Financial Planning: Social Security retirement benefits
By Dustin Obhas
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For many of you, Social Security is right around the corner. There are many questions surrounding this issue such as when can you start obtaining Social Security benefits, and some of the different ways to obtain benefits. I hope to outline a couple of strategies, as well as clarify when you are able to take your Social Security benefit.
Full retirement age (FRA)
Full retirement age is considered the age at which you are entitled to receive an unreduced Social Security benefit. The earliest you can take Social Security retirement benefits is 62. When taking benefits at age 62 or later (up to full retirement age) you are subject to a reduced benefit, typically around an 8 percent reduction each year before FRA. On the other hand, once you delay receiving your benefits past FRA, then there is around an 8 percent increase each year that you delay benefits up to age 70.
File and suspend: This is a strategy that could help you gain a larger lifetime payout from Social Security benefits. How it works is one spouse is able to file for Social Security benefits at FRA, but suspends receiving payments until later in the future. This enables the other spouse to file for a restricted application which allows one to take a spousal benefit of half of what they’re expected to receive at FRA.
For example, Bill and Jane are married and both age 66 (assume their full retirement age). Bill’s benefit at FRA benefit is $3,000 a month, and Jane’s is $1,300. If Bill and Jane were to use the “file and suspend” strategy, Bill would still delay receiving his benefit sometime after FRA, but Jane would be allowed to receive the spousal benefit, which in this case would be $1,500. Using this method, Jane is delaying her own benefit, which will increase until she decides to take it. If Jane were to wait until age 70 to take her benefit, she could potentially see her benefit grow to around $1,700 per month (assuming an 8 percent increase each year).
Divorced spousal benefit
If you are divorced, there is a way for you to receive a spousal benefit from an ex-spouse. In order to be eligible for this, you would need to meet the following requirements:
- Age 62 years or older
- Benefits you are expected to earn are lower than the expected benefits of your ex-spouse
The benefit is one half of your ex-spouse’s full retirement amount if you start taking benefits at your full retirement age. With this option, you are able to delay receiving your own benefit, thereby increasing the amount you’ll receive in the future, similar to the file and suspend option.
These are just a couple of ways to potentially further your social security benefits. When figuring out when the best time to take social security, a lot of it depends on your health, financial circumstance, longevity outlook and more. Talk to your tax adviser or a certified financial planner to find out what’s best for you.
Dustin Obhas is a certified financial planner with CLA Financial Advisors, LLC located in Chicago and Los Angeles. Dustin graduated from Western Michigan University with a bachelor’s degree in business administration, with a concentration in finance.