How Should Baby Boomers Claim Their Social Security?

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How you handle your Social Security income has an important effect on an overall retirement financial plan. For baby boomers, employing an intelligent Social Security strategy can increase income over their lifetimes. You show know your full retirement age, coordinate the timing of benefit claims with your spouse and weigh the advantages of delaying your Social Security benefits.

Kiplinger’s recent article, “Time Claims to Maximize Social Security Benefits,” says that with more baby boomers becoming eligible for Social Security benefits, some strategies for how to claim the benefits are going away. Full retirement age is also going up, and there’s the threat of curbs to future benefits.

However, the rules for claiming retirement benefits have become a little simpler. Under a law passed in 2015, those born on or after January 2, 1954 are presumed to be applying for the highest benefit for which they qualify—regardless of whether it’s their own benefit or a spousal benefit—no matter what their age is when they claim. The law also phases out the restriction on an application for spousal benefits, which could boost a couple’s total payout by tens of thousands of dollars. However, a small group of boomers still may be eligible to use it.

These important moves can help you maximize your lifetime benefits—and help your nest egg go much further. Full retirement age (FRA)—calculated by your birth year—is on a gradual slope upward from age 66 to age 67. Social Security benefits increase monthly by a small percentage from age 62 to your full retirement age. As a result, if you err and claim at age 66 when your full retirement age is really 66½, the loss won’t be significant, but it could be permanent, decreasing your benefits for a lifetime.

The rising full retirement age for Social Security means that those who claim early will see a larger benefit reduction. For those with a full retirement age of 66, claiming at 62 permanently reduces their benefits by 25%. However, for those with a full retirement age of 67, the reduction is 30%. A higher full retirement age also decreases the bonus for people who wait to claim until age 70. Those with a full retirement age of 66, can earn up to 32% extra—or 8% a year in delayed retirement credits up to age 70. People with a full retirement age of 67 can earn up to 24% extra.

Know your exact full retirement age to understand how your benefit will be affected by claiming at different ages. All the cost-of-living adjustments are also calculated on that higher amount, so you receive the benefit of compounding.

Your FRA is also important, if you’re still working when you claim. Retiring and taking Social Security benefits are two separate decisions. You can do one without doing the other. However, if you apply for benefits before your FRA while still working, your benefits will be subject to the earnings test. Early claimers will temporarily lose $1 of benefits for every $2 of earnings above $17,640 in 2019. In the year you hit FRA, the threshold is higher—in 2019, you’d temporarily forfeit $1 of benefits for every $3 of earnings above $46,920.

But in the month that you turn FRA, the earnings test is no longer applicable. If you plan to keep working later in life, it’s typically wise to wait until FRA or later to claim benefits. If you do forfeit any benefits to the earnings test, your benefit will be adjusted upward at your FRA to replace the missing benefits over time.

Reference: Kiplinger (July 29, 2019) “Time Claims to Maximize Social Security Benefits”