Social Security Planning

Social Security income is often a substantial part of a retiree’s income. When deciding when and how to claim benefits, there are many consequential choices to be made and data to be gathered:
• Age of retiree when social security is claimed
• Age and claiming status of spouse
• Earned income during retirement
• How long the claimant worked, and amount earned during working years
• Earnings that were not subject to social security taxes
• Any government pension benefit
Benefits can be claimed starting at age 62. Claiming benefits earlier results in lower payments, and these differences can be significant. The maximum benefits are paid out starting at age 70, and can be more than 75% higher than the benefit received starting at age 62. Waiting to get the maximum dollar benefit per month, however, often does not result in the maximum amount of benefits received over a full retirement. Various claiming strategies are compared using the break-even age. This is the age at which total payments of any two strategies converge. Note that not all calculators include time value of money in the calculations.
The rules governing benefits are so complex that the Social Security Administration website includes a dozen different benefits calculators (https://www.ssa.gov/benefits/calculators/). These calculators are helpful but do not provide all the information needed to make these difficult filing decisions, and neither the SSA website nor SSA employees will provide any recommendations as to best strategies for an individual. SSA does provide links to other benefits calculators that are more comprehensive than their own (https://www.ssa.gov/policy/docs/rsnotes/rsn2016-03.html – this is 5 years old and not all the tools are still available). Internet searches result in additional tools. Using a combination of tools will result in a range of likely benefits amounts that the financial professional can use for planning purposes.
Situations that are in any way complicated should be evaluated by a consultant or specialized software package. Many planning software packages include social security calculators within the package, but these vary greatly in terms of extensiveness. Be sure you understand the underlying considerations and calculations in the software you are using.
When making a recommendation for claiming age(s), total benefits received is not the only consideration. If a person wants to retire at 62, but the benefits-maximizing age for them to claim benefits is 67, then they will need to fund the intervening years in some other way. As the break-even age of various strategies increases, expected longevity becomes more of a factor. Comprehensive planning software should factor in these important considerations. Social security planning is best not left to rules of thumb or assumptions, but is a multi-step process for the financial professional.