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Social Security: The $64,000 Question
June 24, 2015
One of the most common questions people ask about Social Security is when they should start taking benefits.
This is the $64,000 question. Making the right decision for you can have a meaningful impact on your financial income in retirement.
Before considering how personal circumstances and objectives may play into your decision, it may be helpful to preface that discussion with an illustration of how benefits may differ based upon the age at which you commence taking Social Security.
As the accompanying chart reflects, the amount you receive will be based upon the age at which you commence taking benefits.
Monthly Benefit Amounts
Based on Age that Benefits Begin¹
*This example assumes a benefit amount of $1,000 at the full retirement age of 66.
At first blush, the decision may seem a bit clear-cut: Simply calculate the lifetime value of the early benefit amount versus the lifetime value of the higher benefit, based on some assumed life expectancy.
The calculus is a bit more complicated than that because of the more favorable tax treatment of Social Security income versus IRA withdrawals, spousal benefit coordination opportunities, the consideration of the surviving spouse, and Social Security’s lifetime income guarantee that exist under current law.²
Here are three ideas to think about when making your decision:
- Do You Need the Money?
Retiring before full retirement age may be a personal choice or one that is thrust upon you because of circumstances, such as declining health or job loss. If you need the income that Social Security is scheduled to provide, however reduced, then taking benefits early may be the only choice for you.
- Consider the Needs of Your Spouse
If your wife is expected to depend on your Social Security income, it’s important to remember that, based on current life expectancy tables, she will likely live longer than you. Consequently, the survivor benefits she receives may be reduced substantially if you begin taking benefits early—a penalty with which she may be burdened for many years to come.
- Are You Healthy?
The primary risk in retirement is living too long and running out of money. The odds of living a long life in retirement argues for waiting at least until you reach full retirement age so that you receive a full benefit for as long as you live. However, if your current health is poor and/or you have a strong family history of premature death, then starting early may make sense for you.
There are several elements you should evaluate before you start claiming Social Security. By determining your priorities and other income opportunities, you may be able to better decide at what age benefits makes the most sense.
- Social Security Administration, September 2014
- Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2015 FMG Suite.
February 23, 2015
The national debt officially topped $18 trillion a few weeks ago. And the Congressional Budget Office has reported that the debt will climb to almost $27.3 trillion within the next 10 years.
The biggest problem? These numbers don’t even include the unfunded liabilities of programs like Social Security and Medicare.
As a recent article by Michael Tanner, posted on the Cato Institute’s website, points out, “including the expected shortfall from those programs brings are true debt to an unfathomable $90.6 trillion.”
Unfortunately, Tanner continues: “there is no way to address America’s debt problem without reforming entitlements, notably Social Security, Medicare, Medicaid, and our newest entitlement program, Obamacare.”
Click here to read more.
December 29, 2014
The end of the year is always a great time to re-evaluate your financial plan, the strategies you are using and ways you might be able to improve your situation.
To that end, I thought I would be helpful to outline a few Social Security claiming strategies you might want to consider – if you aren’t already – as you prepare for 2015.
- The longer you wait to claim your benefits, the better. You can start collecting Social Security as early as age 62, but if you start then, your benefits will be reduced by 25% or more for the rest of your life. If you wait until the normal retirement age of 66, you can collect your full retirement benefits even if you continue to work. And if you wait to collect benefits beyond 66, you can increase the amount you receive by 8% per year up to age 70.
- File and Suspend if you can. When you reach age 66, you can “File and Suspend,” which allows your spouse or child to begin collecting benefits, while delaying collection of your benefit.
- Restrict your claim to spousal benefit only. This strategy allows you to collect half of your spouse’s full retirement age (age 66) benefit while deferring your benefit until it’s worth more.
- Collect on your ex-spouse’s work history if you are divorced. As long as you were married at least 10 years before you divorced, you might be able to collect on your ex-spouse’s work history.
- Don’t be afraid to change your plan, if necessary. If you decide within the first 12 months of claiming retirement benefits that you aren’t quite ready, you can repay the money you have received and restart your benefits later at a higher rate.
These are just a few strategies you might want to think about, if you haven’t already. But keep in mind, everyone’s situation is different. For specific questions or to discuss some strategies that might apply to your situation, contact your Manarin advisor at 402.330.1166 to make an appointment.
The file-and-suspend strategy has been touted for years as a way for married couples to maximize their benefits as a couple. But, as explained in a recent article by Robert Klein on Marketwatch.com, single individuals can also use it.
In a nutshell, this strategy allows workers to increase their benefits by 8% annual delayed retirement credits for each year the benefit start date is deferred until age 70.
