Social Security Retirement Income Mathematics

The old saying that a bird in the hand is worth two in the bush works most of the time, but it may not apply for everyone concerning Social Security retirement income benefits. In fact, the Social Security system rewards people for delaying their retirement income benefits claims.

People become eligible to receive Social Security retirement income benefits at 62 years of age. However, people who claim Social Security benefits at age 62 received substantially less than the full amount of benefits that they would receive if they would begin withdrawing at the age of full retirement. Federal legislation has also been increasing the age of full retirement as follows:

Age To Receive Full Social Security Benefits

Year of Birth Full Retirement Age

1937 or earlier 65

1938 65 and 2 months

1939 65 and 4 months

1940 65 and 6 months

1941 65 and 8 months

1942 65 and 10 months

1943--1954 66

1955 66 and 2 months

1956 66 and 4 months

1957 66 and 6 months

1958 66 and 8 months

1959 66 and 10 months

1960 and later 67

(source: http://www.ssa.gov/planners/retire/retirechart.html)

Social Security rewards retirees even more if they delay claiming their retirement beyond full retirement age up to age 70. The following table shows the amount of annual and monthly benefits increase that people can receive if they delay their retirement benefits claims until age 70:

Year of Birth Monthly Rate of Increase Yearly Rate of Increase

1933-1934 5.5% 11/24 of 1%

1935-1936 6.0% 1/2 of 1%

1937-1938 6.5% 13/24 of 1%

1939-1940 7.0% 7/12 of 1%

1941-1942 7.5% 5/8 of 1%

1943 or later 8.0% 2/3 of 1%

(source: http://www.ssa.gov/planners/retire/delayret.html)

For a real-world example of how delayed retirement strategy works, consider a 50-year-old married couple with each person earning $25,000 per year in 2015. If the couple would take their full retirement benefits at age 67, they would receive approximately $11,880 per year; a lifetime benefit value of approximately $522,700. The delayed strategy gets kind of crazy, so follow these steps carefully: 1) wife files and suspends her benefit claim in 2033; 2) husband files, and then restricts application to spousal benefits, receiving approximately $5,940 per year in 2033; 3) husband and wife filed for their own benefits of approximately $14,731 per year each in 2035; resulting in total lifetime benefits of approximately $577,600; a difference of almost $55,000 during the couple's retirement.

The following table shows a comparison of these strategies for such a couple with different annual earned income levels (per person, with household cumulative earnings difference):

Income SS Full Retirement SS Delayed to 70 SS Household Cumulative Difference

$30,000 $13,416 $16,636 $61,982

$40,000 $16,488 $20,445 $76,175

$50,000 $19,560 $24,254 $90,367

$60,000 $22,632 $28,064 $104,560

$70,000 $25,260 $31,322 $116,701

(source: http://individual.troweprice.com/public/Retail/Retirement/Social-Security-Tool)

People who have earned enough income to qualify for Social Security retirement benefits can calculate the effects their own benefit strategies using the Social Security Administration's Retirement Estimator available online at: http://www.ssa.gov/retire/estimator.html.

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and Jeff is a Fellow of the American College of Trust and Estate Counsel. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator and the 2014-15 President of the Indiana State Bar Association.

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