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Social Security Benefits: When to Apply and Avoiding Mistakes

Deciding when to apply for Social Security Benefits can be confusing and many may be making a mistake. Do you wait for full retirement or have a split strategy?

For most retirees, waiting to begin collecting Social Security is a good approach. The Social Security Administration reports that the size of your benefit increases roughly 8% each year that you delay claiming benefits beyond your full retirement age and up to age 70.

While the majority of Americans (approximately 80%) are filing for benefits before their full retirement age, this strategy may decrease your social security benefits in the long-term.

For better or worse, most married couples pursue one of two strategies for collecting Social Security benefits:
1. Both spouses take benefits when they reach 62 years old. While this strategy may allow you to collect benefits at the earliest age possible, it also reduces your benefits by the largest amount.
2. Both spouses take benefits at age 70 when the benefits reach the maximum amount. This means that you will receive the maximum amount of benefits, but will not receive your benefits for eight years from the time you become eligible.
While these strategies may work for some, there is an additional strategy called the “split strategy” that should be considered. This strategy can help many married couples and potentially preserve a large portion of their retirement assets.

To demonstrate how this works, let’s look at Jack and Jill. Jack is 62 years old and his wife, Jill, is 59. In this case Jill, who is the lower earner of the couple, begins collecting social security at 62, while Jack begins collecting a spousal benefit at age 66 and then switches to his own benefit at age 70.

Let’s assume that prior to retirement, Jack earned $98,000 a year, and Jill earned $68,000, and the life expectancy for Jack was age 83, and for Jill is age 95.

If both Jack and Jill claimed Social Security benefits at age 62, they would receive a lifetime total of $1.1 million in Social Security. But if the couple implements the split strategy they would generate approximately $300,000 to $400,000 more in benefits throughout their lifetimes.

The difference here is that Jill would receive about twice as much each year in Social Security income if they implement the split strategy than if they both claimed benefits at age 62.

Social security benefits are an important aspect of most people’s retirement plan, that’s why it’s  imperative that you work through the different strategies before making any decisions regarding your social security benefits.

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