When Clients Claim Social Security Early, Take These Steps to Avoid Surprises
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Most financial advisors recommend that clients wait to claim Social Security retirement benefits until full retirement age or up to age 70. That is sound advice. But since the COVID-19 pandemic, more baby boomers are electing to start benefits earlier

When claiming before age 65, they inadvertently turn on other benefits and can miss taking specific actions with Medicare and health savings accounts. Mistakes lead to unnecessary surprises and tax issues.

A Look at the Data

The Social Security Administration’s OASDI Benefits Awarded: Retired Workers tables report when men and women started claiming benefits. A recently released table shows claiming ages between 1998 and 2022, a period in which claiming patterns have changed significantly. 

A few examples:

The first boomers reached age 62 in 2008, just as the Great Recession was gripping the United States. 

Overall, baby boomers have made remarkable adjustments toward waiting to claim.

COVID-19 Hinting at a New Trend

As younger boomers approached retirement, they received better advice from their financial advisors about the value of waiting. Social Security also stopped advocating for early claiming.

However, the pandemic still affects older workers in significant ways. And we see the claiming trend turning — more boomers are once again claiming earlier than is ideal.

Time will tell if this uptick is isolated to COVID concerns. 

Surprises When Claiming Before 65

Clients who claim between 62 and 64 and eight months receive a Welcome to Medicare packet about three months before the month they turn 65. They also automatically enrolled themselves in Medicare Parts A and B when they claimed Social Security. 

Early filers need to be advised whether to postpone Part B. Otherwise, Social Security payments will be automatically reduced to cover their Part B premium.

Other hidden situations that result from claiming early: 

Claiming After 65 but Before FRA

Clients who claim between age 64 and nine months and their FRA lock in a somewhat reduced Social Security benefit. Medicare Part A also comes attached to Social Security and may have been activated retroactively. 

If filing for Social Security:

Part B may or may not automatically start. Clients must proactively delay or enroll on time to start their Part B when leaving an employer health insurance plan.

Importantly, Part A’s retroactive period determines when HSA contributions must have been stopped. Otherwise, HSA contributions were ineligible, and clients may have a tax problem.

Connecting the Dots

Clients are often unaware of these hidden rules and the snowball effect of claiming Social Security earlier. They are counting on their advisor to connect these dots. 

When clients claim Social Security, the timing details may start a small avalanche. Get ahead of these issues with each client by age 60. Otherwise, you may need to send out a rescue team.