Consider Social Security planning

May 14, 2013 

"Should I collect Social Security at age 62 or wait until my full retirement age of 66?" a university professor, asked me in a seminar I taught recently on how to maximize Social Security benefits. "My benefit grows by 25% if I wait four years."

Waiting until your full retirement age can either maximize Social Security benefits or be a costly mistake. Social Security benefits are determined by your earnings, the date you start collecting benefits, and how long you live.

Social Security was originally intended as a supplement to retirement savings. Now, unfortunately, many people largely rely on Social Security benefits to fund retirement. Middle income households, in particular, are now thought to rely on social security benefits for 25 to 50 percent of retirement income.

For those of us born from 1943 to 1954, your

monthly Social Security benefit is about 25% less if you take benefits at age 62 instead of full retirement age 66. Waiting to age 70 leads to a 32% larger jump than at age 66.

Many financial advisors advocate waiting to collect Social Security at age 70 to maximize benefits. I'm not one of them, though. I believe starting Social Security benefits ultimately depends on your unique story. Here are reasons to collect social security sooner:

• Watch taxability of Social Security benefits. Depending on your income, as much as 85% of your social security benefits can be taxable. You come out ahead if you can collect social security earlier without triggering the income tax on Social Security. For example, you might make a monumental blunder by waiting a few years for social security benefits to increase by 25%. Think about it. Taxable social security benefits coupled with required minimum IRA distributions, after age 70-and-a-half, may be taxed at rates as high as 39.6 percent. Ouch!

• Consider life expectancy. For every person who bleeds social security dry by Celebrating 100th birthdays with Willard Scott, legions die in their early or mid sixties of a heart attack or cancer before collecting social security. You might forfeit a pile of money by passing away prematurely.

• When do you break even? How many years do you have to collect Social Security at a higher rate to make up for the funds that you could have had by collecting earlier? Often the break even for waiting to age 70 is thought to be about 80-and-a-half years. Not always, though. Just an approximation.

• Will the Social Security System even be solvent in the future? Balance your desire for Social Security benefits with possible changes on the horizon, such as an increased minimum age to collect benefits or a reduction in benefits.

• Consider spousal benefits. One strategy allows a spouse with a high paying job to collect a Social Security spousal benefit from ages 66 to 70. Then the spouse can collect, hopefully, a higher benefit under her own benefits.

• Collect Social Security sooner if you're in debt. Your net worth may increase if you use social security benefits to pay off mortgages and consumer debt. Better cash flow and financial freedom may be other benefits.

• Strategically considering timing IRA withdrawals and social security benefits to save tax money.

Before you collect Social Security, call a professional, not someone at the Social Security office, to crunch numbers. Make sure you're making the right decision.

Jim Germer, CPA and financial advisor, lives in Bradenton. The views expressed in this article are those of Jim Germer. Contact him at his office, 100 Third Avenue West, Suite 130, Bradenton, by phone at (941) 746-5600, or by email at

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