New York Estate Planning & Elder Law

Key Dates for Planning Retirement / New York, NY & Greenwich, CT

“Each type of retirement benefit has a different eligibility age. Your age plays a big role in how much you can expect to receive from Social Security and what you need to do to avoid retirement account penalties.”

Just as there are many types of retirement benefits, there are many dates to keep in mind when creating a retirement plan. Some concern when you can make larger contributions to retirement accounts and others have to do with withdrawals. Knowing the dates for each matters to your retirement planning, according to the recent article title “10 Important Ages for Retirement Planning” from U.S. News & World Report.

When should you max out retirement savings contributions? The sooner you start saving for retirement, the more likely you’ll retire with robust tax-deferred accounts. Tax breaks and employer matches add up, as do compounding interest returns. The 401(k) contribution limit in 2021 is $19,500. Wage earners can deposit up to $6,000 in a traditional IRA or Roth IRA. If you’re in your peak earning years, traditional IRAs and 401(k)s may be better, since your tax bracket is likely to be higher at retirement than when you started out.

Catch-up contributions begin at age 50. Once you’ve turned 50, you can make catch up contributions to 401(k)s—up to $6,500—and up to $7,000 in traditional IRAs. That’s for 2021. If you’re able to take advantage of these contributions, you can put away additional money and qualify for even bigger tax deductions.

401(k) withdrawals could start at 55. If you left your job in the same year you hit the double nickel, you can take 401(k) withdrawals penalty-free from the account associated with your most recent job. The “Rule of 55” lets you avoid a 10% early penalty, but you’ll still have to pay income taxes on any withdrawals from a 401(k) account. However, if you roll a 401(k) account balance into an IRA, you’ll need to wait until age 59½ to take IRA withdrawals without any penalties.

When does the IRA retirement age begin? The magic number is 59½. However, traditional IRA distributions are not required until age 72. All traditional IRA withdrawals are also taxable.

Social Security eligibility begins at age 62. The earlier you start collecting Social Security, the smaller your monthly benefit. Your full retirement age depends upon your date of birth, at which point the benefit amount will be higher than at age 62. If you work after signing up for Social Security, your benefits could be temporarily withheld if your salary is higher than the annual earnings limit. If you retire before your full retirement age and earn more than $18,960 per year, for every $2 above this amount, your benefits will be reduced by $1. Benefits will be recalculated once you reach full retirement age.

Medicare eligibility begins at age 65. Enrollment in Medicare may take place during a seven-month period that begins three months before the month you turn 65. Signing up on time matters, because Medicare Part B premiums increase by 10% for every 12-month period you were eligible for benefits but failed to enroll. Are you delaying enrollment because you or your spouse is still covered by a group health plan at work? Make sure to sign up within eight months of leaving your job or health plan and avoid the penalty.

Social Security Full Retirement Age is 67 for most Baby Boomers. 67 is the full retirement age for workers born in 1960 or later. Millennials and younger generations qualify after age 67.

If you can wait until age 70, you’ll max out on Social Security. Social Security benefits increase by 8% for each year you wait to start payments between Full Retirement Age and age 70. After age 70, the number remains the same.

RMDs begin for 401(k) and IRA retirement accounts at age 72. Mistakes here are expensive! Your first distribution must be taken by April 1 of the year you turn 72. After that, annual withdrawals from 401(k)s and traditional IRAs must be taken by December 31 of each year. Miss a required distribution and you’ll get hit with a nasty 50% penalty on the amount that you should have withdrawn.

Reference: U.S. News & World Report (July 28, 2021) “10 Important Ages for Retirement Planning”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

How to Maximize Social Security Benefits / New York, NY & White Plains, NY

“Sophisticated analyses take into account the tradeoff of receiving no income during the deferral period and more income later in retirement.”

Claiming Social Security benefits early costs American households an average of $68,000 in lost wealth. More than a third of Americans claim Social Security at age 62, and two thirds claim long before they reach their Full Retirement Age or FRA, according to a recent article in Think Advisor titled “How to Help Clients Maximize Social Security Benefits.”

People who don’t have enough retirement savings or who stopped working earlier than anticipated may feel they have no alternative but to take Social Security benefits early. This is understandable. There are also those who don’t believe Social Security will be solvent by the time they reach FRA and decide to get their benefits now.

A closer look into the impact of postponing benefits, even when there is no income during the deferral period, can have a profound impact on the recipient and their surviving spouse.

