Spotlight: When to file for Social Security retirement benefits early

Media turns to VFA for expertise once again!CNBC Logo

Vermillion Financial Advisors, Inc. enjoys a strong national reputation as one of the leaders in the fields of financial planning and investment portfolio management.  As a result, another recent article has appeared online quoting the Vermillion Viewpoint with regard to Social Security benefits.

Kelli B. Grant is a writer covering personal finance and consumer spending for  Mark LaSpisa has been a resource for her during the last year for this and other articles she has written for CNBC.  Formerly the senior consumer reporter for and, Kelli’s work has appeared in  The Wall Street Journal, The New York Times, SmartMoney, Kiplinger’s Personal Finance, Good Housekeeping, Real Simple and Family Circle, among other publications.SSEarly1

The article “When to file for Social Security retirement benefits early” addresses the issue of timing with regard to starting your Social Security benefits.  These days your choices range from age 62 to 70 with a variance of almost 30% in benefits among these age groups.  Several factors will affect your choice including financial need, plans for life in retirement, your heath, and marital status among others.

Additional information and facts to consider follow the article in a commentary by Mark LaSpisa.  We hope you enjoy the mention of your very own Vermillion Financial Advisors in the media as a reliable and experienced financial planning resource.  We think of it as just one more reason VFA surpasses the competition.

“When to file for Social Security retirement benefits early”

Delayed gratification isn’t always the best bet when it comes to Social Security claiming strategies.

Retirees have been more willing to wait to claim Social Security in recent years. The number of men claiming benefits at age 62 dropped from 56 percent in 1996 to 35.6 percent in 2013, according to a recent analysis from the Center for Retirement Research at Boston College, which used unpublished Social Security Administration data. Among women, the rate dropped from 62.8 percent to 39.5 percent over the same period.

That said, 59 percent of retirees are still claiming before they reach full retirement age (for most workers, that’s 66 to 67, depending on your birth year), according to a March survey from Franklin Templeton.

That bucks the conventional wisdom among financial advisors and other experts that waiting is the best way to maximize benefits, especially with increasing longevity.  “If you claim early and die later, you’re at greater risk of eating cat food,” said David Mendels, a certified financial planner and director of planning at Creative Financial Concepts in New York City.  More clients are more worried about outliving their assets, he said, than leaving Social Security money on the table if they claim late and die early.SSEarly2

Waiting is a pretty solid strategy.  After all, claiming Social Security before full retirement age locks in your monthly benefit at a reduced level; for those claiming at age 62, it’s as much as 30 percent lower.  Holding off until full retirement age secures your full benefit, and for every year you wait thereafter, until you turn 70, it gets an 8 percent boost.

But early filers aren’t necessarily making a mistake.  “In the last four years, everyone in the financial community has jumped on this bandwagon of defer, defer, defer,” said Mark LaSpisa, certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. “To my mind, it’s not so cut and dried.”

SSEarly3When to claim ultimately comes down to the individual worker’s situation.  “The magic answer is that there really is no best answer,” said Everett Lo, a project manager with the Social Security Administration.  He said consumers should start planning well before they expect to retire, estimating their benefit and strategizing possible scenarios.

Several factors in particular could make it worth reassessing an early claiming strategy:

Financial need.  Social Security benefits can make a big difference in your bottom line.  For the typical retiree, they represent 38 percent of income, according to Social Security Administration data.  If you’re in dire financial straits with limited sources of income, filing early makes sense, said Mendels.  “Obviously there are people who don’t have a choice, and if they don’t have a choice, they don’t have a choice,” he said.  “Not eating is not recommended.”

Keep in mind, though, that if your situation improves – say, you find a new job, or receive an unexpected windfall – you may be allowed a one-time reset.  You’ll have to make that election within 12 months of first filing and repay all your Social Security benefits received, among other hoops, said Catherine Seeber, certified financial planner and principal for Wescott Financial Advisory Group in Philadelphia.  Then you can reapply for Social Security at a later age, she said.

Big retirement plans.  “There are three phases of retirement,” said LaSpisa.  “go-go years, slow-go years, and no-go years.”  Clients who have planned well for retirement and aren’t counting on Social Security benefits to pay the bills may find filing early gives them the extra cash flow for bucket-list travel and hobbies while they still have their health and energy.  “They think if they don’t do it now, they may never be able to,” he said.

