The decision of how and when to file for Social Security benefits can have a profound impact on individuals net worth over time. The difference between a good and poor election could be $100,000 in income.
The most common approach is to simply decide whether to take a reduced benefit at 62, increased benefit at 70, or somewhere in between. There are a few lesser known strategies that can help you get the most from your benefits. One example is referred to as File and Suspend.
Spousal benefits are not available until the primary earner has filed for his or her own benefits. File and Suspend is a way for the primary earner’s future benefits to continue to grow while also making spousal benefits available.
Let’s look at a case study involving a typical couple.
- John & Jane retire at 62
- Need $65,000 in after-tax income
- $600,000 in IRAs
- IRA grows 6% annually
- Inflation grows 4% annually
Social Security Mistake
- John takes benefit at 62 – $1,544 per month
- Jane takes her benefit at 62 – $1,163 per month
- IRAs exhausted at age 80
- Social Security covers 50% of income need
- Total federal taxes paid $147,000
Social Security Maximized
- John takes his benefit at 66, then requests a voluntary suspension
- Jane elects only her spousal benefit at 66 – $1,204 per month
- Jane switches to her own benefit at 70 – $2,800 per month
- John reinstates his benefit at 70 – $3,718
- IRAs last until age 87
- Social security covers 88% of income need
- Total federal taxes paid $80,000
There are many ways to file for your Social Security benefits. If you are between the ages of 62-70, feel free to contact Sterneck Capital for a review of how to best use Social Security benefits to meet your needs.
*Case study from the book Maximize Your Social Security, by Joe Elsasser, CFP