Women (who statistically outlive their male partners) and healthier Americans (often those with higher incomes) who receive the annual income increase from deferring claims are those who stand the most to lose from taking benefits earlier.

If you are among those who think Social Security is going to vanish or cut benefits, Boston University economics professor Larry Kotlikoff says the income of those who claim early will be cut by the same percentage as those who claim later.

Let’s say that benefits are cut by 23% in 2034. The average present value of payments for a man who claims at age 62 is $678,124. If he claims at age 70, the average present value is $764,084. Cutting benefits earlier than 2034 will only increase the difference. Without a benefit cut, the difference between claiming at age 62 and 70 is $131,951 ($818,747 versus $950,698).

Getting the claiming decision right can add six figures to the family balance sheet so it’s worth a closer look.

It’s best to think like an insurance company when estimating the value of claiming Social Security. When pricing products like annuities and life insurance policies, insurance companies take into account such variables as U.S. government Treasury bonds, actuarial data measuring mortality and market rates on returns on other inflation protected securities.

Health is also a critical factor. How healthy is the person considering when to claim benefits? How healthy is their spouse? Consider how taking benefits early will impact the surviving spouse’s benefits.

Social Security claiming strategies succeed when using an objective fact-based process and recognizing that Social Security is an asset like any other asset and requires decisions to be made with as little emotional or political bias as possible.

Reference: Think Advisor (Feb. 21, 2021) “How to Help Clients Maximize Social Security Benefits”

 

 

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

Can You Increase Your Social Security Benefits? / White Plains, NY & Greenwich, CT

“All you have to do is type ‘maximize Social Security’ into Google or any other search engine and you will get hundreds, if not thousands, of hits.”

The desire to get the largest possible benefits from Social Security is a relatively new phenomenon. For decades, people received their monthly benefit check and that was it. However, in the late 1990s, a new law let seniors over age 66 work without any reduction in benefits, says the article “Social Security & You: Seniors obsess over ‘maximizing’ their Social Security” from Tuscon.com. The law led to loopholes that became known as “file and suspend” and “file and restrict.” In a nutshell, they allowed retirees to collect dependent spousal benefits on a spouse’s Social Security record, while delaying their own benefits until age 70.

Congress eventually realized that these loopholes violated the basic concept of the program. Benefits to spouses were always known as “dependent” benefits. To claim benefits as a spouse, you had to prove that you were financially dependent upon the other spouse to collect benefits on their record. However, the loophole let people who were the primary wage earner in the family claim benefits as a “dependent” of the other spouse. Five years ago, Congress closed that loophole.

More specifically, Congress closed the ability to file-and-suspend. It also put file-and-restrict on notice. If you turned 66 before January 2020, you could still wiggle through that loophole, and there are some people who are still eligible. That’s where the term “maximizing your benefits” originated.

Can you get a bigger Social Security check if you don’t fit into the exception noted above? The only real strategy to maximizing your benefits is simply to wait. The equation is simple. If you wait until your Full Retirement Age (FRA), you will receive 100% of your benefit rate. If you can wait until age 70, you’ll receive 132% of your benefit.

In some households, the higher income earner waits until age 70 to file for retirement, so that the surviving spouse will one day receive higher surviving spouse benefits.

But that’s not the best advice for everyone. If you or your spouse suffer from a chronic illness, it may not make sense to wait.

If you or your spouse have lost your jobs, as so many have because of the pandemic, then Social Security may be the safety net that you need until you are able to return to some form of paid employment.

There may be other reasons why you might need to take your benefits earlier, even earlier than your FRA. Some households start taking their Social Security benefits at age 62 as a way to augment other income.

If you don’t already have a “My Social Security” account set up on the Social Security Administration’s portal, now is the time to do so. The Social Security Administration stopped sending annual statements years ago, but you can go into your account and download the statements yourself and start planning for your future.

Reference: Tuscon.com (Feb. 10, 2021) “Social Security & You: Seniors obsess over ‘maximizing’ their Social Security”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

When Should You Start Filing for Social Security Benefits? / White Plains, NY & New York, NY

“Choosing when to file for benefits is a critical decision that will affect your monthly retirement income for the rest of your life.”

When it comes to planning for retirement finances, one of the most important decisions concerns when to claim Social Security benefits. There’s no one-size-fits-all answer to the ideal time, but there are some key facts to consider, according to Daily Journal Online’s recent article titled “Are You Ready for Social Security? 3 Questions to Answer Before Claiming Benefits.”

