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Social Security is a complex topic, there are multiple factors to consider when determining when to take social security. Most people are unique, their current income and historical earnings are not the same as their neighbor’s or friend’s situation. Their health situation is not identical either. Therefore, every scenario is unique and two separate people at the same exact age may benefit from very different claiming strategies for Social Security benefits.

First, let’s discuss some key points about Social Security.

Social Security requires 40 quarters or 10 years of working income to be eligible for full retirement benefits. The current formula for Social Security examines your highest 35 years of income. Therefore, years with no income as assigned a $0 input[i]. Thus, one strategy is to earn another year of income or more if your earnings history has any years in which no or minimal income was earned.

Your retirement benefit also known as Primary Insurance Amount or PIA. This is the amount of income available to you at Full Retirement Age or FRA which is based on your year of birth and is currently age 67 for individuals born in 1960 or later. Social Security income can be started as early as 62 but, in this case, would only be 70% of the PIA or a reduction of 30% from the full PIA. Payments can also be delayed to age 70 which would amount to a 24% increase in the PIA or 124% of the PIA. Therefore, the age at which you begin payments is extremely important and dictates your future payments. Note: By delaying payments even 1 year from claiming benefits at age 67 to age 68 provides an 8% increase in your PIA. This higher amount continues for all future years of your benefit.[ii]

Are you still working? There are rules around how much income a person can make while receiving Social Security payments if they have not reached FRA. These amounts may change annually and it is important to note that one’s payment may be reduced by $1 for every $2 earned above the income limit. In the year one attains FRA, there is no limit as to how much income one can earn.[iii]

Single or Married or Divorced? Single workers earn their own benefit and claim on their own earnings history which determines their PIA amount. However, spousal benefits exist for married couples and divorcees who were married to their partner for at least 10 years. This spousal benefit can be up to 50% of the current spouse or former spouse. In order to maximize the benefit to be the full 50%, the individual must be FRA at the time they claim their own Social Security benefit or at the time they claim as spousal benefit if they have never claimed a personal benefit. One area we have found to surprise some clients who had already started their benefit payments is that if one takes their own payment early at 62 and receives 70% of their PIA and later elects a spousal benefit, their future benefit payment is reduced permanently as well. Instead of receiving 50% or half of their spouse’s (or former spouse) benefit payment, they only receive 70% of the half, a key difference.[iv]

Taxes may be an important consideration. Social Security is taxable if one earns over $25,000 as an individual or $32,000 for married couples filing jointly. The initial level of taxation starts at 50% of the benefits are taxable as income but this level climbs to 85% of the benefits taxable if a single filer has income of $34,000 or married filing jointly filers have income over $44,000. This additional taxable income can increase your Part B & D Medicare premiums as well.[v]

Are you healthy? One’s life expectancy plays a role in determining when to take Social Security payments. If one has numerous health conditions that can impact their long-term health, they may benefit from taking Social Security earlier than a healthy individual with a family history of living longer. We can provide you, or you and your spouse with a customized analysis showing the point at which deferring payments to a later age surpass the total amount of payments taken as early as 62. While no one can predict the future, a breakeven analysis can be a helpful place to start in making an informed decision.

Do we both claim at the same time? Married couples may face decisions at very different times. One spouse may attain 62 or 67 much earlier than the other. Their incomes may vary or one of the spouse’s may have no income at all. They may also have very different earnings histories that vary both in amounts of incomes earned but also how many years of earnings are recorded. Therefore, it is impossible to give a standard recommendation as each situation requires a thorough examination of its unique details. However, one strategy frequently utilized is known as a Split Strategy. This strategy typically involves the lower earner claiming social security earlier and the higher earner delays their benefit longer, typically until age 70. The theory is that the higher earner’s increases to their future payment are larger than the lower earner’s increases. The lower earner can later claim a spousal benefit on the higher earner’s benefit once the higher earner starts collecting their benefit.

Other factors have unique rules regarding Social Security. Widows have special benefits, divorcees may be eligible to access the benefit of a former spouse, Government employees with a pension may face a reduction in the payments in what is termed a Government Pension Offset or GPO.

At Hoffman Private Wealth Group, we take the time to understand each client’s unique situation. We have a valuable FREE offer for you! We will provide a Complimentary Social Security & Breakeven Analysis for you, or you and your spouse. All we need from you is a few minutes of your time to answer a couple of questions and a current copy of your Social Security statement.

If you don’t have the statement, we will walk you through getting it online. After you receive this valuable report, if you are interested, we can prepare a full Holistic View of your Financial Picture designed to answer the questions; do you have enough to retire, how much income makes sense to take from your investments, and if you are on track to retire at your desired date, based on your retirement lifestyle goals. We are also happy to share with you our “Customized Financial Success System®”, our plan for Planning, Risk and Tax Mitigation and Asset Management for Growth and Growth and Income. There is NO OBLIGATION to proceed further after we send your Social Security Analysis.

Schedule your social security analysis today!

Todd M. Hoffman CFP^®, CPM^®

Founding Partner
Executive Managing Director
Senior Portfolio Management Director
Wealth Manager