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When to Apply for Social Security Benefits

With the demise of guaranteed pensions, and in light of the risks you face in managing your own retirement assets, maximizing Social Security becomes a critical part of retirement planning.

One of the most important decisions a retiree faces is when to apply for Social Security benefits. This is not a decision to be made lightly; the guaranteed, lifetime, inflation-adjusted income promised by Social Security makes it one of a retirees most significant assets. If you were to calculate the present value of a persons Social Security income stream, it would rival the lump sum many people have in their 401(k) plans at retirement. While the Social Security asset may not be managed in the traditional way, pre-retirees can enhance its value by building a strong earnings record and applying for benefits at the optimal time.

The basic choices for applying for Social Security are these:

 Apply at age 62 and receive a reduced benefit for life
 Apply at full retirement age and receive full benefits for life
 Apply at age 70 and receive an additional credit for life

You may apply for Social Security anytime between the ages of 62 and 70, but we often use these ages to show the minimum and maximum amounts.  Full retirement age is now 66, for anyone born between 1943 and 1954. When full retirement age was 65, the penalty for taking early benefits was lower than it is now. Likewise, the credit for delaying benefits was lower than it is now. These adjustments, combined with longer life expectancies, are making it more advantageous for todays retirees to delay benefits to age 70.

For example, heres what a 60-year-old person with $100,000 in earnings would receive under the following scenarios:

In todays dollars
In future inflation-
adjusted dollars
Apply at age 62
Apply at age 66
Apply at age 70

Source:  Quick Calculator at
The traditional way of deciding when to take benefits has been to calculate the break-even age. This is the age the retiree must live beyond in order for delayed benefits to provide a higher lifetime income. Here are the break-even ages for todays 60-year-old, considering benefits in inflation- adjusted dollars:

Retirement ages considered
Break-even age
62 vs. 66
62 vs. 70
66 vs. 70

Source: Horsesmouth Simple Breakeven Calculator

However,  it seems the break-even method  of determining the onset of Social Security benefits leaves out several factors that can influence the age at which benefits should begin. A groundbreaking paper titled Rethinking Social Security Claiming in a 401(k) World” makes the point that todays retirees face major risks in managing their accumulated retirement funds which generally end up in an IRA rollover account. These include investment risk, longevity risk, inflation risk, and the financial risk caused by the death of a spouse. Authors James I. Mahaney  and Peter C. Carlson argue that Social Security benefits will become increasingly valuable due to their longevity protection, inflation protection, and survivor protection. In light of the risks retirees face in managing their own retirement assets, it behooves them to maximize Social Security benefits to the extent  possible.

Spousal and survivor benefits

When the combined benefits for a married couple are taken into consideration, the analysis becomes much more complex. You must take into account  each spouses age, their combined life expectancies, the benefit based on each spouses own earnings  record  as well as the spousal benefit, and the amount  the surviving spouse would receive after the spouse dies.

Under the Senior Citizens’ Freedom to Work Act of 2000, a primary  worker  can file and suspend”  his own benefits upon reaching  full retirement age in order to initiate spousal benefits while continuing to build delayed retirement credits  for his primary benefit. Many people do not understand this rule, but it can provide the optimal solution for married couples where the spousal benefit (one-half  of the primary  workers benefit) is higher than the benefit based on the lower-earning spouses own earnings record  and where the lower-earning spouse is younger than the primary  working spouse. Of great significance is the survivor income protection this strategy provides: If the primary  worker  dies first, the spousal benefit will drop off and the spouse will begin receiving the primary  workers benefit, made higher due to the delay in the onset of benefits.

The authors conclude  by saying that the additional benefits of survivor protection, inflation adjustments, low expenses, and customization options available, delaying Social Security (for at least one member  of a retiring couple) and taking income from personal retirement savings during the bridge period becomes a very efficient strategy of providing retirement income.

It is common sense, however, to always consider health status and other individual  circumstances when deciding when to apply for Social Security benefits.

White House Financial & Settlement Consulting helps families live easier and less stressful lives through the proper management of their financial resources.  We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs!  Please visit our web site at for more information!

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