Aging Options

When claiming early might be the best strategy

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I recently wrote a white paper on survivor benefits. One of the points I made in the paper was that dependent children (up to age 19 if he or she is still attending high school) of a deceased parent can claim Social Security benefits.  And because I was writing about the benefits that a worker’s survivors are eligible for I didn’t cover the benefits of workers claiming benefits but still very much alive.  In fact, the one time it might truly be beneficial for someone to begin collecting benefits early is if they have dependent children.

Here’s why.  Generally, the longer you put off collecting Social Security the higher the benefits.  Of course you also have a break-even point because obviously if you begin to collect benefits, it takes a while before the higher benefits you are now collecting catch up in value to the lower benefits you might’ve collected over time.  Once a person reaches the break-even point, the early claimants lose money every monthly payment after that.  If you live to the age of the “average” retiree based on Social Security’s calculations the two should balance out.  In other words, the higher monthly payment for a shorter period of time should amount to the same amount of money as the lower payments for a longer period as long as you live to the average age.  The moment you live a month longer than that average you begin to lose money.  Here’s something else to consider.  Those statements, in fact nearly everything I’ve said so far in this paragraph are true only if you don’t have anyone else collecting benefits on your record.

Say you married a second time (or a first time but later in life) and you have children later in life.  You reach 62 years of age and you have a younger spouse and a child or two still at home (or grandchildren in some cases).  It may actually make more sense to collect Social Security at age 62 rather than wait because the decision no longer involves just you but also your spouse and your child or children.  If other members of your family are also claiming benefits, your break-even point will be much further out.  About 4.4 million children receive Social Security benefits each month because one or more of their parents is either deceased, retired or disabled.  In addition, any spouse caring for any child receiving benefits is also eligible for benefits.  Larry Kotlikoff wrote about this in his article for PBS Newshour.

Just the facts:

  • Children can collect Social Security benefits if they are the biological, adopted or dependent stepchild of:
  • A parent who is disabled and entitled to Social Security benefits;
  • A parent who is retired and entitled to Social Security benefits; or
  • A parent who has died after working long enough in a job where he or she paid Social Security taxes.

The requirements for the child are:

  • The child must be unmarried (although not always if the child is disabled);
  • The child must be under 18 or else 19 or younger and a full time student attending school no higher than grade 12; or
  • The child may be 18 or older an disabled if the disability occurred before age 22.

Here’s the Social Security paper on child benefits.

Deciding when to apply for Social Security benefits is a complicated decision that requires a look at who else might apply on your benefit, whether or not you can apply on someone else’s benefits, your family history, your work history and even the type of work you do.  The people who work at Social Security can provide answers but they cannot advise you on decisions about maximizing your benefits.  That’s why it’s often a good idea to hire a financial advisor to help look at the various scenarios so that you can make an educated decision on your benefits.  Getting good advice on Social Security has the potential of increasing Social Security benefits by $100,000 or more.  But too many financial advisors simply don’t appreciate that their advice should go beyond claiming early and investing the money, a strategy that might cost you a tremendous amount of money in the long run.  Social Security has a remarkable amount of information on their website and it is surprisingly easy to use.  I’ve spent a great deal of time with Andy Landis’ book “Social Security: The Inside Story” recently and you can’t go wrong with his easy conversational approach to what is surely one of the most complicated decisions you will ever make.  The final suggestion I have for you is to consider hiring a Preferred Partner for your financial planning.  If they hadn’t considered the ramifications of your Social Security benefits before they became Preferred Partners, they assuredly have after receiving their training.  And because it isn’t always possible hire a Preferred Partner, make sure you ask anyone you are considering hiring about their approach to Social Security planning.  If they haven’t got one, run don’t walk until you can find someone that takes your Social Security benefit seriously.

Additional articles of interest:

Social Security Family Benefits

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