Here is how to do it if you’re married or single:
- Married. One spouse must apply for his/her worker’s benefit, then immediately file a notice to suspend payment of his/her benefits. The other spouse can then file for his/her benefits, which will equal 50% of the other spouse’s benefits.
- Single. This is possible for single individuals who don’t plan to retire until age 70 OR plan to retire at age 65 but have enough income to live on until they’re age 70. They can receive the 8% annual delayed retirement credits by filing at age 65 then immediately filing a notice to suspend payment of their benefits.
More information about this strategy is in the Marketwatch.com article. If you have specific questions or want to discuss your particular situation, don’t hesitate to contact your Manarin advisor at 402.330.1166.
September 17, 2013
There are several things to consider when you become eligible for Social Security. One of the most important decisions is when to begin receiving your Social Security benefits. You can start collecting Social Security anytime from age 62 to 70 and the later you start, the bigger the benefit.
There are three options for when to start receiving Social Security benefits:
1. Early (Age 62) – There is a penalty for this. If you choose to start receiving your Social Security check before your normal or full retirement age, your benefit is reduced by 25%. In addition, there is an earning penalty. Until you reach the full retirement age, for each $2 you earn in 2013 above $15,120, you lose $1 of your annual Social Security benefits.
2. Normal (Full) Retirement (Age 65-67) – Normal retirement age is when you’re eligible to receive full Social Security benefits. The normal retirement age used to be 65 for everyone. However, under current law, 2002 was the last year anyone age 65 could receive full benefits. If you were born in 1938 or later, your normal retirement age is some point after age 65—all the way up to age 67 for those born after 1959. There are several advantages of waiting until the Normal Retirement Age including:
- A worker is entitled to full retirement benefits;
- The earnings cap disappears so you can continue working while receiving Social Security with no reduction in benefits;
- Married couples, as well as divorced spouses in some cases, can exercise some creative claiming strategies to maximize lifetime benefits;
- File and suspend – Individuals can use this option to trigger benefits for their spouse or dependent minor children and immediately suspend their own benefits so they are worth more when collected. This works best for traditional couples, where one spouse is the primary earner and the other has little or no work history;
- Restricted claim – One spouse files for retirement benefits. The other spouse, once they reach full retirement age, files a restricted claim for spousal benefits only. This allows the second spouse to collect half of the first spouse’s full retirement benefit while allowing his or her own retirement benefit to accrue delayed retirement credits. This works best for dual-earner couples.
3. Delayed Retirement (Age 70) - For every year that individuals delay collecting retirement benefits beyond normal retirement age, they earn delayed retirement credits worth 8% per year up to age 70. If an individual’s normal retirement age is 66 and they delay taking benefits until age 70, the retirement benefit will be 32% higher than it would have been.
Obviously, if you can afford to wait until 70 and you are in great health and have a family history of longevity, you will receive the largest potential benefit. However, that may not be the best choice in every situation. Your financial advisor can help you determine the best approach for your situation.
June 26, 2013
The Social Security Board of Trustees recently released its annual report on Social Security’s long-term finances.
What does the report say? What do the numbers mean? Can we have confidence in the new information?
These questions, and several others, are addressed in a Q & A article about the latest Social Security findings recently published on marketwatch.com.
January 28, 2013
Social Security is providing an even larger chunk of most people’s retirement benefits due to the volatile stock market, chances of living longer and rising health care costs.
As a result, it’s more important than ever before for retirees to make an informed decision about when to claim their Social Security benefits. A recent article published on MarketWatch.com - click here to view the article - offers some important information about the factors that affect monthly benefits.
Call your Manarin advisor at 402-330-1166 to discuss your individual plan or for more information.
October 25, 2012
The U.S. Social Security program will be tweaked in several ways in 2013.
Recipients will receive slightly bigger checks to adjust to inflation, the payroll tax cut is scheduled to grow and paper checks will end, to name a few changes.
A recent article on Yahoo! Finance provides more details on these and other changes planned for 2013.
May 22, 2012
Your Social Security account information is now just a few clicks away.
As of May 1, anyone who is age 18 or older can register on the Social Security Administration's website to view details about their account, including earnings and potential benefits. This new online account replaces paper statements the Social Security Administration discontinued last year.
April 18, 2012
Retirement used to mean a guaranteed pension, full healthcare benefits and low inflation. Today, most of those things - living costs, health care expenses, social security, pensions and future employment income - are all uncertain.
Saving has become “the new reality” for people who want to ensure a comfortable retirement. In fact, according to this well-written article by Andrew B. Chou – click here to read the article – retirees should count on funding close to 50 percent of their own retirement income through a variety of sources.
Perhaps this level of saving wasn’t in your original plans. However, the economic factors that contribute to these numbers won’t change anytime soon.
In our “new reality,” the sooner you start saving, the better off you’re going to be during your golden years.