As you approach your retirement years, you may think you understand everything about how Social Security works. But the timing of getting that first check can be tricky, especially if you've experienced a spousal death or divorce.
In general, you may start withdrawing your guaranteed payments starting at age 62; however, for each year those withdrawals are postponed through age 70, you will receive an additional 8 percent or so based on inflation. Unmarried widows, widowers and divorcees may receive the greater of their own benefits or half of their late or former spouse’s benefits, but either way the amount received will be reduced according to when withdrawals start.
That means the strategy you choose could make a big difference in your income throughout your golden years. As of May, 59.3 million Americans were receiving Social Security benefits, but only 45 million were 65 or older. And a survey this year found a full 74 percent of American women were taking such benefits before age 70.
“For many people, when to claim Social Security is one of the most significant choices they will ever make,” notes Stan Hinden on AARP.com. “The timing of the first check affects how much they'll get from Social Security and what benefits will be available for spouses, children and eventually survivors.”
Some key considerations when deciding when to initiate your withdrawals:
- Your planned retirement date. If you stop working before claiming Social Security, you obviously must have enough savings to support yourself until you accept your claims. That savings may have to cover your healthcare needs, as Medicare does not kick in until you reach age 65.
- Your spouse’s timing. If your spouse earns considerably more than you do, you may jointly decide to claim his or her earnings early to cover your living expenses as a couple during your retirement, delaying your own payments until you can receive the maximum amount.
- Your health and your spouse’s health. The truth is that if you have a short time left on earth you have two choices: Accept your benefits early to spend as you wish or defer them so your spouse and/or children will have more money after you die. Conversely, those expecting to live well into old age may want to defer benefits to avoid the risk of outliving your financial resources. On average, American men turning 65 this year can expect to live to age 84.3, women to age 86.6, according to the Social Security Administration.
One other piece of advice: Don't start taking Social Security benefits early under the mistaken belief that the program is growing broke and you’ll miss out if you don’t act quickly.
“While it's true Social Security is facing some fiscal challenges that, if left unaddressed, could result in an overall reduction in benefits down the line, the program is by no means running out of money,” confirms Maurie Backman on Fool.com. “The earliest recipients [who] will start to feel an impact, if that even happens, isn't for another 16 or so years. This means Congress has more than a decade and a half to come up with a solution to fix the program's eventual shortfall.”
Your financial future shouldn’t be left to chance. The experts at Harbor West can help you make the best possible use of your financial assets as you approach your retirement years.
Have you thought about how your plans may be affected following your divorce?
Here’s the gist: If you were married for at least 10 years and didn’t remarry before age 60 — and your ex has generated much more income than you over his or her lifetime — you may come out ahead financially by claiming his or her spousal benefits instead of your own. Regardless of when you divorced, the system dictates that your Social Security payments be based on the larger amount — the benefits you earned yourself, or half of your former spouse’s benefits. That's true even if your ex remarries.
If you’ve remarried since your split, you’re no longer eligible for Social Security benefits related to your former spouse; instead, your spousal benefits will fall under your new spouse after you’ve been married one year.
A few other facts you should know:
- Your receipt of spousal benefits will affect neither the amount nor timing of your ex’s benefits.
- If your ex qualifies for Social Security but has yet to claim benefits, your divorce must have been in effect at least two years for you to claim spousal benefits. But you need not wait for your spouse to claim benefits first.
- To apply for spousal benefits, you’ll need your ex’s birth date, age and Social Security number as well as your marriage certificate and final divorce decree.
- Your payments will be based on your former spouse’s average indexed monthly earnings based on his or her highest-earning years (over up to 35 years).
- Spousal benefits also apply to you if your former spouse dies; in fact, you could receive 100 percent of his or her benefits if you wait until your full retirement age to collect. If you remarry after age 60, you keep those benefits.
- Depending on your income threshold, your spousal Social Security benefits may be taxable.
- When deciding when to start receiving benefits, the amount for which you’re eligible will be reduced by about 8 percent annually each year you accept benefits prior to age 70. Still, the majority of Americans start their benefits at age 62.
- If you stop working before claiming Social Security, you obviously need enough savings to support yourself in the interim. That savings may have to cover healthcare needs, as Medicare does not kick in until age 65.
- Contrary to popular belief, the Social Security system is not about to run out of money. While its current trajectory points to some financial shortfalls circa 2034, financial analysts are working now to address those challenges.
Ask the experts at Harbor West about how to make the best possible use of your financial assets as you approach your retirement years.
This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances.