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Full retirement age: The Social Security golden goose?

As they approach retirement, there’s a pretty good chance your Baby Boomer clients (like me) are recalling their more youthful days and lessons learned.

There’s one lesson I’ve made standard in my Social Security seminars, one that connects well with prospects and clients: “The Goose and the Golden Egg.” As you may recall, the owner of the golden goose is the beneficiary of a valuable resource. Yet, in the end, actions taken out of a bad assumption, fear and greed, lead him to make a choice he will regret for the rest of his life.

By applying this lesson (courtesy Aesop’s Fables) with good information rather than bad assumptions, a well-planned Social Security decision can serve as a valuable tool in your retirement-planning strategy.

Does your client understand FRA?

At the Nationwide Retirement Institute, we help advisors help their clients make better retirement-planning decisions. We do this by simplifying and breaking down complex retirement issues including health care, long-term care and today’s focus: Social Security.

When managed as part of a comprehensive income plan, full retirement age (FRA) can be your client’s golden goose — a resource that keeps on giving throughout their lifetime. By waiting to file for benefits to begin at FRA, individuals will receive their full monthly Social Security benefit. (Your clients’ FRA monthly benefits can be found on page two of their Social Security earnings statement. Note: This is a rough estimate and not intended to reflect an actual benefit amount.)

FRA is predicated upon the year and month your clients were born. For example, a client born in February of 1957 would reach FRA in August at 66 and 6 months.

graphic showing full retirement age details and benefits

The earliest individuals can collect Social Security, excluding disability claims, is 62, but claiming early comes at a cost. If your clients take benefits before reaching their FRA, their monthly benefit is be reduced.

Consider this: Your client’s FRA is 66, and they claim benefits at 62. Their monthly benefit will be reduced by 25%.

On the other hand, if they delay Social Security past FRA, your client’s benefits increase every month they delay filing (up to age 70). For example, a client with an FRA of 66 who waits until 70 to claim Social Security will increase their benefit by 32%.

graphic showing starting age of SS benefits

If your client is eligible for a full benefit of $1,500 per month at FRA (age 66) but claims Social Security at 62, their monthly benefit will be reduced to$1,125.

According to the Social Security Administration, in 2017, despite a reduction in their monthly benefit, nearly one-third of all filers started benefits at 62 — the earliest possible age, with the largest reduction in benefits. Additionally, more than half (54%) of filers applied for benefits prior to reaching FRA.

graphic showing new Social Security claimants in a calendar year

Filing for Social Security early: What’s the impact?

With such meaningful consequences, why do so many opt for reduced benefits by filing early?

For some, it’s their only source of retirement income. Others may be faced with an unexpected job loss, dealing with failing health or the added expense of caring for loved ones.

At my seminars, the two most concerning non-health related reasons I hear from people planning to file early are “fear of social security going broke” and “that’s what everybody else does.”

Some reasons for early filing are appropriate — wise, even — while others are not quite so valid. The Nationwide Social Security 360 Analyzer® provides you with the chance to initiate more realistic conversations with your clients about how and when to file for benefits — in a way that suits their overall retirement income needs. Our tool can help you identify clients’ personalized and customized filing strategies to meet their specific needs and objectives. Whether to recommend filing early for one client, at FRA, or to delay filing for another, you need to demonstrate your value by helping you clients make the right decision.

Back to our Golden Goose analogy — let’s consider some of the benefits for those who can wait to file until FRA:

  • They receive their full monthly benefit without early filing reductions.
  • If born on Jan. 1, 1954 or earlier, they can file for a restricted benefit and receive 50% of their spouses or ex-spouse’s primary insurance amount (PIA), while their own record still grows at 8% annually. (Delayed credits continue until they decide to file for benefits or age 70, whichever comes first.)
  • If born Jan. 2, 1954, or later, clients who have attained FRA can receive 50% of their spouses or ex-spouse’s PIA, or their own benefit, whichever is greater, but their own benefit no longer grows. People often confuse this “spousal filing” with the restricted filing. They often ask, “If I take a spousal benefit, will my benefit amount still grow, and, can I turn it on later?” Unfortunately, no.

There is another benefit to consider for all filers, even those who have filed before FRA: the impact of FRA on working and collecting Social Security benefits.

This topic is often misunderstood and generates questions during many of my seminars. At FRA, anyone collecting Social Security benefits and working will be able to collect their full monthly Social Security benefit without a benefit reduction. Additionally, any benefits withheld while working prior to FRA will be returned fractionally as part of your client’s total monthly benefit for as long as they live.

graphic showing how working impacts Social Security

As Aesop’s timeless lessons apply, when planned for properly, Full Retirement Age can be the Golden Goose that keeps giving over the course of your client’s lifetime.

Sources

  • 1

    SS Supplement 2018. Table 6.B5, Social Security Administration, 2017 calendar year.

    This information is general in nature and is not intended to be tax, legal, accounting or other professional advice. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency.

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