.yourlifeafterwork.com/SOS to help you assess and evaluate the situation.
When partners talk to us about their plans for taking Social Security, they rarely consider what will occur when something happens to one of them. While you, shouldn’t spend your days worrying about the inevitable, you should consider hiring someone who does.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.