There are a few irrevocable financial decisions in retirement and the largest one for most people is selecting the filing date for Social Security retirement benefits (SSI). This is a critical decision that is best to get correct. Unfortunately, there are hundreds of scenarios to consider when making and optimizing this decision, especially if you are part of a legal couple. Instead of paying $1,500 to a financial advisor, you could choose free and cheap software to evaluate this for you.
Half of retirees file for SSI and begin drawing money before age 64. I presume most of these people have little other source of income and need the money immediately – so there is no decision to be made. However, for those with retirement assets, pensions, and possibly full or part-time work – there are strategies to maximize your monthly payment. Before April, 2016, there were many filing options and loopholes, but Congress closed those.
Like everything, you get what you pay for. There is free software for SSI benefits, but THEY DO NOT provide claiming strategies, so they are a horrible choice. Some charge $29-$49 to subscribe for a month; or have free trials to examine if they are a fit for your circumstances.
Items to consider:
- Your SSI payment is based upon your highest 35 years of earned income. If you are earning a high amount you can review your SSI statement to learn if working another year or two would dramatically increase your payment.
- Each year after age 62 that you delay filing, and you keep working full-time, you can increase your payment by roughly 8%, until age 70.
- How is your health and expected longevity? There are breakeven points for delaying your filing and it won’t be worth it if you don’t expect to live beyond age 80.
- A spouse, or ex-spouse, may qualify for benefits on your income, and that is a “File” or “File & Suspend” issue separate from optimizing your benefits.
- A significant element of retiring from work before age 65 is health insurance. You cannot apply for federal Medicare insurance until age 65 and it is relatively expensive to pay on your own until that date.
- Beware that SSI is taxable and the more you make, the higher your monthly Medicare deduction will be. (I know someone whose monthly SSI payment is reduced by $945 per month for Medicare taxes.)
- Do not ask SSI staff for assistance, they may not know all the rules and your entire financial picture.