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A Quick Summary of Social Security Maximization Alongside “File And Suspend”
Prior to April 29, when “file and suspend” was still an election option by the bi-partisan Act of Congress, a great deal of conversation circulated around how retirees took their Social Security benefits. Even after the recent changes, Social Security maximization remains a legitimate strategy, and you and your spouse can still make decisions that could add thousands of dollars to your yearly income in retirement.
While the “file and suspend” strategy has recently been eliminated, many investment advisors are educating their clients on something called “restricted application.” First, let’s discuss the three options you have before restricted application.
1. First, you can gain access to your benefits at age 62, but there will be a penalty of up to 25 percent.
2. Second, you can wait until you have reached full retirement age, which depends on your date of birth, and incur no penalty.
3.Third, you can wait to claim benefits up to age 70 and see an additional eight percent in your monthly benefits for every year you delay after reaching full retirement age.
Since Obama signed the Bipartisan Budget Act of 2016 on November 2, 2015, the fourth paragraph addressing the “restricted application” option is now limited to filers who were at least age 62 at the end of 2016. Individuals born after 1953 no longer get that option. Another change is that a spouse can no longer draw unless their spouse is drawing.
So the scenario would be something like this: the spouse, aged 62 or older, starts claiming benefits while the other spouse waits until age 70 to begin receiving their benefits, but does claim spousal benefits, thus realizing a Social Security maximization situation.
To put the situation to actual numbers, let’s say that the wife at full retirement would receive $2,000 a month in Social Security benefits while the husband would receive $2,400. The husband can file to use the “restricted application,” which means he can claim his spousal benefits, which is half of his wife’s full benefits ($1,000). At age 70, he begins pulling down his full benefits plus the increased amount for having waited. In the long run, say a 30-year retirement, this scenario can produce significant extra income.
It’s important to remember that this scenario may not begin to pay off until the 12th year of retirement, which means considering this option will require you to talk it over with your investment advisor and plan accordingly for those first dozen years of retirement. Furthermore, you’ll have to consider how you’ll work with your other sources of income, which would be pensions, IRAs, 401(k)s, annuities, and other investments and savings. It’s a delicate balance that requires careful planning.
Consider seeking out an investment advisor that operates under a fee-only model. When you choose a fee-only advisor, you don’t run the risk of receiving conflicted interest, which is what can occur when you choose an advisor that makes a commission on the products they sell to you.
Family Investment Center has operated under the fee-only model since our founding in 1998. Contact us today and let’s discuss what matters most to you, because that’s what matters most to us.
Probably Not…Keep Planning and Know Your Options for Social Security Maximization
For nearly the past 40 years, Social Security has offered Americans a small “gift” in the form of a cost of living adjustment (except for two years). You may have heard some discussion that this coming year could mark a third year of the absence of this adjustment. Although this is unknown, we should prepare for stagnant benefits and look at how that affects your social security maximization.
Why does this happen? Ironically, because of the inflation rate being declared “low.” The cost of living adjustment is largely connected to the nation’s rate of inflation, and experts also explore the cost of living increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. However, what the adjustment amounts to for some households is a little over $20 more per month, according to last year’s numbers. Not highly significant, yet still pointing to a message that is significant: counting on Social Security benefits as a retirement source of income may not be a successful strategy.
Instead, investors are encouraged to consider Social Security as a federal savings account and to consider delaying tapping into that account, past the typical age. If you start drawing benefits at age 62, you will receive a significantly reduced portion of what you could be receiving each month you wait until you’re 70.
To get a better idea of how much more you could get if you do so, let’s look at an example. If a person waits to claim their benefits until age 66 would get $1,000 a month if they waited, what happens if they start receiving benefits earlier? If they decided to start taking that money at age 62, they’d get 75 percent, or $750. The amount will grow based on a formula for each year you postpone from age 62.
At age 63, that person would pull down 80 percent, or $800 a month. At age 64, the amount goes up to 87 percent, or $870. At 65 you’re at 93 percent, or $930. For every year you wait past full retirement age, the amount per month increases by around eight percent every year. If our fictional person who gets $1,000 per month at full retirement age waits until age 70 to pull benefits from Social Security, the monthly benefit goes up to $1,320 per month. (Now that’s more significant than the absence of a cost of living adjustment.)
Couples Need to Plan Wisely
You might be eyeing the higher-earning spouse’s Social Security benefits early because it appears that you’ll get more money per month by drawing those benefits, but don’t make this mistake. The surviving spouse will get less in this scenario when one spouse passes away. Waiting until the higher earning spouse is at least 66 before drawing Social Security benefits can be a smarter option.
Singles Need to Plan Wisely Also
If working into your mid to late 60s sounds appealing to you, it will also benefit you in retirement. Working later and delaying benefits until later will also give you a higher monthly benefit. This is a strategy that can work especially well for women, as they tend to live longer.
Seek Investment Advice
Everyone’s situation is different, which is why your retirement plans deserve a look from a professional investment advisor. Our commission-free team at Family Investment Center has assisted people in every stage of life, including using tools to look at Social Security maximization scenarios. Contact us today and let’s begin planning your future.
