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Social Security Claiming

One of the most common planning items we help clients with is the social security claiming decision.  More often than not, we advise against the conventional wisdom of delaying the claim of social security retirement benefits.  While the early claiming of social security retirement benefits means that a retiree will give up on delayed retirement credits until age 70, there are several factors that may point toward claiming your benefit early. Consider the following:

Delaying the claim to social security often means a break-even age of 81 before you begin to reap the benefits of the delay with higher social security payments.  This means that most of the nominal increase in social security payments comes during the mid-80s or later.  Many retirees are willing to sacrifice some potential nominal dollars “later” for the certainty of fewer nominal dollars “sooner”.

Claiming social security earlier means that you’d be able to preserve, grow, and defer from income tax your own invested retirement funds.  If you die earlier than expected, your heirs get to keep your IRA or other investments; the social security administration will not pay your heirs your unclaimed social security benefit if you die sooner than you expected.

If you are fortunate enough to have relatively high income in retirement, this means your social security benefit will be subject to income tax.  We currently have a relatively low federal tax regime in place, which means you may be better off paying taxes now when compared to what future income tax rates could be.  Delaying social security could just mean giving back your increased benefit later in the form of federal income tax.

Consider finally the potential for government intervention with social security benefits at some point in the future.  Our government debt is enormous, and there are no end in sight to annual budget deficits and demographic problems with entitlement programs.  At a minimum, in my opinion, wealthier retirees may face some sort of means test with regard to social security retirement benefits at some point in the future.