How to Delay Taking Social Security Benefits Until You Absolutely Have To

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I recently heard about a man who was retired longer than he worked, retiring at 52 and living well into his 90’s. There’s a life worth living.

And it’s not that far-fetched. Life expectancies continue to inch upward, particularly for those who make it to retirement. For those who reach age 65, life expectancy stretches to 82 for men and 85 for women. For married couples who reach 65 together, the news is even better. Odds are 45% that at least one of the partners will live to 90, giving them a full 25 years of traditional “retirement” time.

How Will They Pay for That?

Reminder: This is a good problem to have — far better than the alternative. It’s important to have a long-lasting plan for the golden years so you can enjoy them as long as possible.

Like everything else that has to do with money, time can be your friend or your enemy. It’s critical to start thinking about life in your 70s, 80s and 90s as soon as possible. Yes, that means doing so in your 50s and 60s, and perhaps even earlier. You likely don’t want to get to your golden years and rack up a lot of credit card debt to pay for the essentials.

Factoring in Social Security

For many, the most crucial variable in this equation revolves around when to start collecting Social Security benefits. The simple answer is to take it as late as possible, which is currently at age 70, though every individual situation is different. The earliest you can make this decision is at age 62, so you can plan accordingly, which begins with giving yourself options by planning years before retirement arrives.

Americans who paid into Social Security can begin receiving benefits as early as age 62 — before the traditional 65-year-old retirement age — but that comes at a price. Younger recipients receive smaller benefits to account for the added years of payout. On the other hand, recipients can chose to postpone benefits until age 70, which results in a “bonus” that lasts the remainder of the person’s life. The difference is dramatic — an extra 8% per year for those who wait past retirement age. An example from the Social Security administration shows that a recipient who takes payments as early as possible and deserves $1,000 per month at retirement would instead receive $750. If that same person waited until 70, they would get a monthly check of $1,320.

If you opt to wait to collect Social Security, you’ll be expected to use your own money, which can come from a combination of private retirement savings and continued income. Because it’s to your benefit to preserve your retirement savings as long as possible, continuing to earn income through your 60’s is an optimal option.

Older Americans in the Workforce

In many ways, things are getting harder for older workers. Studies (like this one) show older workers have a harder time even getting through the door for job interviews as many employers are hiring those from younger generations because they’re less-expensive and have more experience with technology. Plus, when layoffs and buyouts roll around, more expensive (often older employees who have spent many years with the company) are typically targeted.

But there are bright spots in the digital economy that can help older workers keep the money coming in as they work to reach the 70-year-old finish line — particularly in the sharing economy.

Whatever you call it — part-time work, contingent work, gig economy work — some only-in-the-digital age income streams are ideal for older workers who need some income but don’t want to be tied down to a full-time job. Some of these positions are challenging for those who need to support a family, like driving for companies like Uber or selling homemade crafts on sites like Etsy. But these can be ideal roles for folks who are simply looking for supplemental income. For example, Uber announced a partnership with AARP last year, hoping to recruit senior drivers.

What’s more, the sharing economy also creates new ways to earn income from assets you’ve acquired. It’s easier than ever to turn your summer cabin into a part-time vacation rental, for example, thanks to services like Airbnb. One extreme, but potentially lucrative, step is to downsize to a smaller home in a less expensive area while renting out a paid-off home in an pricey neighborhood for a few years. Newer sharing economy services even let people rent out their cars or other personal items.

Many older workers may fail to realize the value of their accumulated knowledge. In the past, some made small consulting agencies and, while that’s still an option, the proliferation of online course tools now make it relatively easy to teach digital classes in everything from cooking to coding that consumers can (and do) pay for. Many folks are learning how to turn their hobbies into small-time entrepreneurial adventures this way. For example, Angela Fehr, a self-taught artist in Vancouver, Canada, offers classes in watercolor painting and they range in price from free to $99.

The key to this is nurturing hobbies, and the entrepreneurial skills needed to monetize them, before staring at a big income hole in your early 60s. Play around with online course software, ask questions and pay attention to other sharing economy developments.

Taken collectively, I call all these revenue-generating opportunities “21st-Century moonlighting.” It’s not for everyone, of course. Plenty of folks are busy enough trying to hang onto their full-time jobs in competitive environments. But mastering the “gig economy” and supplementing a full-time income may make it easier to postpone reliance on Social Security. And maybe even avoiding any boredom that sometimes comes with retirement, too.

