When I speak to groups on Social Security claiming strategies I like to make it clear that my goal isn’t to help them wring every possible penny out of their potential benefits (though that’s okay if it happens). Rather, my intent is to provide insights into how to put our benefits to work for us to provide a dream retirement—often sooner instead of later.
It’s true that for most of us the best strategy for maximizing our cumulative lifetime benefits—all else being equal—is to wait to claim them at the age where we collect the greatest benefit amount, age 70 for a work-based claim. This usually results in tens of thousands of dollars more in lifetime benefits for a single person and commonly well over $100,000 for married couples if we simply live to our average life expectancies.
The problem with this “rule” is that “all else” isn’t always equal; in fact, it rarely is. I can make a strong case that we are better off waiting to claim our benefits if other funds are available to support us in the meantime. However, sufficient funds are not always there in our savings. As a result, if we want to retire or start a dream life overseas sooner rather than later, there are several circumstances in which we may want to start benefits earlier in order to live that dream.
Let’s look at an example of how to find a smart claiming strategy that delivers our dream sooner, while still locking in higher benefits to serve us for the duration of our retirement.
Consider Ray and Rhonda, who are both 60. They have jobs that basically cover their living expenses. There is no desire to work any longer at these careers: true, working longer will delay any need to dip into their savings of $125,000 and avoid starting Social Security early—if they work past age 62, a dreary and disheartening thought. At 66 Ray’s Social Security benefit will be around $2,320; Rhonda’s will be $1,933. What to do?
Clearly they could live off their savings for two years then start their Social Security benefits at 62 at a reduced combined rate of $3,490 per month (reduced because they claim before their Full Retirement Ages). If you have been following International Living for any amount of time, you are aware that almost all the overseas retirement locations covered offer comfortable (even luxurious) living at well under this income. They should even be able to save some.
However, there is a far better option when it comes to their long-term financial security. Rhonda could claim her benefit at 62 in the amount of $1,450 a month. If they live on a budget of around $2,000 per month during those years—more than adequate for an excellent standard of living in many locations—they can wait to tap Ray’s benefit until he is 70, in the amount of $3,072. Thereafter they will loosen the purse strings and spend at a rate of $3,000 per month, a generous budget.
Their monthly income is $4,522 thereafter. That affords them plenty of room to replenish their savings and live at a very high standard almost anywhere they are. In fact, if they each live to their average life expectancies, they will be over $91,000 ahead compared to the both-claim-at-62 strategy (assuming identical spending under either scenario). Not a bad bonus for living the exact same lifestyle.
If they live beyond their average expectancy the extra savings continue to pile up at the rate of just over $12,000 a year thereafter. In addition, they lock in a survivor benefit of $3,072, over 76% greater than the claim-at-62 strategy.
This is just one specific illustration. Everyone has their own set of circumstances and there is no way to begin to cover them all here. The lesson we should take away from this example is to learn how the Social Security rules will apply to our particular circumstances so we can develop a custom plan that will best serve us throughout our lifetimes—and better still, permit us to make that move sooner rather than later with full confidence in locking in financial security throughout the remainder of our lives.
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