The SIENA INVESTOR
A QUARTERLY PUBLICATION OF SIENA WEALTH ADVISORS
Delaying
Social Security
Benefits
Overview: It can be tempting to begin taking Social Security
benefits the moment you are eligible. The following discusses
some reasons why you may want to delay taking your benefits.
You’re ready to retire and have paid a lot into the Social Security
system. But now that you’re finally eligible for benefits, you
might be hearing your advisor and other experts say, “Not yet!”
Why should you have to wait any longer?
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Reductions and Credits
First of all, if you apply prior to your full retirement age (FRA),
you will receive a reduction in your benefits. For example, if
your FRA is 66 and your full benefit is $1,000 a month, then
you will receive $1,000 month if you claim at 66. However, if
you claim at age 62, that benefit is reduced by 25 percent to $750
per month.
On the other hand, you will receive delayed retirement credits
for every year you delay taking benefits after your FRA. For
individuals with an FRA of 66, this means an 8 percent increase
each year. So by delaying to age 70 (or the age at which you
would receive the maximum benefit), you would receive a 32
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siena wealth advisors quarterly newsletter
Q22015
“If the security of
receiving benefits
now helps you
to sleep better at
night, then that
may be the right
decision for you.”
Continued from page 1
percent increase over your full benefit. Using the example above,
you would now be entitled to $1,320 per month ($1,000 x 132
percent) for the rest of your life.
Finally, claiming early doesn’t give you any additional benefit,
provided you have an average life expectancy. Regardless of
your claiming age, your benefits are calculated so you’ll receive
the same total benefit as long as you live to your average life
expectancy. So if there is any chance you might live longer than
average, delaying benefits is like buying longevity insurance —
something to protect you from outliving your assets.
It’s Not Just About You
If you take $1,320 at age 70 instead of $750 at age 62, you’ll have
to live to age 80 to make that decision worthwhile. So maybe you
don’t think you’ll live that long and choose to claim early. But
if you’re married and claim early, you could be reducing your
spouse’s benefit as well.
That’s because if your benefit is higher, your spouse receives your
benefit in the form of a survivor’s benefit should he or she outlive
you. For example, if your spouse outlives you by five years, the
survivor benefit would be $45,000 (if you claimed at 62) versus
$79,200 (if you claimed at 70), which is equal to a 76 percent
increase.
The Investment Game
You may be considering drawing benefits early and investing the
money so that the gains would offset the benefits of delaying.
But remember, for each year you delay past FRA, you earn eight
percent per year. That benefit is not only guaranteed but also
indexed to inflation. It is unlikely you would be able to find a
similar investment vehicle without taking on additional risk.
The Costs of Delaying
For each year you delay, there is a “cost” equal to the amount of
the forgone benefit. If you are age 66 and you delay filing for just
one year, you’ve given up $12,000 ($1,000 monthly benefit x 12
months) for a $12,960 annual benefit at age 67. Is that additional
$960 per year for the rest of your life (and possibly your spouse’s)
worth $12,000?
To approximate the cost, you could buy an immediate annuity at
age 67 that will give you $960 per year for the rest of your life, is
indexed to inflation and has a 100 percent survivor’s death benefit.
However, such an annuity costs more than $21,000, not $12,000.
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PA G E T W O
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siena wealth advisors quarterly newsletter
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And while the Social Security benefit is guaranteed by the U.S. government, your annuity relies on
the credit quality of the insurance company.
Summary
When considering when to start taking your Social Security benefits, your decision should best fit
your situation. If the security of receiving benefits now helps you to sleep better at night, then that
may be the right decision for you. This is especially true if you have no other sources of income and
can’t afford to delay Social Security benefits.
However, if you can afford to delay claiming, carefully consider the benefits of delaying and the costs
of claiming early. Make sure that you plan not only for your lifetime but your spouse’s as well. And
most importantly, try not to focus on what happens by delaying filing and dying early. Instead, focus
on the possibility that you and your spouse might live a long time and ensure that you have the right
strategy in place.
Double Dipping
Overview: Investors who are eligible for multiple types of Social Security benefits may be better off
claiming one type of benefit, then claiming another type of benefit a few years later. The following
discusses this strategy, known as “double dipping.”
The Social Security Administration offers three
types of benefits for retirees and their spouses:
• Retirement Worker Benefit — Basic
benefit determined by work history
• Spousal Benefit — Benefit (up to 50
percent if spouse has reached full
retirement age [FRA]) provided to retirees’
spouses once they have claimed their own
benefit
• Survivor Benefit — Benefit provided to
surviving spouses
Benefits are determined by birth year, retirement
age and lifetime earnings. Once workers reach
FRA, they are eligible for full retired-worker
benefit, also known as the primary insurance
amount. Currently, the FRA is from age 65 to age
67 depending on year of birth.
Workers who claim benefits prior to reaching
FRA will receive a reduced benefit of up to
25 percent of the primary insurance amount.
Delaying a claim until age 70 results in a larger
benefit of up to 32 percent more than the
primary insurance amount due to cost-of-living
adjustments and delayed retirement credits.
Regarding Social Security benefits for nongovernment workers, “double dipping” refers
to qualifying individuals’ ability to elect both
a spousal and worker benefit at different points
during retirement. If individuals qualify for both
benefits at the time of filing, the Social Security
office will assume that these individuals are filing
for both benefits simultaneously. In these cases,
they will only receive the higher of the two. To
prevent this, individuals should clearly state on
the application which benefits are being claimed.
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While individuals can take the retirement worker benefit anytime after age 62, the spousal benefit
can only be taken after the spouse files for benefits. Also, individuals must file for their spousal
benefits at FRA to take their own retirement worker benefit at a later date and double dip.
Deciding which benefits to claim first primarily depends on the actual amount of each benefit. The
amounts depend on how much individuals and their spouses worked and the ages at which they
claim benefits. If a spouse’s own retirement worker benefit is higher than the spousal benefit, filing
for spousal benefits at FRA and a delayed retirement worker benefit at 70 can optimize lifetime
benefits.
For example, John is age 66, and Mary is age 62 and their monthly Social Security benefits are:
62
FRA
70
John’s Retirement Worker Benefit
$1,600
2,000
2,640
Mary’s Retirement Worker Benefit
$880
$1,100
$1,425
Mary’s Spousal Benefit
$700
$1,000
N/A
Filing for a spousal benefit would entitle Mary to a benefit of $1,000 at FRA. Upon reaching age 70,
Mary could then file for her own retirement worker benefit, which would increase to $1,452.
Summary
Double dipping is available to either spouse and was authorized by the Senior Citizens’ Freedom to
Work Act of 2000 with the goal of encouraging seniors to work longer. One way to determine the best
strategy is to meet with a financial advisor to discuss the different filing options available. Note that
while this strategy is allowed by the Social Security Administration, not all officers are familiar with
the ability to claim just one benefit at a time. The default is to automatically sign up for all eligible
benefits at the time of filing.
Copyright © 2015, This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based
thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting
or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced thirdparty sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes
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