Getting the most from Social Security benefits

The first rule: If possible, don't file before 66

Mar 5, 2014 @ 10:51 am

By Carl O'Donnell

Social Security, retirement, longevity
+ Zoom

For tens of millions of baby boomers, Social Security will be a key pillar of retirement income, but not all approaches to retirement benefits are created equal.

Retirees who use benefits strategically can enjoy a lifelong improvement in quality of life, InvestmentNews contributing editor Mary Beth Franklin said during a webcast Tuesday.

(Find an archived version of the webcast, including slides, here.)

The rules surrounding Social Security are complex, but a few core principals stand out, Ms. Franklin said. The first is that, in most cases, retirees should avoid drawing down Social Security early, if at all possible.

“You can claim benefits as early as 62,” she said. “But the benefits will be permanently reduced by 25% or more for the rest of your life.”

At the very least, retirees should put off receiving benefits until 66, which Ms. Franklin dubs the magic age. Not only do 66-year-olds enjoy full benefits, but this age also opens up a number of strategies that can be hugely beneficial, she said.

Watch Mary Beth Franklin's latest video: Why this tax season could bring some nasty surprises

The strategy that was at the heart of Tuesday's webcast is known as “file and suspend.” This simple trick involves filing for Social Security at 66 but then suspending receipt of payments until up to 70.

Why do this? For every year a retiree delays Social Security payments beyond 66, he or she is entitled to an 8% lifetime boost in payments — potentially adding up to tens of thousands of dollars.

“In today's low interest rate environment, try to find another risk-free investment offering 8% per year,” Ms. Franklin said.

This benefit can be enjoyed without the “file and suspend” approach: a retiree could simply not file until 70. However, if something were to happen requiring a large amount of money, those who filed and suspended at 66 can claim retroactive payments for all of the years that they put off receiving benefits, Ms. Franklin said.

“This is really valuable for singles who, say, receive a bad medical diagnoses and for whom longevity is therefore no longer a concern,” Ms. Franklin said. “You would get a lump sum payment and then continue to receive regular payments as if you had filed at 66.”

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