The Value of Procrastination

February 14, 2017

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When it comes to claiming Social Security benefits, procrastination can be a good thing. The Bipartisan Budget Act of 2015 eliminated two of the main Social Security claiming strategies. The first one, File and Suspend, was eliminated in its entirety on April 29th of last year.
 
The second strategy, the Restricted Claiming Provision, was eliminated for individuals born after January 1, 1954. Using this strategy, Spouse A would file for benefits anytime after age 62, (assuming they were no longer working). Spouse B would claim spousal benefits when they turned 66. Spouse B would defer their own benefits and earn delayed credits (8% per year for 4 years) until age 70.
 
There are millions of Americans who were born before 1954 and can still take advantage of this opportunity. In my own case, both my wife were born in 1952. In 2018, she will claim her own benefits. This will allow me to claim spousal benefits while I wait until 70 to claim my own.
 
Why is my wife claiming her own benefits first? My benefits at 66 (Full Retirement Age) are greater than hers. That means that the delayed credits will have a greater impact to us when I turn 70. If I predecease her, she will inherit my benefits and lose her own.
 
Think about all your friends and family members who are in their early 60s and might be able to take advantage of this opportunity. I’d be willing to bet that less than 5% of all couples will use this strategy because so few are aware aware of it.
 

Case study: Cindy

 
Cindy was born in 1955. She turned 62 this month, and called me last week to discuss her Social Security options because she wants to retire now. Cindy’s projected Social Security amount at 66 and 2 months (FRA) is $2,570. If she claims her benefits now, she would get $1,917 per month and be stuck with that amount (plus any Cost of Living Adjustments) for the rest of her life. She had been married, but only for 5 years, so any spousal options won’t be available. Even if she had been married for 10 years, those benefits wouldn’t have been available either, since she was born after 1953.
 
In Cindy’s case, she has $500,000 in an annuity, and makes approximately $10,000 per year doing some consulting work. Her parents are in their late 80s and in good health, as is Cindy. My suggestion would be to use the annuity to create an income bridge while postponing her own benefits until age 70.
 
Cindy’s check at 70, (assuming a 2% annual cost of living adjustment) would be $3,934 per month versus a current check of $1,917. She worked 40+ years to get $1,917 a month in her retirement. It makes sense to wait 8 more years to get $3,934 for the rest of her life.

Topics: Strategic Planning

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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