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Duck Social Security ‘rat holes’

By Jennie L. Phipps · Bankrate.com
Wednesday, January 23, 2013
Posted: 5 pm ET

When to claim Social Security looks simple for people who are single and who have never married, but William Meyer, a principal in Social Security Solutions, a fee-based service that analyzes the best time to claim, says there are even ways single people can maximize their benefits.

Meyer bases this on two key considerations:

  • Based on life expectancy, which benefits starting date will maximize the cumulative amount of benefits that you'll receive if you were to die exactly when the actuaries predict.
  • Based on a more optimistic scenario, which starting date will minimize the possibility of running out of money if the actuaries are wrong and you live longer than they predict.

Generally, if you live to be age 80 and you are single, the cumulative lifetime benefits will be approximately the same whether you take benefits at 62 or any age through 70, but there are some exceptions worth considering and maybe avoiding. Meyer calls them "Social Security rat holes."

These "rat holes" are thanks to built-in bonuses for delayed filing, which are calculated based on percentage increases of the "primary insurance amount" or PIA. Benefits rise at three different ages:

  • From ages 62 to 63, monthly benefits increase by 5/12 (0.42 percent) of PIA per month.
  • From ages 63 to 66, monthly benefits increase by 5/9 (0.56 percent) of PIA per month.
  • From ages 66 to 70, monthly benefits increase 2/3 (0.67 percent) of PIA per month.

Because these increases flatten out at two different levels, Meyer points out that taking benefits during these flat periods -- or "rat holes" -- won't do as much to increase your monthly benefit as does claiming at the start of these periods of increasing benefits. He advises singles, and in some cases others, that to maximize the present value of benefits, never claim benefits between:

  • Ages 62 and 1 month through 63 and 11 months.
  • Ages 65 and 5 months through 66 and 7 months.

It is easier to understand why this is true if you see a table that calculates your personal monthly benefit totals. Lacking that, you'll have to accept it on faith.

Social Security Solutions offers a fee-based service that will give you the tools to analyze your own personal situation and for an additional fee, its advisers will walk you through these and other calculations. There are several competing services that offer similar retirement planning, also for fees. AARP has a free calculator on its website that might answer many of your questions, but it doesn't offer the sophisticated analysis that fee-based services do.

Whatever informational route you take, understanding what Social Security offers and claiming benefits based on that knowledge -- much of it as complex as the calculations above -- can make thousands of dollars difference in your lifetime retirement income. Believe me, it's true.

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13 Comments
J. Mallonee
January 27, 2013 at 9:51 am

Personally, I'd consider family history and Census death rates for the year you were born - white male born 1961-1965 = 67. So... If I were to wait until age 67 to collect Social Security - better than 50/50 that the Government would bank the difference... Don't trust that YOU will live to be 80, look up the US Census Bureau life expectancy for the year you were born - I'll bet if you are old enough to be thinking about SSN it isn't as great as you think. Personally, I'd rather start collecting at 62 while I may still be healthy enough to enjoy it. Even if I am working - put it in the bank or 401K and let it grow - then I can leave it my kids rather than the Government.

J P Douglas
January 27, 2013 at 9:36 am

All the stats in this article are based on Social Security benefits remaining the same over your lifetime. Make your decision based on what you think will actually happen.

Ralph Debnam
January 27, 2013 at 8:22 am

Barb:

Contact the State Employment Commission they have records of employers and they can point you in the direction of where get the help. Due to privacy laws though you might hit a lot of roadblocks.

Barb
January 27, 2013 at 6:41 am

According to the Social Security office, my 1992 and 1997 income tax filing cannot be found by their office or the IRS offices. These two years I made a six figure salary. Unfortunately for me I moved and cannot locate the employer, as he is out of business nor can I find copies of these filings. So my social security benefits are lower than they should be.

Does anyone know what I can do do obtain more info on the above issue?

Thanks,
Barb

Delores Smith
January 27, 2013 at 6:30 am

I am retired at full retirment age but got a temporary job and made $80,000 this year while collecting social security benefits. SS takes 7 percent taxes from the benefits that they are paying me. My husband is retired and his ss and a small pension is his only income. I pay extra taxes as single -Zero exemption from my income. Will SS still tax us the 85 percent on SS. Also they are taking substantial amountof ss tax and medicare from my income,

Thank you in advance foryour response.

Jackagain†
January 24, 2013 at 3:27 pm

@ Barry & Harry, you can make up to around 17K working a job(s) and still pay no income tax on your SS.

BARRY HOLMES
January 24, 2013 at 2:43 pm

I WAS ADVISED BY SOC SEC THAT IF THIS WAS YOUR ONLY MEANS OF INCOME YOU WILL NOT BE TAXED.......IS THAT CORRECT....I'M ON DISABILITY

P Oaks
January 24, 2013 at 2:06 pm

If a person is paying medicare and medicade in their current job after retiring from one agency which cut off the medicaid from our pay check 10 years prior to retirement. Why would social security not pay disability for people whom will be providing funding into their medicaid system working an additional 10 years?

Harry Foley
January 24, 2013 at 12:03 pm

A question to be answered please... Do Social Security beneficiaries have to claim the cost of Medicare Coverage that is automatically withheld from the amounts actually received when filing their Federal Income Taxes??? I recently picked up a blurb on this on the reverse side of our SS 1099s. Why should SS beneficiaries be taxed on amounts /costs of Medicare coverage when these amounts are never received directly?

John Leipold
January 24, 2013 at 11:46 am

Why do persons born between 1917 and 1927 receive less social security payments.Known as NOTCH persons.I believe SS wasn'tstarted until the 30's under Rosssevelt.