Well, maybe I should just stop writing about the hundreds of various Social Security issues I’ve been dealing with for 40 years now and just focus this column on one thing only: maximizing your Social Security retirement benefits. The amount of email I get on the subject just boggles my mind. Three or four years ago, no one was talking about maximizing benefits. Today, easily 80 percent of the emails I get deal with this one topic alone. It seems as if everyone nearing retirement wants to squeeze every last nickel out of his or her Social Security account.
And almost every email I get on the subject includes variations on this theme: “Social Security is too confusing!” Here is a typical question: “Why did Congress have to make the process of signing up for Social Security retirement benefits so complex?”
To answer that, let me make this point. Signing up for Social Security retirement benefits is usually a piece of cake. It’s probably the simplest federal government program application process out there. For example, my wife and I each applied for our Social Security benefits at 62. We both did so online. The applications took maybe 15 minutes to fill out. Our claims were processed in about a week and our checks started flowing into our bank accounts the next month.
It’s when you try to squeeze those nickels by employing various maximizing strategies that things get complicated. And folks are coming up with some very bizarre plans to gain what they think is a financial advantage on the system — usually banking on the hope that they will live long enough to come out ahead in the Social Security game they are playing. Here are just some examples of the lengths people will go to beat the system.
Q: I took my Social Security when I turned 66 last December. I’m getting $2,400 per month. My husband is 64 and he took his smaller benefits at age 62. He’s getting about $1,000 monthly. I just learned at a Social Security maximizing seminar conducted by a local financial planner that I could have filed for wife’s benefits on my husband’s record at age 66, and delayed my benefits until 70 to get a bonus. Can I withdraw my original claim and turn around and apply for spousal benefits?
A: Well, yes you could, but do you really want to? Anyone has up to 12 months after filing an application for retirement benefits to change his or her mind. So because you filed your claim 11 months ago, you still have that option. But, you would have to repay all the benefits you’ve received so far.
After you withdraw your claim and repay your benefits, you can then turn around and file for wife’s benefits on your husband’s account. So you would get about $700 per month until you turn age 70. (You get 50 percent of your husband’s age 66 rate, even though he took reduced benefits at 62.) At age 70, you would stop your wife’s claim and refile for your own Social Security, at which point you would start getting about $3,100 per month, which includes the delayed retirement bonus you mentioned.
That may all sound like the gravy train to you. But I think you should slow the engine down and think about what you’d be giving up to make this “maximizing” strategy work. First of all, you’ll be writing Social Security a check for $26,400 to repay the retirement benefits you’ve already received. Second, between now and age 70, instead of getting $2,400 per month, you’ll get only $700. My calculator shows you’ll forfeit about $64,600 between now and age 70. That’s a total of $91,000 you’ll lose before your 70th birthday. And you’ll give up all of that just to get an extra $700 per month starting then. You’d have to live another 130 months, or almost 11 years, to beat the system. You may very well live past your 81st birthday, but I think you’d have ask yourself if you want to give up all that money now to come out ahead more than a decade in the future.
If you have a Social Security question, Tom Margenau has the answer. Contact him at thomas. firstname.lastname@example.org.