First, how much do you have in retirement savings? Unless you have a healthy pension or another source of income, chances are you’ll rely on Social Security benefits plus your personal savings to cover costs during retirement. How much you have saved will definitely impact when you file.

Remember, the earlier you claim benefits, the smaller your monthly checks will be. If you start your benefits as early as possible, at age 62, monthly payments will be reduced by up to 30%. Wait until age 70, and your monthly benefits could be up to 32% more each month, in addition to the full benefit amount.

If you expect Social Security benefits to make up the bulk of your retirement income, it’s best to delay taking those benefits as long as you possibly can. If you have more than enough retirement savings, you can take your checks at any time.

How long do you expect to work? You don’t have to retire to claim benefits, but usually that is what happens. When you take benefits, may depend upon when you retire. Be realistic about your retirement date. Almost 40% of people left their jobs earlier than planned, according to a study by the Aegon Center for Longevity and Retirement. A third retired because of health issues, and more than a quarter retired because they were laid off.

If your retirement plan depends upon being able to work until age 70 to max out those Social Security benefits, then you need a backup plan in case you have to retire early. If you were thinking of retiring in your early 60s, see if you will be able to survive on a smaller monthly benefit if you claim earlier than your full retirement age.

What’s your spouse’s plan? If both you and your spouse are entitled to Social Security benefits, it makes sense to put a strategy in place. You may both retire and claim at the same time, or one may claim before the other. A common strategy is for the lower earning spouse to claim benefits early, while the higher earning spouse waits a few years. That way, you have a little extra income early in retirement, but the higher-earning spouse’s delay results in larger benefits later.

Life expectancy has to be considered also. Sad, but a fact of this stage of life: one of you will die before the other. When one spouse dies, the survivor can receive 100% of their Social Security benefit amount in survivors’ benefits. If the higher earning spouse can continue to work, the survivor will receive a larger monthly benefit when the first spouse passes.

Take some time to consider all of these elements when making a plan for Social Security benefits for retirement. While you’re planning, don’t neglect your estate plan. You need to have a Last Will and Testament, Power of Attorney, Health Care Proxy, HIPAA Release form and perhaps a Revocable Living Trust. An estate planning attorney can help create all of these documents to suit your unique situation.

Reference: Daily Journal Online (Dec. 23, 2020) “Are You Ready for Social Security? 3 Questions to Answer Before Claiming Benefits”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

When a Husband Dies, Does the Wife Get His Social Security? / New York, NY & White Plains, NY

“Social Security is a huge source of financial stability for retirees, and married couples, in particular, can benefit dramatically from Social Security.”

When to take Social Security benefits is a decision that has major consequences for not only the worker but their spouse. There are a few mistakes the people make that end up costing their loved ones, advises the recent article “If You Love Your Spouse, Don’t Make This Social Security Mistake” from NASDAQ. The most common mistake concerns deciding when to start taking Social Security benefits.

By starting to claim benefits at age 62, you’ll get a reduced amount compared to what you would receive at your full retirement age. If you can wait until age 70 to claim Social Security, you and your spouse will benefit from the delayed retirement credits.

Most retirees base their benefit decision on how long they expect to live and their financial needs. People who expect to live a long time will get more money if they can wait until age 70, when their monthly benefits will be larger. People who don’t expect to live very long past retirement usually take their benefits early.

However, when you decide to take your benefits has an impact on your surviving spouse. When both spouses have worked and earned their benefits, it’s not as big of an issue. However, for a spouse who does not have a work history of their own or whose earnings are significantly lower, this can have a big financial impact.

The issue is survivor benefits. You are entitled to receive a survivor benefit when your spouse dies, and that benefit is based on their work history. If the surviving spouse claims benefits earlier than full retirement age, there will be a reduction.

However, if the deceased spouse claimed retirement benefits early, the surviving spouse will receive a reduced survivor benefit.

Here’s an example. Let’s say a married person, age 62, would get a retirement benefit of $1,500, if they retired at age 66 and 8 months. The person has a terminal illness and will not live more than a few more months. The spouse is also 62. Some people in this situation would start taking their Social Security benefits immediately. The reduced monthly payment would be $1,075. It’s less than the $1,500, but it’s better than nothing.

The issue is that the surviving spouse would only be eligible to receive $1,075 per month. That payment would only be if the surviving spouse waited until full retirement age. If a claim were made before full retirement age, the monthly benefit would be $884.

If the terminally ill person chose not to claim Social Security at all, the surviving spouse would be entitled to a survivor benefit of $1,500, again if they waited until full retirement age.

