Plan before claiming Social Security benefits
By Guest commentary Friday, May 10th, 2019
By Chia-Li Chien
Our thriving society causes us to feel entitled to certain levels of service and benefits. For example, after I became a regular Uber and Lyft passenger after my near-death car accident in 2014, I became spoiled by the convenience of using Uber or Lyft to travel to airports, events or business meetings around the world. Over time, as more people began to use Uber and Lyft, I noticed the level of service declined. I suppose that I feel that I am entitled to quality service such as a clean, less-than 5-year-old vehicle and a driver who assumes that I don’t want to chat the whole way, particularly since I am a close to five-star-rated passenger.
Feelings of entitlement enter into other decisions we make in life. California Lutheran University faculty member Mark Edwards recently presented two sessions about claiming Social Security during a Diversified Planning Solutions Mentoring Forum, a weekly webinar series that teaches young financial-planning professionals how to excel in the industry. He indicated that if you are married and love your spouse, you should consider claiming Social Security retirement benefits at a later age to maximize the benefits for the surviving spouse rather than act on age 62 entitlement.
An individual can claim Social Security retirement benefits between the ages of 62 and 70. I suppose many retirees feel entitled to claim Social Security retirement benefits as early as age 62, but claiming earlier than full retirement age will permanently reduce your benefits. In 2015, the Social Security Administration reported that the population claiming Social Security retirement benefits before reaching full retirement age was 54.1 percent male.
People often decide to claim Social Security retirement benefits based on potential loss instead of gain, according to “prospect theory,” which was developed by Daniel Kahneman and Amos Tversky and explained by Kahneman in his 2013 book, “Thinking, Fast and Slow.” Perhaps retirees are concerned about the U.S. government’s financial stability.
People may be in life circumstances such that they need to claim as early as age 62. Others may do it because they can, and are entitled to, claim early. But that entitlement does not mean that it is suitable if your loved one could benefit more from a delayed claim.
Let’s walk through the example of John, who retired in January 2017 and claimed at exactly age 62 with maximum-taxable earnings since age 22. John received the maximum initial monthly benefit of $2,153. If John claimed at age 65, the initial monthly benefit amount is $2,542. And if he claimed at age 70, he would receive a maximum initial monthly benefit of $3,538. So, he would receive 15.3 percent more if he waited until he was 65 and 39.2 percent more if he waited until age 70.
In the webinar, Edwards encouraged financial-planning professionals to consider the cost to the surviving spouse. Women live longer than men. John’s wife, Mary, never entered the workforce, so she received half of John’s benefits when she reached retirement age. If Mary outlives John, she will receive $2,153 when John dies because John claimed at age 62. If John had waited to claim until age 70, Mary would receive $3,538. That amount would have afforded a comfortable living standard for Mary.
I am entitled to a redo in rating my Uber and Lyft rides. But you don’t get a redo with Social Security retirement benefits. Once the benefits are claimed, it is permanent unless you suspend them or pay back the Social Security Trust Fund.
If you already work with a certified financial planner, chances are he or she has used commercial software like SS Analyzer, Social Security Timing or Maximize My Social Security to help you determine the most appropriate timing and amount. If not, get help early to show your love when it comes to Social Security claiming in order to take care of your spouse.
• Chia-Li Chien, who has a doctorate in financial and retirement planning, is the director of the financial planning program at California Lutheran University.