Deciding when to start receiving Social Security is a personal and complex subject, made even more complicated when a partner’s benefits are part of the decision. It should be made carefully, possibly even with the advisement of an expert. To start, you can read this article to see if you are financially ready for retirement or use online tools to get an idea of when it makes sense to start receiving benefits before age 70.

In the meantime, you can see how your money habits are affecting your financial goals, like building a good credit score, by viewing your for credit report card for free each month on Credit.com.

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Social Security Is Changing Soon. Here’s What You Need to Know

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There has been much buzz about Social Security recently—and with good reason.

Section 831 of the Bipartisan Budget Act contains the first major change to Social Security claiming rules since the Senior Citizen Freedom to Work Act in 2000. Finding out who is affected and what they need to do is a challenge. The Social Security Administration sent an emergency message to its field offices in February explaining how its employees should implement the changes. The staff in SSA field offices are still trying to get up to speed. Adding to their confusion is the fact that Social Security policy prohibits its agents from giving advice on claiming strategies.

What’s Changing?

The Budget Act was signed into law in November 2014 but has a six-month grace period during which certain folks can still take advantage of the old rules. Social Security has not firmed up these dates, but the best information available suggests that effective April 30, it will no longer be possible to file for benefits and immediately suspend those benefits — a strategy commonly referred to as “file and suspend.” (More on that strategy later.)

The other strategy being eliminated is “restricted application.” This will no longer be an option for beneficiaries born after Jan. 1, 1954. In short, this strategy involves claiming a spousal benefit between ages 66 and 70, thereby allowing your benefit to grow until age 70. At 70, you switch to your own benefit.

If you were born on or before April 30, 1950, you are still eligible to file and suspend. If you already have a suspended benefit, you will not be affected by the change. There are a few reasons why you may want to take advantage of this before April 30.

How These Strategies Work

First, filing and suspending allows your monthly income to grow by a certain amount every year. This is referred to as Delayed Retirement Credits. The kicker with the file and suspend strategy is that if you decide at any point between your full retirement age (FRA) and 70 that delaying your benefits was a bad move, you can request a lump sum of the benefits you missed out on by not claiming at your FRA. This may make sense if you were planning on working until 70, but were unexpectedly laid off and suddenly need that income. Second, filing for a benefit allows eligible beneficiaries to claim a spousal benefit.

Let’s say you want to continue to work, but your spouse didn’t work long enough (10 years or 40 quarters) to qualify for his/her own benefit. You can file and suspend, which would allow you to continue to work, earn delayed retirement credits, and enable your spouse to take half of your full retirement age benefit (PIA). This can also be a nifty strategy for those 66 or older who have minor children because filing and suspending will allow those children to claim a benefit until they turn 18.

The restricted application is often used in conjunction with the file and suspend strategy. It usually makes sense for couples with similar benefits, as illustrated by the following example:

  • John and Jane are married.
  • John: Age: 66
  • SS Benefit (PIA): $1,500/m
  • Jane: Age: 64
  • SS Benefit (PIA): $1,000/m

In this scenario, Jane could file a restricted application for spousal benefits in two years at age 66 and would receive $750/month (half of John’s PIA). This would allow her benefit to grow by 8% over the four years that she collects a spousal benefit. At 70, she would switch back to her benefits based on her own earning record. At that point, she would receive $1,320/month (8% growth every year for four years = $1,000 x 1.32). Here is the catch: John would have to file for benefits in order for Jane to take advantage of this strategy. If John, too, wants to let his benefit grow until age 70, he can file and suspend, but must do it before April 30.

Considering Your Options

The restricted application and file and suspend claiming strategies are now being called “unintended loopholes” by the Social Security Administration, exploited by financial planners and attorneys and the clients they represent. As one of the former, I can confirm that we do use these strategies for most of our clients. By the way, anyone — regardless of his or her wealth — can put these strategies to work.

At this point we are scrambling to make sure that our clients are considering this advice. At our most recent class, a client told us that it took her three months to get an appointment at her local SSA office. The good news is that these strategies can be implemented by phone, at SSA.gov, or in your local office.

Prior to these changes, there were 567 (not a typo) different ways to claim Social Security benefits. There is no way in this column to cover every scenario or even touch on everyone affected. If you think you may be impacted and don’t know what to do, you can contact your financial planner. If you don’t have a financial planner or he or she doesn’t offer Social Security advice, you can consider seeking out one who does. You can ask a planner run the optimal scenario and give you the language to take to SSA.

[Editor’s Note: You can monitor your financial goals (like building good credit) for free on Credit.com.]

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