That $350 difference may not feel big on paper, but when there is only one income, it adds up. Waiting to take benefits could make all the difference in the quality of life your spouse enjoys for the rest of their life.

Reference: NASDAQ (Nov. 14, 2020) “If You Love Your Spouse, Don’t Make This Social Security Mistake”

For more information on elder law and estate planning, please visit my estate planning website.

Do I Have to Pay Taxes during Retirement? / White Plains, NY & New York, NY

“Some retirees may be surprised to learn that a portion of their Social Security benefits could be subject to federal income taxes.”

Paying taxes when you aren’t working but are instead receiving income from a lifetime of working and Social Security is a harsh reality of retirement for many people. Figuring out how much of your income will be consumed by taxes is a tricky task, according to the article “What You Need to Know About Taxes and Your Retirement” from Next Avenue. Ignore it, and your finances will suffer.

Most households will pay about six percent of their retirement income in federal income tax, but that number varies greatly, depending upon the size of their retirement income. The lowest income groups may pay next to nothing, but as income rises, so do the taxes. Married couples with an average combined Social Security benefit of about $33,000, 401(k)/IRA balances of $180,790, and personal financial wealth of $87,000 could find themselves paying 10.5% to 20.9%.

Income taxes and health costs are most people’s biggest expenses in retirement. Income taxes are due on pensions and withdrawals from tax-deferred accounts, including traditional IRAs, 401(k)s, 403(b)s, and similar retirement accounts. The same goes for tax-deferred annuities. Required minimum distributions must be taken starting at age 72.

Roth IRA and 401(k) distributions are tax free, since taxes are paid when the funds go into the accounts, not when they are withdrawn.

If you have investments in addition to your tax-deferred funds, like stocks or bond funds, you also pay taxes on the dividends and interest paid to you. If you sell them, you’ll likely need to pay any capital gains taxes.

Learning that a portion of your Social Security benefits are subject to federal income tax is a shocker to many retirees, but about 40% of recipients do pay taxes on their benefits. The higher your income, the more taxes you’ll need to pay.

There may also be state taxes on your Social Security benefits, depending on where you live.

However, here’s the biggest shocker–if you work part time, you may forfeit benefits, temporarily, if you claim before your Full Retirement Age, while you are working. Claiming before FRA means that your benefits are subject to earnings limits—the most you can make from work before triggering a benefit reduction.

Social Security withholds $1 in benefits for every $2 earned above the annual earnings limitation cap. If you reach your FRA after 2020, that’s $18,240. If you reach your FRA in 2020, the annual exemption amount is $48,600.

Pension, investment income and any government benefits, like unemployment compensation, don’t count towards earned income.

Benefits that are withheld will be returned to you once you hit FRA when Social Security bumps up your monthly benefit to make up for the withholding, but this takes place over time.

Reference: Next Avenue (Sep. 17, 2020) “What You Need to Know About Taxes and Your Retirement”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

The Simple Math Behind Social Security Benefits / New York, NY & White Plains, NY

“Should I start collecting Social Security retirement benefits as early as possible, or hold off for longer in exchange for plus-size payments?”

How much time you need to figure out the best time to take Social Security benefits can be as much of a puzzle as figuring out the actual answer, according to the recent article “The Head-Scratching Math Behind When to Claim Social Security Benefits” from Barron’s. It helps to start with the basics.

If you were born in 1960 or later, your “normal” retirement age is 67 and the payments that you can lock in if you take them at age 67 are called your “primary insurance amount,” or PIA.

You have the option to lock in smaller payments earlier—once you celebrate your 62^nd birthday—or larger payments up to age 70. The amounts are calculated to rise every month. The increases are calibrated to rise as follows:

• By 5/12ths of 1% of the PIA between 62-63
• By 5/9ths of 1% of the PIA between 63-66
• By 2/3rds of 1% of the PIA between 66-70.

It is that simple. The actuaries and economists have done all the work. These numbers have been in place since 1983. The only question is, can you figure out what’s best for your personal situation?

It is important to understand that even people who study these numbers come to different opinions, because the answers are based in part on when you will die and how your investments will do in the future.

However, for anyone approaching their 62^nd birthday, here are some insights. A male who delays until age 70 receives a real compounded return of 3.2% a year. A female will receive a compounded return of 4%, because women tend to live longer. For couples, the increase is 5.2% because of spousal benefits, as payments last the longer of the two lives.

