Editors' pick: Originally published Oct. 10.
The often unspoken fearful question harbored by seniors is this: am I leaving Social Security benefit money on the table?
That is a valid worry, for three big reasons.
First: Social Security, for many elderly, is what they live on. The Social Security Administration says that 48% of married couples and 71% of singles receive more than half their income from Social Security. 43% of singles and 21% of couples receive more than 90% of their income from Social Security.
Second: the Social Security Act is immensely complicated. Its first version - the 1935 law - ran 29 pages. The current law is around 2,600.
Third: Although recent laws have closed many Social Security loopholes, the fact remains that there are tactics and gambits - sometimes esoteric - that will raise a person's lifetime take from the system, and there also are mistakes that are just about guaranteed to lower the take.
Read that again: experts insist that Social Security decisions you may, or don't make, may raise or lower your payout from the system by six figures. That's $100,000 or more in lifetime benefits that are claimed, or lost.
Can't you just ask Social Security what to do? Financial adviser Charles Scott, founder of Pelleton Capital Management, said, "Don't expect the kind folks at the Social Security office to help you come up with the best strategy for you. That's neither their job nor are they really allowed to offer any of that kind of advice. If you're not talking with someone who has spent a lot of time studying the many, many options for people, you're likely to choose what could turn out to be not the best choice for you."
He's right -- especially if yours are complicated questions.
The biggest mistake: claiming Social Security too early. That dramatically reduces benefits, forever. Assume a hypothetical payout of $1,000 per month at full retirement age (66 nowadays). Claim Social Security at the earliest age - 62 - and the payout drops to $750. Delay until 70 (and there's no reason to wait beyond that), and the check climbs to $1,320. That's why just about all experts preach delaying.
A lot of us aren't listening. In 2013, according to the Social Security Administration, 48% of women claimed benefits at 62. 42% of men did likewise. However, if you honestly need the dough, claim it and don't think twice. If your personal medical history - or family history - makes you skeptical you will live long enough to break even with a delay to 70 (probably you need to live until 80+ to break even), also forget this advice.
But if your health is good, and your finances are decent, the longer you can wait before claiming Social Security, the bigger the check.
You'd like to delay but your pocketbook is lean? Ash Ahluwalia, president of National Social Security Partners, suggested "drawing down on your IRA or 401(k) early to delay the start of your Social Security payments can boost your lifetime income." That's sound advice on multiple levels. Every month you delay claiming Social Security increases your benefit and, sweeter still, those tax advantaged drawdowns increase the amount of your income and, therefore, the size of your Social Security check. That makes this a doubly smart move.
There are other areas to ponder. Survivor benefits are a big - and often misunderstood - Social Security benefit, said Wei-Yin Hu, a Social Security expert with investment advisor Financial Engines. An important wrinkle: if a spouse takes Social Security early, getting a reduced benefit, that lower amount will impact the size of the survivor benefit a widow or widower can claim.
Conversely, said Hu, "If the primary earner delays taking a benefit, the survivor's benefit also increases." Survivor benefits can add up to big money for recipients -- but this is a complicated area misunderstood by many claimants, said multiple sources.
Note: where the stakes are highest is when one spouse has much higher income than the survivor.
Drawing an ex-spouse's benefits still remain an attractive option. Congress has closed many loopholes in recent years but this one remains. And taking this money has no impact on the ex's Social Security, nor will he or she ever know about it unless you tell them. Said Ahluwalia: "As long as you are divorced but were married for at least 10 years, divorced for at least two years, and you and your ex are at least age 62, you may be eligible to claim benefits based on your ex-spouse's benefit amount, as long as you are not remarried."
Particularly smart is claiming ex-spouse benefits at, say, 62 and then at 70, claiming one's own, optimal benefits - payments that would have been much lower if claimed at 62. Age restrictions apply to who can take this and who can't but for those who are eligible it is a very shrewd move.
More advice: where you live will impact Social Security and that's especially so in the 13 states that tax the benefit: "Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia."
Bottomline: Social Security optimization is every bit as complex as you fear it is. If in doubt, seek out help.