Poor health.  A 65-year-old man today can expect to live to 84.3, while a 65-year-old woman can expect to live to 86.6, according to the Social Security Administration.  “If you have a particular SSEarly4health concern or other good reason to think you won’t be around that long, that can warrant filing earlier rather than later,” said Victoria Fillet, certified financial planner and founder of Blueprint Financial Planning in Hoboken, New Jersey.  “You need to know your family history,” she said. “Is there longevity in the family?  Are you healthy?”

It’s not just your health to consider.  “If you have a higher-earning, older spouse in poor health, it can be smart to claim your own benefit early,” said Mendels.  (The potential benefit of doing so depends on your ages and eligibility.)  “Then you can switch to the survivor benefit after your spouse passes away,” Mendels said.

Other beneficiaries.  “If you have dependent, underage children when you qualify for retirement benefits, they may also be eligible to receive a benefit based on your record,” said Fillet. The value of that extra payout can make up for the reduction in filing early.  “It could be a college fund,” she said.

Retirement assets. “The real question is… If I defer, where is that (replacement) money coming from?” said LaSpisa. “The money is not operating in a vacuum.  If the alternative is to draw from your portfolio, it’s worth crunching the numbers to see how a bigger draw-down in the years you delay will affect your chances of outliving your money.  The reduced compounding power in your portfolio might be more damaging than taking a lower Social Security payout,” he said.

Marital status.  “Married couples have a number of strategies they might employ, but it’s widowed individuals and those who are divorced (after being married for at least 10 years) who may particularly want to take another look at claiming early,” Mendels said.  Surviving spouses can opt to claim either their own benefit or a survivor benefit first, and then switch later to the other (presumably more valuable) option.  Divorced individuals might claim on the divorced spouse’s benefits and wait to claim his or her own at a later date.                                                                    Kellie Grant for, August 10, 2015


From the desk of Mark LaSpisa…

VFG_Mark_SlideDeck1-3With regard to Kelli Grant’s article titled “When to file for Social Security retirement benefits early”, and the question of whether or not to delay your claim… in some cases it is very easy to see which way to go and in others it is very difficult to evaluate.  There is no shortcut to the answer.

You need to run the actual numbers and see how they come out based on the most likely assumptions.  As we tell all clients: any analysis we prepare is only as good as the assumptions turn out to be.  To further explain, I often use the example of having a “bucket of money” and illustrate the choice of taking an income stream over a shorter – or longer period of time.

For example let’s assume that for claims made today, if benefits were paid out as a lump sum, an average person’s social security benefit would be $250,000.  Since we all know that lump sum payouts are not available with social security, the only option you have is to take your money as an income stream payout, and the only variable you have is when you choose to take it.

You can make your claim as early as age 62, at Full Retirement Age (66 to 67), or wait until the maximum age of 70, depending on how you want to structure your income.  (Full retirement age or FRA had been 65 for many years.  However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.)

Assuming a 65 year old can expect to live about 20 additional years, they will receive about 240 social security benefit payments in that time.  If someone claims benefits starting at age 62, they are getting 3 more years of payments (276), and someone who defers benefits to age 70 will get 5 fewer years of payments (180).

Your total benefits, divided by each of these payment numbers, means that anyone who starts early gets less per payment compared to those who start later ($250,000 paid over 276, 240, or 180 payments).  The difference is plus or minus 1/2 to 2/3 of 1% each month in more or fewer dollars when compared to the Full Retirement Age amount.

If you are one of the blessed few who live past the retirement life expectancy, you enjoy an advantage for delaying your social security claim.  If you are not one of these few, you may have deferred your benefits, but did not receive any economic advantage for waiting.  Because it takes an average of 17 years for delayed benefits to overtake the total payout of those taken earlier, other factors must be considered in this decision – such as health, family mortality, and pre-retirement income in lieu of social security payments.

A more creative solution for couples is to claim some benefits now and more benefits later.  This is accomplished by having a younger spouse claim spousal benefits now and deferring personal benefits for a later time (or vice versa).  This technique is only allowable for those who wait until FRA to make their initial claims.  Most importantly, it is a technique that requires all the numbers be analyzed to be sure there is a benefit to the strategy.  And that is exactly where the Vermillion expertise lies.

Wishing you financial prosperity,

Mark La Spisa


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