Compare these returns with any other investment that provides inflation-adjusted returns backed by the U.S. government. Even 10-year Treasury Inflation-Protected securities (known as TIPS) right now yield less than zero: -1%.

The general answer is that delaying payments is the best bet, unless the income is needed or someone has a terminal illness. For couples where one earns much more than the other, the lower earner might want to take their benefit early, knowing that it will eventually be replaced by spousal benefits on the higher income of the higher earning spouse.

Claiming benefits late reduces longevity risk—the chances that you’ll outlive your savings. However, it prevents the risk that you won’t max out your benefits. If that happens and you have life insurance, at least your heirs will be sure of receiving those proceeds.

Reference: Barron’s (Sep. 4, 2020) “The Head-Scratching Math Behind When to Claim Social Security Benefits”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

Social Security Benefits: Timing Is Everything / New York, NY & Greenwich, CT

“Deciding when to start receiving Social Security retirement benefits is an important decision.  Making the wrong choice could cost you.”

Not knowing when you will be eligible to receive all of the benefits earned through your work history can hurt a retirement plan, says a recent article from CNBC.com titled “Here’s what to you need to know about claiming Social Security retirement benefits.” Equally problematic? Letting fears of the program running out of money before you can get your fair share influence your decision.

If you get the timing right and use a combination of your retirement savings and Social Security benefits in the right time and the right order, your money may last as much as seven years longer. However, remember that there are many rules about Social Security and retirement fund withdrawals. Here are three big blind spots to avoid:

Not knowing when to take full benefits.

Age 62 is when you are first eligible to take Social Security benefits. Many people start taking them at this age because they don’t know better or because they have no alternative. If you start taking benefits at age 62, your monthly benefits will be reduced.

There is a difference between eligibility and Full Retirement Age, or FRA. When you reach FRA, which is usually 66 or 67, depending upon your birth year, then you are entitled to 100% of the benefits based on your work record. If you can manage without taking Social Security benefits a few more years after your FRA, those benefits will continue to grow—about 8% a year.

Most Americans simply don’t know this fact. If you can wait it out, it’s worth doing so. If you can’t, you can’t. However, the longer you can wait, the bigger the monthly check will be.

How many ways can you claim benefits?

This is where people make the biggest number of mistakes. There are many different ways to take Social Security benefits. People just don’t always know which one to choose. First, once you start receiving benefits, you have up to a year to withdraw your application. Let’s say you need to start benefits but then you find a job. You can stop taking benefits, but you have to repay all the benefits you and your family members received. This option is a one-time only event.

Another way to increase benefits if you start taking them early, is to suspend them from the time you reach your FRA until age 70. However, you have to live without the Social Security income for those years.

Expecting the worst scenarios for Social Security.

Social Security headlines come in waves, and they can be disconcerting. However, a knee-jerk reaction to take benefits early because of fear is not a good move for the long term. There are a number of proposals now on Capitol Hill to strengthen the program. Benefits may be reduced, but they will not go away entirely.

Reference: CNBC.com (Aug. 24, 2020) “Here’s what to you need to know about claiming Social Security retirement benefits”

For more information on elder law, retirement planning, and estate planning, please visit my estate planning website.

Make the Most of Your Social Security Benefits / White Plains, NY & Greenwich, CT

“The more you know about Social Security, the more you'll likely be able to get out of the program.”

Famous motivational speaker Zig Zigler reportedly said “If you want to earn more, learn more.” That’s true for careers and investments. It is also true for Social Security. The more you know how Social Security works, the more likely you’ll be able to maximize your benefits, says the article “Social Security tips: 10 ways to get more money in benefits” from USA Today.

1—Check your Social Security work record for errors. Create an account for yourself at the “My Social Security” page on the Social Security Administration’s website. You’ll be able to see your entire income history. Check it against your tax returns to be sure that the numbers are right. If you see mistakes, call the SSA and have them fixed now.

2—Work for at least 35 years. The SSA uses a formula to calculate benefits based on 35 years of earnings (adjusted for inflation). If you’re thinking about working for 28 years, your benefits are going to be lower. If you can keep working to reach the 35-year mark, you’ll increase your benefits.

3—Boost your earnings. Bigger paychecks equal bigger benefits. If it’s too late for a career change, adding a part-time job could boost your lifetime income. You could also just work a few more years—it makes a difference. The annual statement from SSA on the website will show you just how much.

4—Wait until age 70 to start collecting. For every year after your full retirement age, your benefits grow by about 8%. If you are able to tap other sources of income before you turn 70, you can maximize this benefit.

