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When Should I Collect Social Security?

  • By Jocelyn Black Hodes, DailyWorth's Resident Financial Advisor
  • May 16, 2013


If you are divorced, you are entitled to spousal benefits (as much as half of your ex’s full retirement benefit) if your marriage lasted at least 10 years, as long as you are not remarried and your own benefit is not more.

Before you and/or your spouse collect any kind of Social Security, there are two red flags you should first consider:

  • Taxes. Up to 85% of Social Security benefits can be subject to income tax and about one-third of people who currently receive Social Security must pay taxes on it.
  • Starting early. If you begin collecting Social Security early and are still working, some or all of your benefits may not be paid immediately and could be deferred until your FRA, depending on how much you earn.

If you are unable to reduce your living expenses and/or earn more money and you currently need more income than a spousal benefit can provide in a claim-and-suspend scenario, you can consider a couple of strategies to bridge the gap between current earnings and a greater Social Security benefit.

The first is taking withdrawals from your IRA. Since you are over age 59½, you wouldn’t be subject to the 10-percent early withdrawal penalty. However, keep in mind that withdrawals from a traditional IRA will require paying income tax on the amount withdrawn based on your tax rate that year.

Roth IRA contributions, on the other hand, are ideal for supplemental income since they can be withdrawn anytime, tax-free, and not subject to the 10 percent additional federal tax on early distributions. Earnings from your Roth IRA are generally tax-free and not subject to the 10 percent additional federal tax on early distributions if you are at least age 59½ and have owned your account for at least five years.

Another bridging strategy is to purchase an immediate annuity as part of your retirement savings portfolio, which can provide you with a reliable income stream while you wait to receive a larger Social Security benefit. If the annuity has what’s typically called a “future adjustment option” you could choose to reduce or increase your income stream once Social Security kicked in, depending on your income needs at that time. But be aware that annuities can be complex and fee-heavy products and immediate annuities, in particular, require giving up access to your investment.

While I know that it’s hard to think about the future when current needs are great, life expectancies continue to rise. So it’s important to try to create a retirement plan that provides sustainable income for your entire life.

By utilizing the claim-and-suspend strategy or deferring Social Security and building an income bridge of some kind, you can hopefully make do now and have a higher income stream during retirement. In any case, these are serious considerations and it may be worthwhile to work with a qualified financial planner and/or accountant to chart the right course for you. Good luck!

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