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Why it pays to delay Social Security until age 70

‘File and suspend’ tactic lets you delay benefits while spouse collects

The future of Social Security usually makes headlines for political debates, but financial planners are focused instead on how to make the system work for their client’s retirement plan.

Because Social Security is such a complex program, savvy retirees can take advantage of the rules and end up with tens of thousands of dollars more.

Jeff Bernfeld, financial adviser for Greenspring Wealth Management in Towson, said that the vast majority of people only consider whether they will take it when they are first eligible, generally 62, or when they reach their full retirement age, usually between 65-to-67 years old.

But he advises people to look at other options, such as waiting to claim benefits or using a tactic called “file and suspend.”

In most cases, delaying Social Security until age 70 will result in a much higher payout over a lifetime, he said. That is because the monthly benefit amount grows by about 8 percent for every year it is delayed beyond full retirement age, and many people are now living into their 80s, 90s or 100s and can take advantage of these higher benefits.

One major benefit to holding out to get the maximum Social Security benefit is that it helps with longevity planning — the monthly payout will continue no matter how long someone lives, unlike savings accounts that could run dry if a person lives longer than expected.

At Greenspring Wealth Management, advisers look at Social Security as one piece of the retirement puzzle and will consider spending needs, health condition, investments, taxes and goals for each stage of retirement. Although Bernfeld says he generally advises waiting to claim benefits, there are cases where that’s not the best move — such as when someone is in poor health or does not have the cash flow to meet their goals for the first stage of retirement, such as traveling, without taking benefits.

One tactic that allows people to delay but still receive some benefits is “file and suspend,” which allows a person to get the benefits of delaying benefits while his or her spouse collects spousal benefits from an earlier age, restricting the benefit payout to only spousal benefits. Then, the spouse would be eligible for his or her own retirement benefits at the higher rate at age 70.

Typically, a spousal benefit is 50 percent of the total benefit, and if the main benefit is suspended the spouse can still collect a spousal benefit. Doing so could allow the spouse to delay his or her own benefit as well as the other earner, allowing them both to get higher payout amounts.

In addition, married couples should also consider that the survivor’s benefit amount also goes up when benefits are delayed, he said.

He models scenarios of retiring at different ages or taking benefits at different ages.

Greg Smith, managing director and senior financial planner at The Wise Investor Group at Baird in Reston, Va., also stresses the importance of planning.

It used to be that if someone applied for benefits and realized it was a mistake, there was the option of a “do-over,” as long as the person returned the money. Now, you only have 12 months after applying to determine any mistakes, Smith said.

“You are no longer afforded that do-over, so again, plan ahead and plan carefully,” he said.

He also suggests using file and suspend and restricting to just spousal benefits for people who are not entirely reliant on Social Security, and said it is an especially good tool if both spouses are close in age.

“If you’re married then as long as you wait until your full retirement age (66 or 67), then the magic starts to happen,” he said. “All of the sudden you’re afforded a lot of choices — you can parlay off your spouse’s benefit, take half of theirs while yours grows.”

File and suspend also increases the lump sum payout amount if someone decides that they need a lump sum, by changing the date from which benefits are calculated.

There are also tax calculations that go into deciding when to take Social Security — up to 85 percent of benefits may be taxable, and Social Security may impact tax brackets. If someone has a lot of money in IRAs and is retiring before taking Social Security benefits, it makes way for Roth IRA conversions, he said.

Smith tells clients that the emphasis should be on planning ahead and that fear or emotion around Social Security shouldn’t override clear-headed judgments for retirement planning.

Jennine Ramsey LaCroix, partner at Strategic Wealth Management Group LLC in Columbia, has been providing financial planning advice for 22 years. She’s seen clients go from an initial plan all the way up until they collect Social Security.

“Planning in advance can really help make those decisions,” LaCroix said. “If you’re educated and have more knowledge, it’s a lot easier for folks. Plan early.”

Many people don’t realize they are eligible for benefits besides their own — even if someone has been divorced they may quality for spousal benefits.

The most common question she gets is: should clients include Social Security in their retirement planning projections?

“Any government benefit can unfortunately be taken away from us, but I think Social Security will be around, especially for my clients in their 40s, 50s and 60s,” she said.