Business & Investment

Opinion: This hidden wrinkle of social security helps determine when to apply for benefits

Financial advisors often help clients decide when to apply for social security benefits, apply before full retirement (FRA) to reduce benefits, or for “full” benefits. Allows you to choose between applying to your FRA or delaying your post-FRA benefits. Until the age of 70 (at the latest), increase monthly benefits by 8% annually.

In many cases, advisors will not expect clients to live long enough to be worth delaying submissions (for example, as a health issue) unless there is a clear reason.

However, for some people, deciding when to apply for social security is not exactly a number. Individuals are worried or questioned about the decision to postpone submission if they are afraid that they will not be able to live long enough to enjoy higher monthly benefits, even if the information available supports the case of postponement. You may feel.

These feelings are structured as a one-time choice to submit or postpone, and pressure individuals to make “correct” decisions despite uncertain information (such as future health and life expectancy). Sometimes it can grow. Based on that.

As a result, one may feel that social security benefits must be applied for rather than delayed, even if doing so may increase the risk of running out of their retirement savings.

Fortunately, social security rules allow advisors to restructure their filing decisions so that clients can make more confident decisions about filing or delaying. In reality, deferring social security benefits is not a one-time decision, so eligible individuals can change their minds and apply for benefits at any time. In addition, upon reaching the FRA, the person can apply for up to 6 months of retroactive benefits, so that he or she will receive a lump sum payment of cumulative payments and will be able to activate monthly benefits in the future. This means that if an individual decides to postpone the submission first, he has a de facto six-month grace period without giving up the benefits he would have received if he chose to submit it first.

Therefore, the advisor does not require the client to make a single irrevocable decision over the entire three to four year period from FRA to age 70, but instead a series of six months at a time. You can reconstruct your selection as a reversible decision.

If the client changes his mind and wants to submit within that six-month period, he or she can submit a retroactive application and claim profits as if at the beginning of the period. Otherwise, you can postpone the application for another 6 months and repeat this cycle until the client decides to apply or reaches the age of 70 (at which point you reach the maximum age of late benefit credits). ).

Not only does this framing provide clients with a more rational time frame for predicting future health problems and other factors that may change their minds, but the 6-month interval is retroactive to the individual. The 6-month decision is completely irreversible as it coincides with the period for which benefits can be applied for.

As with any social security filing strategy, it is important to recognize the risks and trade-offs of recommending this strategy to clients. For example, if you apply for a retroactive benefit and receive a 6-month lump sum, your taxable income may spike temporarily. It can have a chain impact on tax credits, credits, and Medicare premiums.

Ultimately, however, by giving clients the option to consider when to claim benefits through a six-month “reversible” decision, advisors can make better choices and act with confidence. We may be able to help you.

Jeffrey Levine is a lead financial planning geek at. Kitces.com, An online resource for financial planning professionals, Buckingham Wealth Partner.. This is a summary of his article, “Getting Social Security Comfortably Delayed with a” Reversible “Delay of 6 Months.” Read here..

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Opinion: This hidden wrinkle of social security helps determine when to apply for benefits

http://www.marketwatch.com/news/story.asp?guid=%7B20C05575-04D4-B545-77CA-26791F71E4BC%7D&siteid=rss&rss=1 Opinion: This hidden wrinkle of social security helps determine when to apply for benefits

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