Navigating Social Security, optimizing retirement | Ben Esget

By Ben Esget
Contributing Writer 

I am constantly questioned about Social Security. One of the things that make it a difficult system to navigate is that it is extremely complex and changing all the time.

Several years ago a loophole closed that allowed participants to begin receiving benefits at age 62, collecting money and then paying it back at age 70, increasing their benefit as if they had waited to start collecting till age 70. Participants could keep the interest they earned without penalty, and a tax credit would be issued for the amount of tax paid.

Congress is currently discussing ideas mentioned in several white papers to actually pay people 62 and over to keep working and postpone collecting Social Security until age 70. Obviously, if this policy is enacted, it would be well received by many retirees.

Currently the system is set up to pay a higher benefit for those that wait.

For instance, let us assume that your benefit at full retirement age (66) would be $1,500 per month. If you elect early retirement at 62, your benefit would drop to $1,125 per month. But if you were to wait till age 70 to start collecting, your benefit would jump to $1,980 per month. The difference between the monthly benefit at age 62 and 70 is 62 percent.

This is a significant difference for a person with an average life expectancy, and given the current low interest-rate environment, it is most likely greater than the rate of return you could earn on your own without significant risks.

If you are single, the biggest consideration regarding when to start collecting Social Security is your health and cash flow needs. If you are healthy and can afford waiting, you will most likely benefit from delaying as long as possible to start collecting Social Security.

For a married couple the decision is more complex.

Health and cash flow needs are still critical, but the surviving spouse keeps the higher of the two Social Security payments, so you can engineer the situation to maximize the benefits. Because there are now two people to consider, only one of the two needs to live up to life expectancy for the deferral to work. Many experts suggest analyzing the earnings of both spouses and deferring the benefit of the highest earner till 70.

The bigger the difference between wage earners, the bigger the difference in benefit, and thus the larger the benefit will be for deferring the highest wage earner.

Similarly, a larger age difference between spouses means one person may have many more years to collect Social Security. In this situation, careful analysis of both benefit calculation as well as total life expectancy should been considered, because one person may have many years to collect Social Security.

Occasionally it might make sense for both spouses to defer their benefit. This occurs when spouses are close in age, both healthy, and had similar earnings throughout their life.

Every household’s situation is unique and not every variable can be considered in a general discussion of Social Security. Keep in mind that we live in a low-return environment, so the difference in lifetime benefits of this magnitude should not be considered haphazardly.

Ben Esget is the president of WealthMark LLC, an investment firm in Bellingham. His writes occasional columns for Esget also runs the finance blog, in an effort to level the playing field between Wall Street and Main Street. Contact him at 360-734-1323 or

Author’s note: The information in this column should not be construed as investment advice. Everyone’s goals and investment portfolios are unique. Please contact a financial adviser or an accountant for your particular needs.

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