Some of the traps that ensnare current and future Social Security recipients apply especially to people who are single or widowed…
TRAPS FOR SINGLES
TRAP: Bad timing. If you’re single, there are certain ages when it is most advantageous to wait a little longer to start receiving benefits. That’s because your monthly benefit amount increases in size for every month that you delay starting Social Security from age 62 to 70—but it doesn’t increase at a consistent pace throughout those years.*
For instance, if you start your benefits at age 66, or whatever your so-called “standard” or “full” retirement age is, you probably are doing so exactly at the moment when continuing to postpone the start offers the greatest rewards—even though it’s the age that the Social Security Administration (SSA) considers the “normal” time to retire.
When you crunch the numbers, it turns out that there actually are two windows during which it is especially inopportune for most single people to claim benefits if they wish to maximize the total amount they receive. One window runs from age 62 and one month through age 63 and 11 months…while the other is centered around your standard retirement age—age 65 and five months through age 66 and seven months if your standard retirement age is 66.
If your standard retirement age is higher than 66, the windows during which it’s best not to start benefits are within eight months before or after your standard retirement age and within approximately 12 months before or after the date that is three years prior to your standard retirement age.
Example: If your standard retirement age is 67, the windows to avoid are between 66 and four months and 67 and eight months…and between approximately age 63 and age 65.
All this is true for married people, too, but married people have additional benefits options, such as spousal benefits and switching strategies that mean starting benefits at standard retirement age sometimes makes sense.
TRAP: Neglecting to file for benefits at your standard retirement age. You should file even if you don’t plan to start collecting until later. But when you file, immediately suspend your benefits.
This “file-and-suspend” technique is a more common tactic and more obvious advantage for married couples. Typically, the higher-earning spouse files and suspends so that the lower-earning spouse is eligible to claim spousal benefits while the higher-earner’s eventual benefits continue to grow in size.
But file-and-suspend offers advantages for singles, too. When you suspend your benefits, you remain entitled to the benefits held in suspension. That means you have the option to collect those past benefits as a lump sum at any point until you lift the suspension and begin receiving your monthly benefit checks.
This lump-sum option could come in handy if you suddenly find yourself in need of money. And it could allow you to get as much as possible out of the Social Security system if, while the suspension is in place, you learn that you don’t have long to live.
If you request the lump sum, your future monthly benefit checks will be calculated as if you had started your benefits when you originally filed and suspended—meaning that they will be on the low side. If you don’t take the lump sum, they will be calculated as though you had started them on the day you lifted the suspension—that is, as though you had never filed and suspended at all.
Example: A man who is eligible for $2,000 per month at his full retirement age of 66 files and suspends at that point. Three years later, he learns that he has terminal cancer. He requests a lump sum and receives the three years of benefits that were suspended—$72,000.** He receives two additional monthly checks before passing away, bringing his total benefits to $76,000. Had this man simply delayed filing until he received his bad news, he would have received just two payments totaling $4,000.
TRAPS FOR WIDOWS AND WIDOWERS
TRAP: Permanently choosing between survivor benefits and your own retirement benefits. The best option usually isn’t one or the other—it’s one and then the other. Many widows and widowers depend on their Social Security checks to pay the bills. Yet most receive less from the Social Security system than they should because of this simple trap.
When widows and widowers explore their benefit options, they typically are told that they must choose between claiming a benefit based on their own earnings and claiming survivor benefits based on their departed spouse’s earnings—not both. The vast majority select whichever of these is larger and then receive that amount each month for the rest of their lives. These checks often are relatively small because survivors tend to start their benefits as soon as they’re eligible—some don’t have any other way to pay the bills.
Widows and widowers are allowed to start their survivor benefits as early as age 60, but the sooner they claim them, the lower their monthly checks will be. Start benefits at age 60, and you will receive just 71.5% of the amount you would receive if you start benefits at your standard retirement age (assuming that is age 66).
What most widows and widowers don’t realize is that while they can’t receive both their retirement benefit and their survivor benefit at the same time, they can—and, in most cases, should—eventually switch from one to the other. This switching strategy can produce tens of thousands of dollars in additional benefits, particularly when both spouses had significant earnings during their working lives.
Example: A woman is widowed at age 62. She has a standard retirement benefit of $1,657 and a standard survivor benefit of $2,245. In this situation, most widows simply would take the survivor benefit and receive $1,862 per month for life (that’s the $2,245 survivor benefit minus a reduction for starting benefits at 62, four years prior to standard retirement age). If this woman lives to age 85, she will receive a total of $506,464 from the Social Security system.
Much better: If this woman instead claimed her own retirement benefit at age 62, she would receive $1,277 per month ($1,657 minus the reduction for starting four years before standard retirement age) until age 66…at which point she could switch to her standard $2,245 survivor benefit. This strategy would produce additional benefits of more than $62,000 if she lives past age 85.
TRAP: Your standard retirement age for survivor benefits might be different from your standard retirement age for retiree benefits. The SSA is slowly phasing in a higher standard retirement age. If you were born in 1937 or earlier, you can retire at age 65 and receive your standard retirement benefit. But if you were born after 1937, your standard retirement age falls somewhere between age 65 and two months and age 67, depending on the year of your birth.
What most people don’t realize: The SSA is using a slightly different schedule to increase the standard retirement age for survivor benefits. This could cause widows and widowers to accidentally delay the start of survivor benefits beyond their survivor benefits standard retirement age, costing them some monthly checks without increasing the size of future checks. (Those born between 1945 and 1956 are not affected—for them, both standard retirement ages are 66.) To find your survivor standard retirement age: Go to www.ssa.gov/survivorplan/survivorchartred.htm.
Example: If you were born in 1956, your standard retirement age for retiree benefits is 66 and four months—but your standard retirement age for survivor benefits is exactly 66.
IF YOU ARE MARRIED OR DIVORCED
*To calculate the amounts that you could get at each age, go to www.ssa.gov/oact/quickcalc/index.html. Decisions about when to start Social Security also depend on your life expectancy (go to www.ssa.gov/oact/population/longevity.html for a guide to life-expectancy calculations) and on whether you still are earning substantial employment income, which could mean much of your Social Security benefits would be lost to taxes.
**Estimates of future Social Security income provided in this article do not include future inflation adjustments.