A Social Security Filing Strategy You May Want to Consider
Here at Lucia Capital Group, one of the ways we often help our clients is with their decisions about when they should begin filing for their Social Security retirement benefits. This is a decision that causes real concern among some people. When filing for benefits, you have a few choices:
- You can file before your Full Retirement Age (FRA), as early as age 62, for a reduced benefit
- File at your FRA for the ‘full’ benefit
- You can wait beyond your FRA all the way up until age 70 (at the latest) to allow your monthly benefit to increase by 8% per year
The longer you wait to start taking your benefits, the more you’ll get going forward. Speaking in general terms, if you think you’ll live a long time, then waiting is often the better choice. If not, you may want to take it earlier.
But sometimes, the decision involves more than just the raw numbers. Even if the case to delay taking your benefits is actually better, there’s a fear for some people that they won’t live long enough to enjoy that higher monthly benefit – thus magnifying the importance of what they believe is an “irrevocable” decision about when to start.
When to File for Benefits
But the truth is, deciding to delay taking your Social Security benefits is not a one-time, irrevocable decision. You may be able to change your mind. The first thing you should know is that you don’t have to automatically file at age 62: you can wait and file for retirement benefits at any time afterwards, all the way up until age 70. Even better, you have an option available to you once you’ve reached your full retirement age, when you’re allowed to apply for up to six months of retroactive benefits. This means you’d get a lump sum of accumulated payments, while also activating your monthly benefits going forward.
So let’s put this in context. Let’s say you’ve delayed filing for benefits until your FRA, and now you’re getting nervous about waiting longer because you don’t know how long you’re going to live. But at the same time, you’d love to have the luxury of a higher benefit going forward if you really do wind up living a long time. A real dilemma.
Well, what if you did this: when you hit your FRA, wait six more months. Then, if for whatever reason, you change your mind during that timeframe, you can file a retroactive application and get all of the benefits you would have received if you’d chosen to file in the first place, six months earlier. Of course, your benefit will be based on that earlier filing date as well.. On the other hand, if you’re still okay with waiting longer once the six-month timeframe is over, you can continue to delay filing for another six months, at which point you can reassess again. You then keep repeating this cycle until you either decide to file, or until you reach age 70, which is the maximum age for delayed benefit credits. This way, your formerly “irrevocable” decision becomes a series of reversible decisions for six months at a time.
This does two things: it gives you a more reasonable timeframe to foresee any potential future health issues or other factors that may cause you to change your mind, AND it allows you to “rewind the clock” to start your benefits from that earlier date if you decide that waiting is no longer a good option.
Risks and Tradeoffs
Please keep in mind, though, as with any Social Security filing strategy, it’s very important to be aware of the risks and tradeoffs of doing it this way. In some cases, for example, if you apply for retroactive benefits, receiving a six-month lump sum could result in a temporary spike in your taxable income, with potentially domino effects on your tax deductions, credits, and Medicare premiums. So be sure to talk with your financial advisor to see if this strategy is suitable for you.
Also, if you’re married, you need to consider both parties’ benefits and longevity, because your benefit may continue for a long time after you do or, if it’s the lower of the two, it may not last very long, even if you do.
Lots of things to consider here. But having the option available to claim benefits through six-month “reversible” decisions may actually give you some confidence to wait and allow your benefits to grow. And confidence is what financial planning is all about. We do this every day at Lucia Capital Group. How can we help you the most? Just give us a call!
The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.
Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy will be profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal. Accordingly, no client or prospective client should assume that the information presented serves as the receipt of, or a substitute for, personalized advice from LCG or from any other investment professional.
You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.
The information provided is based on current laws, which are subject to change at any time. Lucia Capital Group is not affiliated with or endorsed by the Social Security Administration or any government agency.
Social Security rules can be complex. For more information about Social Security benefits, visit the SSA website at www.ssa.gov, or call (800) 772-1213 to speak with an SSA representative.
Rick Plum is a registered representative with, and securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Lucia Capital Group, a separate entity from LPL Financial.