This hidden wrinkle in Social Security can help you decide when to file for benefits

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Financial advisors often help their clients decide to file for Social Security benefits by helping them file before their full retirement age (FRA) for less benefits, FRA filing for “full” benefits. or delay benefits after FRA. To increase the monthly benefit by 8% p.a. till the age of 70 years (at the latest).

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Often, advisors encourage their clients to delay their filings in order to increase their future monthly benefits (since the “return” on delayed benefits may be higher than the client expects on their invested assets), Unless there are obvious reasons (such as health issues) that the client will not expect to live long enough to make the delay worth the wait for filing.

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But for some people, the decision of when to file for Social Security isn’t strictly about numbers. Individuals may experience feelings of anxiety and doubt about the decision to delay filing – even if the available information supports the case for delay – if they fear they will be able to enjoy higher monthly benefits long enough. will not survive.

These feelings can be amplified when the decision to file or delay is framed as a one-time option, putting pressure on the individual to make the ‘right’ decision despite uncertain information (such as future health and life expectancy). increases. to base it on.

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As a result, a person may feel compelled to file for Social Security benefits rather than delaying them, even as doing so may increase the risk of depleting their retirement savings.

Fortunately, Social Security rules allow advisors to reschedule filing decisions to make it easier for their clients to make more confident decisions about filing or delaying. Because in reality, delaying Social Security benefits isn’t a one-time decision: An eligible person can change their mind and file for benefits at any time. In addition, once they reach FRA, that individual can apply for retrospective benefits for up to six months, allowing them to receive a lump-sum accumulated payment while activating their monthly benefits. This means that, if the person initially decides to delay filing, they effectively have a six-month window to change their mind without giving up any benefits they may have received. effectively chosen to file in the first place.

Therefore, instead of asking clients to make a single, irreversible decision for the entire three to four year period between the FRA and age 70, advisors opt for a series of reversible decisions for six months at a time. can be redefined.

If the customer changes their mind and wishes to file within that six-month time frame, they can file a retrospective application and claim their benefits as if they did so at the beginning of the period. Otherwise, they can continue to delay filing for another six months, until the customer either decides not to file or reaches age 70 (at which point they would file anyway, The maximum age for delayed benefits credit will be reached).

This framing not only gives the client a more reasonable time frame to look for future health issues or other factors that may cause them to change their mind, but because the six-month intervals align with that period. In which individuals can apply for retroactive benefits, the decision is fully reversible every six months.

As with any Social Security filing strategy, it’s important to be aware of the risks and tradeoffs of recommending this strategy to clients — for example, applying for retroactive benefits and receiving a six-month lump-sum temporary increase in taxable income. That could be, with potentially cascading effects on tax deductions, credits and Medicare premiums.

Ultimately, however, with the option of considering clients to claim benefits through six-month ‘reversible’ decisions, advisors can potentially help them make better choices and act with confidence!

Jeffrey Levine is the Lead Financial Planning Nerd for Kitces.com, an online resource for financial planning professionals, and also serves as the Chief Planning Officer for Buckingham Wealth Partners, This is an abridged version of his article “Easy to delay Social Security with a ‘reversible’ delay of six months” which can read here,

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