By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Elder Care Attorney
When you finally start the process of estate planning, you are generally advised to coordinate your wealth with your retirement plan. Why? Your wealth determines your spendable cash flow during your retired years and your retirement plan will influence how much of your estate will be left to your family after death. A factor to consider when planning is when to begin receiving Social Security benefits.
Social Security Planning Does Matter!
Let’s start with a premise. You can begin receiving Social Security benefits as early as age 62 or delay benefits until age 70 ½. The longer you wait to collect, the higher your monthly benefit. The reason is because Social Security is designed to give you the same total benefit (based on government life expectancy tables) regardless of when you begin receiving payments.
If you start benefits early and prior to your “normal” retirement age, you’ll receive a smaller check over a greater number of years. Begin later on and you’ll collect a larger check over a reduced number of years.
When Are You Ahead of the Game?
One method for choosing when to start is to figure out when you will equalize your payments based on an earlier or later retirement age. Say you’re age 62 and you’re trying to decide whether to collect a reduced Social Security benefit now or wait until a normal retirement age of 66. Assume your full monthly benefit at 66 will be $2,000 and your reduced benefit at 62 is $1,500 per month.
Ignoring cost of living adjustments, your breakeven point is just before your 78th birthday. At that point, your total benefits will be about the same whether you start at age 62 (192 months × $1,500 = $288,000) or at age 66 (144 months × $2,000 = $288,000). If you live to be at least age 78, waiting until age 66 was the right decision. You will receive greater lifetime benefits. If you die before age 78, you would have been better off starting at age 62.
But now does one make the right decision? How long will each of us live? You know the answer but if your father and grandfather both lived to be 95, you’ll receive $92,000 of additional Social Security benefits by waiting until age 66.
I believe the right choice for you depends on several factors, including your actuarial life expectancy, your health and your family history. Another consideration is that the above example doesn’t consider returns on the earnings of Social Security benefits. If you invest your benefits, you will need to adjust your breakeven point higher or lower depending on your expected rate of return.
To discuss your NJ estate planning or elder care matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com/. Please ask us about our video conferencing consultations if you are unable to come to our office.