Ask Larry: What Is The Best Month Of The Year To Start Social Security Benefits?

Today’s column addresses questions about the best time to file, lump sum payments and benefit rates, earnings after 70, when public pensions affect benefits and calculating benefit amounts. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, a company that markets Maximize My Social Security and MaxiFi Planner.

See more Ask Larry answers here.

Ask Larry about Social Security here.

What Is The Best Month Of The Year To Start Social Security Benefits?

Hi Larry, I turned 66 in July and have not applied for my Social Security benefits. I’ve been told that it is critical to apply at a certain time of the year of the year to get the full benefit of the recalculation each year while I’m still working. I will work until 70, at my highest income level, which will make up for those lean years as they drop out of the calculations. What month of the year is the best time to begin Social Security? Thanks, Carl

Hi Carl, There’s no set universal best month of the year to claim benefits. Each person’s situation is different, and there’s no standard best strategy for claiming benefits. In your case, it sounds like it may be best for you to wait until the month that you reach 70 to claim your retirement benefits, but you may have other better options available to you. You may want to use one of my company’s two tools — Maximize My Social Security or MaxiFi Planner — to both determine your correct benefit rates, and to explore your filing options in order to identify your best strategy for claiming your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care.

Regarding benefit recomputations, your benefit rate can be recalculated after each year in which you have higher earnings than you had in one of your previous 35 years of wage-indexed earnings. The new rate would first be effective for benefits payable for the month of January of the year following the year in which you had the higher earnings. But you would still get the recomputation regardless of what month you claim benefits. Our software would allow you to determine what effect your future year earnings would have on you benefit rate. Best, Larry

If My Friend Received A Lump Sum From Social Security, Will It Affect Her Benefit Amount?

Hi Larry, My friend just started collecting Social Security. She was born in 1952 and started collecting at 67. She also took a lump sum payment. This sounds too good to be true but it also sounds like it might affect monthly amounts. She continues to work. I’ve been thinking of starting my receiving mine when I turn 67 next year. What can you tell me about getting lump sum payments? Thanks, Jill

Hi Jill, Since your friend filed for benefits a year after she reached her full retirement age (FRA) of 66, she was allowed to claim benefits retroactively for the maximum possible six months. Assuming that’s what happened, Social Security would then pay her back pay in a lump sum.

However, assuming that your friend filed for her own Social Security retirement benefits, choosing to accept retroactive benefits will have a negative impact on her benefit amount. If she had started drawing effective with the month she turned 67, her benefit rate would have been 8% higher than her FRA rate, or primary insurance amount (PIA). But, since she apparently opted to claim benefits retroactively to the month she reached 66 and and a half, her benefit rate will only be 4% more than her PIA. If she had instead waited until 70 to claim her benefits, her benefit rate would have been 32% higher than her PIA. Therefore, claiming benefits sooner rather than later will mean a significantly lower benefit rate for your friend.

Since you were born prior to 1/2/1954, if you could qualify for spousal or divorced spousal benefits you could potentially claim those benefits now and wait until 70 to start drawing your own benefits. Even if you aren’t eligible for spousal or divorced spousal benefits though, you probably still have numerous options available to you with regard to your own Social Security retirement benefits. Best, Larry

Will My Earnings After 70 Affect My Social Security Benefits?

Hi Larry, I’ll be 70 soon but will keep working. How can this affect my benefits? Will it reduce them? Increase them? Or will it have no effect? Thanks, Ben

Hi Ben, There is no limit on how much you can earn and still draw your Social Security benefits once you reach full retirement age (FRA). So, earnings after 70 wouldn’t affect your ability to receive benefits.

Additional earnings on which you pay Social Security taxes can be used to calculate or recalculate Social Security retirement benefits regardless of a person’s age at the time they have the earnings, so if you continue working after 70, your earnings could cause your benefit rate to increase. Social Security retirement benefits are calculated based on an average of a person’s highest 35 years of wage-indexed earnings, so your future earnings would only increase your benefit rate if you earn more in a year than you did in one of the 35 years previously used to calculate your benefit rate. Best, Larry

Can I Get My Full Social Security Benefit With No Reduction Until I Start Collecting My PERS?

Hi Larry, I am contributing to PERS and am FRA and have paid into Social Security for over 40 quarters. If I continue working and don’t start collecting from PERS, can I get my full Social Security benefit with no reduction till I start collecting my PERS? Thanks, George

Hi George, Yes. The Windfall Elimination Provision (WEP) doesn’t apply until you actually claim your non-covered pension. Best, Larry

How Would I Calculate My Benefits?

Hi Larry, My FRA is 67. I plan to retire and stop earning income at 65. However, I wanted to wait until I’m 70 to start my Social Security benefits. How would I calculate my benefits? Thanks, Patrice

Hi Patrice, You could try doing your own calculations following the instructions in Social Security’s operations manual, but all future benefit calculations can only be approximated until shortly prior to the year that a person reaches age 62. That’s because part of the information required to calculate the person’s base benefit rate isn’t available until then.

You could also try using one of many online calculators, but we believe that the benefit calculator contained in our software — Maximize My Social Security or MaxiFi Planner. The software allows you to enter your projected future earnings so that you can determine what effect those earnings would have on your benefit rate. The software would also permit you to explore and compare all of your various filing options so that you can determine the optimal strategy for claiming your benefits. Other calculators can also provide proper suggestions if they were built with extreme care. Best, Larry

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