Claiming Social Security at Full Retirement Age and Beyond

Categories : Financial, News
August 16, 2023

Summer 2023 is over for most people, and year-end is looming for Financial Planners. Topics we address during the final months of each year include Required Minimum Distributions (RMDs) from Retirement Plans, establishing new Retirement Plans for individuals and small companies, Roth Conversion Planning, and (non-CPA) tax planning.

Less likely to be on the Planning radar screen is filing for Social Security benefits. There are some Social Security provisions that most people, and indeed many Financial Advisors, do not adequately address. Claiming Social Security benefits is very complicated. Assuming goals of maximizing lifetime benefits, reducing taxes, and minimizing the cost of Medicare, good timing decisions are critical. These goals are affected by the claiming decision, which is too often allotted only cursory attention.

Claiming at Full Retirement Age (FRA). Most Americans prefer waiting to file for Social Security monthly benefits until (at least) their FRA, which is determined by date of birth (67 maximum). From the earliest allowable claiming age of 62, monthly benefits increase 8% annually until filing. Cost of Living Adjustments (COLAs) are applied annually as well. Many beneficiaries believe that they must be receiving benefits in order to participate in COLAs, but that is incorrect, as the only requirement is having attained age 62.

Delaying filing past FRA. Waiting to file until after FRA (but not later than age 70) increases monthly benefits by 8% annually, plus the COLAs mentioned above. Depending on recipients’ longevity, waiting may increase lifetime benefits, and furnish a more significant retirement income.

Upon initial filing any time after FRA, retroactive benefits are available for up to 6 months, including the FRA month. Many people claim benefits as they retire. Those whose birthday falls in the last half of the year can delay filing until the next January. At the same time, the claimant can claim up to 6 months in arrears. Consider that “back pay,” accrued into the next calendar year, when income is likely to be lower. Deferring benefits collection until January of the next year will reduce retirement year income (hence the income tax due), and possibly avoid or reduce Income-Related Monthly Adjustment Amounts (IRMAA charges) for Medicare, as they are based on income.

Age 70+ filing. Everything so far is pretty much common sense, but there is an additional twist. Anyone waiting to file until age 70 is advised to file for the birthday month, because no further benefit increase is accrued after that birthday. However, those with birthdays after June 30 can defer benefits until January to file, including the “back pay.” Again, for these people, income and taxes may be lowered, and Medicare costs may avoid IRMAA, or at least reduce the IRMAA bracket. Planning is the key, and we can help.

Van Wie Financial is fee-only. For a reason.