Creating the Bridge: When and How to Claim Your Social Security Benefits

July 11, 2017


As we’ve discussed over the past 18 months, The Bipartisan Budget Act of 2015 really threw a wrench in spousal claiming options. The file and suspend option was eliminated on April 29th, 2016 and the Restricted Claiming Provision wass eliminated for those individuals born after 1953.

So what does that mean for individuals and couples who are planning for retirement? What are their options about when and how to claim their Social Security benefits?

Rule of thumb: Whatever your benefit is at 62 it will be double at 70

Even under the old rules regarding spousal claiming options, only 2% of retirees waited until age 70 to claim Social Security benefits. The $64,000 question then is how many will be willing to wait, if they can’t claim spousal benefits or divorced spousal benefits at age 66 (Restricted Claiming Provision) while postponing claiming their own benefits until 70?

I’ve run hundreds of analyses over the past 5 years and, in most cases, I’ve recommended that the higher earning spouse delay claiming their own benefits until age 70 — especially if either spouse is healthy and longevity runs in the family. The reason for this is twofold. First, I want to capture the delayed credits of 8% per year an individual earns between age 66 to age 70. Second, upon the death of either spouse, the surviving spouse inherits the greater of the two benefits. Thus, if the husband had the higher benefit, the wife would inherit his benefit upon his death.

There are only 3 options available

If you decide to take my advice and wait until 70 to claim your own benefits, what are the 3 options to fill the income gap between now and your 70th birthday?

Option #1: Work

Contrary to popular opinion, work is not a 4 letter word. It’s been my experience that those who continue working tend to live longer, happier and more productive lives. As a matter of fact, many individuals wish to continue working in some form and I believe that phased retirement will be huge in the coming years and decades.

Option #2: Use your investments

Qualified Plans (IRA’s, 401k’s, etc.) were designed for one purpose only: to create income during retirement years. However, the dilemma many individuals struggle with is running out of money before they run out of time. Since none of us knows our check out date, people are are usually reluctant to spend down on their principal, especially when they can start drawing on Social Security.

Option #3: Use your Home Equity

Over the last two years, I’ve studied, explored, examined and even gotten licensed to offer Home Equity Conversion Mortgages (Reverse Mortgages) to individuals and couples who meet the requirements. Now, before you question my sanity, hear me out.

Think of a HECM as an Irrevocable Line of Credit that uses your home as collateral. Borrowers must be 62, own their home, and intend to live in the home as their primary residence, just like any other type of mortgage. Should you decide to sell your home, you would pay off the mortgage (if any) and receive the proceeds from the sale.

Unlike a traditional mortgage, the homeowner does not have to pay principal and interest until the home is sold or both spouses pass away. However, the individuals must pay property taxes, insurance, and general upkeep of the home. They must also continue to live in the home as their primary residence.

Why would I use one?

  • Pay off any existing mortgage and use unused LOC (Line of Credit) when needed.
  • Create a Social Security Bridge. Instead of taking Social Security at age 62, take money from the LOC to create spendable income while delaying Social Security benefits until 70.
  • Use the LOC for income in down stock markets. That means you can avoid selling off securities at depressed prices during Bear Markets (like we went through in 2008 and 2009). When the market comes back, you can sell off securities to pay off the LOC if you wish.
  • To purchase a new home without having to put down 100% of the purchase price of the new home. This is huge for individuals who wish to downsize or move into their dream home, but do not want or can’t qualify to carry a traditional mortgage or use up all their liquid assets to do so.
There are a number of other uses for a HECM. Considering the alternatives (continuing to work or liquidating investments), using home equity may be a viable option for some people.

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Dave Zander

Back Nine Financial

After spending the first 25 years of his career on what he calls the “front nine” (the accumulation phase), Dave has dedicated the last 16 years to the “back nine” (the income phase). He ran both Aetna’s and Lincoln National’s income divisions before starting Back Nine Financial in 2005. Back Nine is strictly an educational, consulting and speaking firm. He primarily works with CPAs, corporations and individuals to help them understand and maximize Social Security benefits. Dave has conducted Social Security Workshop across the country for a variety of audiences, including the Texas CPA Tax Institute and the CPA societies in Houston, Dallas, San Antonio and Austin for each of the last 3 years. With 10,000 Baby Boomers turning 66 every day for the next 17 years, Dave feels it is incumbent upon financial advisors, CPAs, HR departments and other professionals to make sure their clients, employees and the American public best understand not only how to take Social Security, but to also understand and integrate that claiming decision with their other assets.
 Dave is a graduate from the University of Wisconsin – Whitewater with a BBA, majoring in marketing with a minor in accounting. He left EF Hutton and gave up Wisconsin winters in 1983, moving to Houston where he met Diane. They been married 30 years and have been blessed with 2 children, Macy and Miles, who have now graduated from college and are on their own. Dave & Diane live outside of Boerne, TX.
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