Is Taking Social Security Early A Bad Idea According to Larry Kotlikoff

(Forbes) Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.

Let's discuss taking benefits early to invest them in a 401k, whether filing a restricted application was a mistake, taking retirement benefits before spousal benefits, when to file to get the full retirement amount and when it's best to reinstate suspended benefits. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, a company that markets Maximize My Social Security and MaxiFi Planner. Both tools maximize lifetime Social Security benefits. MaxiFi also finds retirement account withdrawal strategies and other ways to lower your lifetime taxes and raise your lifetime spending. Most important, it suggests how much to spend and save each year to enjoy a stable living standard through time.

Should I Take Social Security Retirement Benefits Early To Invest In My 401k?​​

Hi Larry, I will be 66 next April. I currently work and make $88,000. I would like to start my Social Security in May and invest a larger percentage of my pay in my 401k. I anticipate working only 18 more months. Thanks, Austin

Hi Austin, What you'd be choosing to do if you follow that strategy is take a permanently lower monthly Social Security retirement benefit rate so that you can put more into a 401k. You're certainly free to do that if you so choose, but it may not be the best idea.

If you wait until age 70 to start drawing your Social Security retirement benefits, your benefit rate will be 32% higher than if you start drawing at age 66. That's an 8% annual increase that you're unlikely to achieve through other types of investments. See this article for more: Economic Magic — Pulling Money From A Hat By Timing Social Security, 401(k), And Roth Withdrawals.

Did I Make A Mistake?​​

Hi Larry, I filed a restricted application for my spousal benefit and it was accepted so now I only received a benefit that's one half of my ex spouses entitlement, or approximately $1,330 per month. If I filed for my retirement benefit on my earnings, I would have received about $2,600. Is that right? I'm not sure I understand restricted applications. I plan on working until I am 70. Did I make a mistake? Thanks, Matt

Hi Matt, It doesn't sound like you made a mistake. I assume you mean that you filed a restricted application at full retirement age (FRA) for divorced spousal benefits only, and that your ex-spouse is still living. If that's true then the amount that you should be receiving would be equal to 50% of your ex's full retirement age rate, or primary insurance amount, (PIA).

By taking the lower amount now, you'll be allowing your own Social Security retirement rate to grow by 8% per year until you reach age 70. You can then switch to your own retirement benefits and receive that higher rate for the rest of your life. So, based on your description, it sounds like you've made an excellent choice. However, I of course don't have enough information about your options to know for sure. Best, Larry

Can My Wife Take Her Own Benefits At FRA And Later Switch To Spousal Benefits?​​

Hi Larry, Can or should my wife take her retirement benefits at FRA and then switch to taking spousal benefits at 70 when I take my retirement benefits? Or will she be stuck with her retirement benefit at her FRA level? My wife and I are each 65 and I plan on taking my retirement benefits at 70. According to Social Security, my benefits at FRA would be $2,847 and at 70 it would be $3,810. My wife's retirement benefits at FRA would be $815 and at 70, $1,076. Thanks, Paul

Hi Paul, Your wife couldn't actually switch from her own record to spousal benefits, but she could file for an additional excess spousal benefit when you apply. The net effect would basically be the same, though.

For example, using your figures if your wife files for her own retirement benefits at full retirement age (FRA), she'd start out receiving $815. Then when you subsequently file for your benefits, she could file for additional spousal benefits. Your wife's spousal rate would then be calculated by subtracting her primary insurance amount (PIA), which is the same as her full retirement age rate, from 50% of your PIA. Therefore, if your figures are accurate your wife would be eligible for an excess spousal benefit of roughly $608 (i.e. $2,847 / 2 – $815) when you file for your benefits. That amount would then be added to her own retirement rate to give her a total benefit amount of roughly $1,423. Best, Larry

Which Month Should I Choose In Order To Get My FRA Benefit Rate?​​

Hi Larry, I turn my FRA of 66 this October 15th. I began a retirement benefit application with the SSA to begin collecting my benefits as soon as possible after hitting my FRA. In the section where they ask when I want my benefits to begin, do I put October 2019 or November 2019? I want to make sure I receive 100% of my FRA benefit. Thanks, Ahmed

Hi Ahmed, If you want to start your benefits effective with your full retirement age (FRA) and your birthdate is October 15 1953, you'd want to choose October 2019 as your month of election to begin drawing benefits. That's the benefit payment that Social Security would normally pay in November 2019, since they pay benefits a month behind.

Before you make your final decision regarding when to start drawing your benefits, you may want to use one of my company's two tools — Maximize My Social Security and MaxiFi Planner — to help maximize your lifetime Social Security benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

Is There A Best Time Of The Year To Retire And Reinstate My Benefits?​​

Hi Larry, I am working presently. I had suspended my Social Security retirement benefits three years ago when I returned to work. I will be 70 this September. Is there a best time of year to stop working and reinstate my retirement benefits? Thanks, Marcy

Hi Marcy, There's not necessarily a "best" time to reinstate your benefits, but if you want to receive the highest possible monthly benefit rate you'd want to wait until the month you reach 70. And if that's what you decide to do, you won't need to take any action to reinstate your payments since Social Security automatically reinstates benefits that are in voluntary suspension when a person reaches age 70.

If you reinstate your benefits prior to the month that you reach age 70, your permanent monthly benefit rate will be 2/3rds of 1% lower for each month that you choose to start drawing your benefits prior to the month you reach age 70. Best, Larry

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