Interesting Tips for Social Security Maximization for Your Retirement
President Franklin Roosevelt signed Social Security into law 80 years ago in an effort to help Americans whose savings were depleted during the Great Depression. The program exists today embraced by some controversy or confusion, but it does continue to benefit retirees. Social Security maximization should be on the minds of every individual planning for retirement – and especially when it comes to understanding the facts and the options available.
Living longer and retiring earlier can have a double-impact on your Social Security earnings. The average American lives longer now than they did 80 years ago, but they are also choosing to retire earlier, which means receiving approximately 12 more years of Social Security benefits than decades ago. In fact, the average retirement age is 64 years of age; in 1950, it was 68 years. For some, delaying receiving benefits even just a few years can mean thousands of dollars more in potential Social Security earnings over the course of your lifetime.
Social Security has expanded. The first year benefits were paid was in 1940, and only 220,000 Americans had signed up for Social Security. At that time, spouses, widows and widowers were not eligible for these benefits. Today, there are 60 million retirees, spouses, widows and widowers receiving monthly payments through the program. Work with a professional advisor so that you’ll know all the options and the facts regarding spousal withdrawal, because it’s not as simple as it may seem.
Social Security is not dying. You may hear reference to the idea that the program will be insolvent in “X” number of years, but the truth is that even without reform from Congress, full Social Security benefits are estimated to be available through 2034, and then three-quarters of the benefits should be available through 2089.
People still depend on Social Security. While the common thinking might be that Social Security benefits are an insignificant portion of a retiree’s finances, roughly 90 percent of retirees say they depend on them to help pay their expenses. The average monthly check from Social Security is $1,221.
Taking benefits early will reduce your payment amounts. You can actually start reaping the benefits of Social Security at age 62, but you can delay taking benefits until age 70 and see your monthly benefit continues increasing until then. The benefit will not increase any further after 70. There are dozens of ways to file, and many special ins and outs, so consider asking for help from an advisor.
Working later and taking payments at 70 can increase your benefits. If you love your career and don’t want to leave it behind, working later in life has financial benefits. If you wait to take Social Security Benefits until you’re 70, you’ll see your benefit continue to climb until then. (There is no additional benefit for waiting to take your payments after age 70).
Connect with an investment advisor. Are you unsure how you should proceed with Social Security? It can be confusing, which is why more and more Americans are consulting with a professional investment advisor. At Family Investment Center, we have experience across all life stages, and we know about Social Security maximization because we offer an in-depth calculation tool. Contact us today, and we’ll discuss the surprising options that are available to you and what they mean for your family.
It’s something that the average American worker might have thought about for many years – how Social Security plays into a retirement strategy. Rather than jumping on benefits the day you are able to receive them, consider talking through your options with an advisor.
Once you reach age 62, which is the age at which you can start withdrawing benefits, you have a decision to make (actually, several decisions) about your Social Security. In fact, you may not know that the decisions you make for claiming your Social Security benefits could mean receiving hundreds of thousands of dollars in additional benefits over your lifetime.
Some areas you may want to ask a professional investment advisor about include:
· How to receive a larger, inflation adjusted lifetime payment by suspending benefits
· The process involved in waiting to collect your benefits
· Spouse or widow benefits, even if you’re divorced
· How to choose options when one spouse receives benefits early and the other decides to wait until a later date
· Benefits of discussing your choices with an advisor rather than making your Social Security decisions on your own
Should I wait? In most cases, there is a benefit to waiting on collecting your benefits because you could see an increase of about six to eight percent for every year between 62 and 70, plus cost of living adjustments. That can add up to thousands of extra dollars you’ll receive later.
I started collecting early and want to reverse that decision. For those of you who have already filed, it’s not too late to reverse your filing decision. For instance, let’s say you started collecting your retirement at age 62 and want to suspend the benefits until you turn 70. You can, but to change your election strategy you only have 12 months from the time you file to make a change.
What should we do if we are each eligible for benefits? Advisors often recommend collecting from the smaller benefit early and holding on to the larger benefit for collection later. If you’re married and you each were to take your own benefits at the same time, you may lose the opportunity to draw a little now and more later.
I’m divorced. Does that mean my benefits are negated? If you were married for at least 10 years, it’s highly likely that you’re eligible for spousal benefits on the earnings of your ex-spouse. You have to be proactive with this benefit because Social Security is not allowed to give financial advice or suggest case-by-case recommendations – you must reach out to them. However, if you’ve remarried, these benefits disappear.
I know my way around finances – shouldn’t I just make these decisions on my own and save money? The Social Security system is not just a “file and done” decision-making process. There are hundreds of options to be aware of that most people are not aware of to maximize their lifetime payments. An advisor should help you sort through the hundreds of Social Security income claiming possibilities to help you get more lifetime income. (It’s true that some couples have seen benefit increases of $150,000 and higher over their lifetime by delaying their benefits and finding out all their options.)
In addition to investment management, Family Investment Center offers both expertise on Social Security options and access to dedicated software. We can sit down with your family and move through various scenarios so that when it’s decision-making time, you can do so with confidence. Contact us today to schedule a meeting.