Money Tree's Financial Planning Software Blog

We all receive a periodic statement from the Social Security Administration, providing us our estimated benefits for retirement, disability, and survivors.  While this should be filed or scanned away in a safe place, we all know that this paperwork can get lost in the shuffle.

Do you have a client who how claimed Social Security benefits before having the chance to determine his or her optimal start age?  US News “Planning to Retire” blog posted an article discussing slowing Social Security claims, after peaking in 2009 due to the baby boomer population being hit by the recession and delaying with job layoffs.  The article discusses options for recipients who wish to increase their future Social Security benefits. 

Social Security benefits were not taxable before 1984.  In 1984, 50% of Social Security benefits became taxable, and only to those taxpayers whose income exceeded a set threshold amount.  In 1993, the maximum of Social Security benefits subject to taxation increased to 85%, again with thresholds in place.  The result is Social Security benefits are currently either 0%, 50% or 85% taxable.  For clients with provisional income (the clients adjusted gross income, plus tax-free interest, less Social Security benefits, plus one-half of Social Security benefits) of:

Most eligible retirees begin taking Social Security benefits upon reaching age 62, but is that really the best time for your client to start receiving his or her benefit?

According to a recent working paper on maximizing the present value of benefits by Economists John Shoven and Sita Nataraj, a critical factor in the decision of when to start collecting benefits is the current interest rate.  When interest rates are low (3.5% or below), the benefit of delaying Social Security benefit generally outweighs starting benefits at age 62.