5—You can also start collecting benefits at age 62. Your checks will be smaller, but if you have had a job loss and need the money, you are now eligible to take them. There will be many more checks now, than if you waited until age 70. If your health is poor, or your family history does not include longevity, there’s no benefit in waiting.

6—Understand how spousal benefits work. For non-working spouses, Social Security allows a spouse to collect a benefit based on their spouse’s earnings record – up to one half (50%) of the spouse’s benefits.

7—Can you delay a divorce? You might be able to collect benefits based on your former spouse’s earnings record, if you meet the requirements. You need to have been married for at least ten years. If it’s been nine years, and if your not-soon-enough ex has significantly higher earnings than you, consider delaying until the ten year mark. Not everyone can do this, but if you can, it could make a big difference.

8—Keep your income lower, while collecting Social Security. If you plan on working while collecting benefits, understand that some of your benefit dollars will be withheld. For someone who is younger than their Full Retirement Age in 2020, for every $2 earned over $18,240, $1 dollar will be deducted. If you reach Full Retirement Age in 2020, the SSA will deduct $1 for every $3 you earn above $48,500, until the month you do reach full retirement age. Be mindful of the “cost” of your working on your benefits.

9—Find out if you qualify for survivor or disability benefits. There are Social Security benefits for spouses, ex-spouses, the disabled and survivors. Other programs with benefits include Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).  If your spouse dies after working long enough to qualify for Social Security, the surviving spouse and children under age 17 may also be able to collect survivor benefits.

10—Think strategically about Social Security. If your spouse has a stronger earnings history than you, they might delay collecting benefits to age 70 to maximize the size of their benefit checks. If they die before you, as a surviving spouse you may collect either their benefit amount or your own—whichever is larger.

Reference: USA Today (July 28, 2020) “Social Security tips: 10 ways to get more money in benefits”

For more information on elder law and estate planning, please visit my estate planning website. 

When Social Security Makes the Most Sense / White Plains, NY & New York, NY

“When should you sign up for Social Security? It is a good question. Many seniors grapple with that decision, and understandably so, since the age at which you claim benefits will dictate how much money you will receive each month during retirement.”

There’s an unfortunate tendency to focus on how to get the most out of Social Security in total benefits, but that’s not always the right approach to determine when to apply for Social Security. Everyone has the same eight-year window—from age 62 to 70—when they can start applying for benefits, as explained in the article “Why Claiming Social Security at 65 Is a Smart Bet” from The Motley Fool. The year you were born determines when Social Security sets your Full Retirement Age, or FRA.

Whether you take Social Security at age 62, which is the earliest you can take it, or at 70, after which you’ve maxed out on monthly benefits and there’s no reason to delay, depends on many different factors. For example, do you expect to live a long time based on your family history? If so, it may make sense to wait. However, if you have a number of health conditions and expect to have a shorter life span, then take your benefits early and enjoy them—you earned them.

The most common age for starting Social Security benefits is at age 62. A much smaller percentage of seniors wait until age 70 to collect benefits. Doing so locks in a higher benefit for life, but if you don’t live much longer than 70, the benefit doesn’t matter quite as much.

Going from one extreme to the other points to a choice in the middle: age 65. That’s when Medicare kicks in. Some people get these benefits confused. They think that once they are eligible for Medicare, they are eligible for full Social Security benefits. This is not true. However, 65 is still a good age to start taking Social Security benefits for a few reasons.

• You’re not taking Social Security at the earliest age possible, so you have had two years for your benefits to increase.
• You’re not taking Social Security at the latest age. Therefore, if you don’t live into your 90s, you’ll still have had those years to enjoy the fruits of your labor.

The number-crunchers at Social Security work to make sure that everyone gets the same lifetime benefits, regardless of when they file. The logic is simple: claim early, and get a smaller benefit, possibly for a longer lifetime. Delay your claim, and the same amount of money in total will come to you, just in fewer payments.

There is another advantage for claiming Social Security around the same time you switch over to Medicare. Your Part B premiums will be directly paid from Social Security benefits. That means you’ll have some protection against rising premiums. That’s because of what’s known as the “hold harmless provision.” It is a provision that attempts to limit how much of a bite Medicare premiums can take out of Social Security benefits. It’s not a perfect solution, but it’s a little bit of a help.

Reference: The Motley Fool (July 10, 2020) “Why Claiming Social Security at 65 Is a Smart Bet”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.