I have decided that I am going to use my social security benefits as a short-term life insurance policy.
We all know that you can begin collecting social security at ages that range from 62 to 70; bracketing your full retirement age which is basically between 66 and 67. If your retirement age was 65, then you are already collecting and this strategy is meaningless.
I am in my early 60’s, self-employed and do not plan to slow down for a long time. My social security benefit at age 66 will be about $2,500 per month or $30,000. For each year that I delay taking it, the benefit will increase by 8 percent plus any cost-of-living adjustments. For arguments sake, assume that there are none, and that means at age 70, my benefit would be $3,300 each month or $39,000 per year.
If you have the resources that would allow you not to take your money at full retirement age, the increased benefit is attractive. This feature is important to married people because it allows them more planning options in order to maximize their combined payouts. However, even us singles benefit.
One problem with delaying the benefits would be if you die earlier than normal life expectancy, which for a male my age is in the early 80’s. While I hope to follow Spock’s command to “live long and prosper,” there are no guarantees. However, what I am going to do is the following:
At age 66, I will file for my social security benefits and ask that they suspend payments. This is the most crucial step. I must file a claim with the agency letting them know that I have reached full retirement age. By filing, I have a few options available. Between age 66 and 70, I can collect my benefit at the adjusted rate. If life has been good to me, financially and health wise, at age 70 I can collect the higher benefit.
If life has thrown me a few curves, then I have two great options. I can take the benefit adjusted for the age or ask for a lump-sum amount, which will be the total for each of the months between the date that I filed and the date that I request payments.
If at any time, up to age 70, I were diagnosed with a disease that shortened my life-expectancy, I could get a nice lump-sum payment of over $30,000 plus per year spend it on what was important to me or leave it to my heirs.
If I did not file with social security until I was 69 or 70, I would not be able to claim all my previous years’ benefits. Even if you have no plans to collect, you simply must file a claim when you reach your full retirement age – it is a no-brainer!