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Here's How to get the most out of Social Security

Updated: Jan 16, 2020

In this classic Sesame Street skit, Bert’s favorite program, The Wonderful World of Pigeons, has been replaced by a large capital “H” which flashes off and on the screen repeatedly accompanied by a monotone drone “H, H, H…” As Bert complains bitterly about this to the audience, Ernie walks up and offers to fix the problem. After instructing Bert to unplug the set, Ernie reaches through the TV screen and pulls out a hat, a hammer, a house, a hamburger and a hamster which, all being “good ‘H’ words”, prove to be responsible for the interruption. Ernie assumes the set is fixed, but when they switch it back on, it begins droning “I, I, I…” with the accompanying capital letter flashing. Inexplicably, Bert is content to watch this, so we don’t see the next fix-up. But even as four-year-olds, we were pretty certain the TV must now contain an ice-cream cone, an igloo, iceberg lettuce, and an iguana. Within the set’s universe, what was inside determined what one saw on the screen.

But for any of the calculators to be useful, you have to know for which variables each calculator will permit user input and whether a particular calculator is missing some variables that you would like to test. Perhaps “H” and “I” were factory presets and Ernie and Bert would not be able to dump a top, a tack and a tea bag in and get “T” or a key, a kite and a kitten to get “K.” And perhaps there was no mechanism at all to make the set produce numbers, rather than letters. Then, once you know which variables you can vary within a Social Security calculator, you also have to understand how each input can impact the output and make sure each input you use is aligned with your economic and financial world-view.

For example, some very simplistic articles such as this one: ( imply that a person’s best claiming strategy is to wait until age 70 because, although a person can claim as early as 62, the monthly benefit amount is reduced for each month under one’s full retirement age (“FRA”, generally between age 66 and 67 for people who have not yet filed). Then, one can accumulate delayed retirement credits for each additional year that one waits between FRA and age 70. If, the wisdom goes, you expect to live beyond your mid-80’s, it is better to start later but have that higher benefit. But this recommendation fails to take into account the time value of money, a basic financial concept that says $1 today is worth more than $1 a year from now and quite a bit more than $1 eight, ten or thirty years from now. This is because money received early can be invested and generate returns. Well, you might say, I’m going to use my Social Security to cover expense, not invest it. Sure, but money is fungible. If you can use your Social Security sooner to cover living expenses, then more of your IRA money can stay invested. Another reason money today is worth more than money tomorrow is that the purchasing power money decreases over time due to inflation.

So just because you expect to live beyond your actuarially predicted lifespan, it does not mean that delayed filing is the correct strategy. Part of the answer depends on your expectations for both investment returns and inflation. The more bullish you are on the former and the more bearish you are on the latter, the more valuable it is to have your money earlier, rather than later. If the calculator you are using allows you to alter the inflation rate, the rate of return you expect your investments can generate and the cost of living adjustment you expect to be applied to your benefits, the output that calculator provides will be much more useful in helping you compare strategies.

Retirement dates and Social Security filing dates are two separate things. You might decide to stop working for a paycheck at age 62 but not file until your age 70. Conversely, you might plan to work until 67, but might wonder about dialing back your work a bit to ease stress, while picking up Social Security to provide additional income. There are rules around collecting Social Security while working. For 2020, if you earn more than $18,240 while collecting a retirement benefit, you Social Security will be reduced $1 for every $2 you earn above that threshold. Note that this is a temporary deduction, and you will get the money back when you stop working or reach your full retirement age. Once you reach that point, you can work and earn as much as you like and still receive your full benefit. So, if you plan to work beyond 62, there may be no point to filing before you stop working, or at least before your FRA.

When you, as the number holder, file for your retirement benefits, certain “auxiliaries” such as your spouse, your minor children, and your adult children with disabilities can also file for benefits, based from your work record. This can also change the calculation. If you are only considering your own benefit, the larger benefit you receive from filing later may offset the earlier years before you file, in which you have received no benefit. But if your delay also delays the start of one or more auxiliary benefits, you may find that waiting is less profitable to starting earlier. And there are nuances to these calculations. For example, if an auxiliary person (spouse, minor child or adult child with a disability) is already receiving a benefit, based on her/his own work record, then the additional amount that they would receive (by claiming on your work record) might not be so large as to suggest you should claim earlier. For example, suppose my FRA benefit is $2,800/month. My adult child with a disability would be eligible for a benefit of $1,400, based on my work record. But suppose s/he already receives a benefit of $700, based on her own work record. Then the additional amount she would get from my filing would be not $1,400, but only $700. In this case, the value to our family of me claiming earlier is diminished.

In other words, you cannot evaluate a Social Security claiming strategy without considering your family’s whole financial picture as context. Perhaps Bert was content to watch “I” because the Wonderful World of Pigeons was already over (those were the days before “on-demand”) or perhaps he did not want a chunk of dripping ice, pulled from the set, to mess up his living room. Back in our world, though, “Headache,” is a good “H” word that accurately describes the challenges of sorting through Social Security scenarios and calculations for your family, particularly if you have a non-traditional situation, such as an adult child with a disability, who is eligible for both her/his own benefits and benefits on your work record. As an experienced special-needs planner, “I” can accompany you through the process to determine the claiming strategy most suitable for your family’s unique situation.

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