Five years ago, I wrote a piece addressing concerns about the long-term viability of Social Security (SWM 3rd Quarter 2019 Commentary). Unfortunately, Congress has yet to pass any meaningful legislation to change the trajectory. While there is currently over $2.8 trillion in the trust fund, it is estimated that beginning in 2034 only 80% of each benefit due will be covered under the current law. There is still plenty of time to remedy this situation, but it comes down to motivation. Impactful legislation could be unpopular in the short-term, and some in Congress may hesitate for fear of hurting their chances of reelection. Nonetheless, there will come a point in which the damage of inaction will outweigh the damage of action. Because of this, our assumption remains that Social Security will ultimately be fixed. The scale and timing of new legislation, however, remains impossible to predict but will likely have little impact on those near to or already claiming their benefits.
In the meantime, decisions still need to be made regarding the best claiming strategy. Many factors come into play, like cash flow, overall net worth, asset liquidity, and longevity. Each circumstance is unique, but there are a few fundamental concepts to know when deciding when to start your benefits.
Full Retirement Age (FRA): Based on year of birth, FRA currently ranges from age 66 to age 67 and is the age at which you receive 100% of your earned benefit. Your full benefit amount is known as your Primary Insurance Amount (PIA). You can claim your benefit as early as age 62 or as late as age 70. Benefits adjust from your PIA when claimed before or after FRA. The largest adjustment is for delaying until after FRA, where you get an annual 8% increase until age 70. Therefore, if you can afford to delay, you receive more lifetime Social Security income as long as you live past your break-even point, which generally ranges between ages 80-82.
Spousal Benefit: A spouse with a significantly lower benefit amount is eligible to receive up to 50% of their partner’s PIA. The partner must be receiving benefits for the spouse to qualify. Spousal benefits are also adjusted down if taken before FRA but do not increase if delayed. Divorced spouses, who have not remarried, may also be eligible if they meet certain requirements.
Deemed Filing: Enacted in 2016, if you apply for spousal benefits you are assumed to be filing on your own earnings record as well. This eliminated the ability to file a restricted application where you claim only your spousal benefit while letting your personal benefit grow before later switching to your now higher benefit.
Survivor Benefit: If your spouse passes away, you are eligible to receive their benefit amount if it is higher than yours, however, you cannot receive both. There are also additional benefits for dependent or disabled children.
Whether you have already claimed benefits or are decades away, the Social Security website is a one-stop shop for all things related to your Social Security benefits. If you are already receiving benefits, you can check benefit and payment information, update your direct deposit, or get replacement tax forms. If you are not yet receiving benefits, you can check your earnings record or get an estimate of your future benefits. We recommend setting up a my Social Security account, if you have not already, at www.ssa.gov/myaccount.
When the time comes, we are here to help analyze your options and ensure you make the most informed decision of when to claim your benefits.