Social Security is a valuable but complex social benefits program. Most people are challenged to understand how to maximize the benefits they are entitled to. Even in the “simple” case of the wage earner who has contributed to Social Security and wants to know the best time to start collecting benefits, the answer is not always straightforward, particularly in households with a special needs child. This article discusses the pros and cons of taking Social Security retirement benefits early. 

The Social Security Retirement Benefit Those workers who have paid into Social Security for 40 quarters are entitled to receive benefits beginning at age 62 based upon a complex formula.    Depending on the birth date of the worker, the Social Security “full retirement benefit age” is between age 65 and 67. A penalty is applied to those who choose to retire earlier than the full retirement age. Conversely, benefits are enhanced for those who delay collecting their benefit beyond their full retirement age up until the age of 70. As a general rule of thumb, the benefit increases 8% annually up until age 70.   

 According to Social Security statistics, 70% of retired workers choose to collect benefits before their full retirement age. If benefits increase by delaying benefit collection, why doesn’t everyone simply wait until age 70 in order to maximize their payments?   There are three main reasons: one mathematical, one financial, and one emotional. Mathematically speaking, “you have to be present to win.” In other words, in order to “win” by delaying and collecting the enhanced benefit you need to be alive. If you delay collecting Social Security and subsequently die prematurely, you will have lost the advantage of delaying the benefit.  The break even age when cumulative Social Security benefits for those delaying outweigh the benefits of collecting early when comparing benefits collected starting at ages 62 versus age 70 is somewhere between age 80 and 81. In other words, the person who delays collecting the benefit until age 70 will have to live at least until age 81 in order for their payouts to exceed the benefits they would have received if they had decided to collect at age 62. According to the Social Security Administration, the average life expectancy for a 65-year-old male is around 84 years, and for a 65-year-old female it is 86. Therefore, depending on the health of the retiree, from a pure numbers perspective, in most cases it would be a good bet to delay collecting benefits. 

Even though it is a fair bet to wait to collect benefits, many retirees choose to collect early, because they don’t have enough savings or income to support themselves while waiting. Perhaps the retiree has lost their job or does not have sufficient funds to pay for their day-to-day expenses. In this situation they may elect to take Social Security benefits in order to meet their income needs. Even those who do have substantial assets to draw upon may from an emotional perspective choose to collect benefits early so as not to see their savings balances noticeably decrease while they are not earning income.  

Social Security Benefits for Families that Include Individuals with DisabilitiesThe decision of when to collect benefits is made even more complex for those retirees who support a child with a disability. This is because as soon as the retiree collects benefits, their child with a disability may start collecting “Disabled Adult Child” (DAC) benefits or Social Security Disability (SSDI). The DAC benefit is 50% of the retiree’s benefit at full retirement age (FRA). So if the FRA monthly benefit is $2000, then the DAC benefit would be $1000. Importantly, this benefit is not dependent on the work earnings of the special needs individual, only on those of the working parent. In fact, other dependents, including the spouse of the retiree, may collect benefits as well.  There is a family maximum limit of 150% to 180% of the FRA benefit of the primary earner. If the FRA benefit of the retiree is $2000 per month, then the additional family maximum benefit would be between $1,000 and $1,600 per month.  Since additional benefit dollars are at stake for families with children with disabilities, the decision of when to start Social Security benefits needs to be weighed carefully. From a pure Social Security maximization perspective, special needs families are better off collecting retiree benefits early. 

However, as discussed earlier, the decision of when to collect Social Security benefits is rarely made based solely on maximizing these benefits. One important factor to consider in deciding whether to collect Social Security benefits before age 65–the age at which Medicare benefits become available–is the cost of private health insurance. If the retiree has to buy health insurance privately–as opposed to through an employer retirement benefit plan–the additional insurance expense could easily outweigh the additional Social Security benefits of retiring early.  Another important factor to consider for the special needs family is whether the individual with a disability has “substantial” work earnings (the 2019 Social Security threshold for substantial earnings is $14,640). If the individual’s earnings exceed that threshold, they would not qualify for SSDI benefits.   Importantly, two years after the individual qualifies for SSDI, he or she qualifies for Medicare insurance, yet another factor to consider in retiring early.   

The decision when to take retiree Social Security benefits is confusing enough for those just considering their own personal circumstances. It is that much more difficult when including the individual with a disability.  To determine the precise age when to start collecting Social Security to maximize benefits, one would want to obtain a sophisticated benefit calculator and/or work with a financial professional. Beyond the traditional factors that weigh in on the decision, special needs families need to consider the cost of health insurance and whether the individual’s work earnings are substantial.   If families are able to obtain private health insurance relatively cheaply and the work earnings of the individual are under the Social Security substantial threshold, they may want to consider collecting social security benefits earlier rather than later.  
References:  Davido, Davidow, Siegel & Stern, LLP: “ Your Retirement Age Can Affect Your Child’s Disability Benefits, August 26, 2010. Margolis, Harry S. Margolis & Bloom, LLP,  “Little-Known Social Security Benefit for Parents of Disabled Children,” May 17, 2016. Moeller, Phillip, Money, “Why Kids Can Be Social Security Game Changers”, July 27, 2015., Rob, Charles Schwab, “ When Should You Take Social Security”, February 22, 2019.

By Barry Jamieson

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