Money matters | Social Security: small decisions, big results

Mark and Susan, both 65, came to my office to discuss retirement. “When should we start collecting Social Security?” Susan asked.

“And what choices do we have?” said Mark.

Mark and Susan reach full retirement age at 66. They could have claimed their benefits as early as age 62 but chose not to. However, a plurality of Americans do claim benefits at 62.

Were they right to wait? Should they claim benefits now at 65? Wait another year? Or wait until they reach 70 for maximum monthly benefits while delaying on the income until then? Several factors affect those decisions: health, taxes, savings, other sources of retirement income and remaining time in the workforce.

Fortunately, a great deal of information is available on Social Security plus strategies for timing benefits. The best: Spend some time on this website getting familiar with Social Security benefits and how they apply to your individual and family circumstances. Click on Retirement Estimator to access your own information.

Mark smiled. “It’s not that we’ll have to depend on Social Security,” he said. Indeed, he and Susan are fortunate. People with savings outside retirement accounts have the option to delay benefits as they did. Couples in which one or both partners will work past full retirement age also enjoy more options.

Two things: First, start your planning early. Second, make good, small decisions. For starters, consider that the longer you wait to claim Social Security retirement, the greater your monthly benefit. In fact, at age 70 your retirement benefit is up to 32 percent higher than at the full retirement age of 66. On the other hand, taking Social Security at age 62 permanently reduces your benefits by up to 25 percent.

• Health: Whether you claim benefits early or late, you’ll end up receiving the same total amount of money between ages 81 and 87. However, if you have no chronic health problems and a history of family longevity, your life expectancy may be longer than you think. How important will higher monthly benefits be in your 80s and beyond?

• Taxes: Social Security benefits are not necessarily tax-free. It depends on your taxable income. The tax rate ranges from 0 to 85 percent, so talk to your tax adviser. Also, municipal bond income is included in calculating taxable Social Security.

• Savings and other sources of retirement income: These can enable you to postpone beginning your benefits, taking higher monthly payouts later in life as a hedge against inflation. Start saving now for more choices later.

• Working in retirement: If one or both partners in a couple continue working after full retirement age (66 for Mark and Susan) and that income supports your lifestyle, you can delay taking benefits. Also, if you begin receiving Social Security benefits before full retirement, working could reduce your current benefits.

However, you can take advantage of two strategies that offer real flexibility when you’re faced with future uncertainties like health, inflation and rates of return.

First, you can claim and suspend: Claiming and then suspending your benefits at full retirement age (66) allows you to do two things. One is to trigger other benefits, such as a spousal or adult disabled-child benefit while your own benefits continue to build. Also, if for some reason you decide to take benefits before age 70, you can choose to make the benefits retroactive to the time of your claim-and-suspend application. This offers a hedge to both singles and couples should the future bring a surprise.

The spouse of a claim-and-suspend filer who has also reached full retirement age then files a restricted application for spousal benefits only. This spouse receives a 50 percent spousal benefit — half his/her spouse’s benefit. The couple can thus delay taking their full benefit until age 70 but get some income in the meantime.

It’s a lot to think about. But as Mark and Susan said, they found out a lot more about Social Security than they’d expected. They also realized they could get more from it than they expected.­

Ira Fateman is a certified financial planner at SAS in San Francisco who conducts free personal finance workshops for Hebrew Free Loan ( One on Social Security is Dec. 9. For a free pamphlet on Social Security, send an email to [email protected]

Ira Fateman

Ira Fateman is a certified financial planner at SAS Financial Advisors in San Francisco. He can be reached at (415) 277-5955 or [email protected].