Making the right choice can maximize a Social Security benefit payout over a lifetime, making the wrong choice can mean a loss of thousands of dollars over a retirees lifetime
Palm Beach, FL (PRWEB) June 06, 2012
Is 62 a magic number? For the majority of Baby Boomers it is. That is because many Baby Boomers who turn age 62 will elect to start receiving their Social Security benefits. But will taking their benefits at a reduced rate be their best option? Montello Wealth Management can help retirees make the right decision.
Baby Boomers may elect to take their Social Security benefits starting at age 62 or defer their benefits until age 70. Making the right choice can maximize the benefit payout, making the wrong choice cost thousands of dollars over a lifetime.
How much a retiree receives from Social Security depends on 3 primary factors:
1. The retiree's earnings record
2. When election of benefits are made
3. Life expectancy.
Since retirees can not go back and change their earnings record, and there is minimal control over how long a retiree will live, calculating an expected lifetime benefit largely hinges on when the retiree elects to receive Social Security benefits.
For single baby boomers, the choice of when to elect benefits can be quite simple since benefits are based on the retirees work record. A financial plan using a “breakeven analysis” can be helpful to determine when to elect benefits. But for married couples, the decision is more complex since Social Security offers 3 distinct benefits for married couples.
1. Retired worker benefit – Based on the retirees earnings record.
2. Spousal Benefits – Provides a spouse with a monthly benefit after a retiree claims their own benefit. The lower earning spouse has a choice: to claim a “spousal” benefit of up to 50% of the higher earning spouse’s benefit or to claim his/her own earned benefit. Important note: One spouse must be collecting benefits before the second spouse can qualify for a spousal benefit.
3. Survivor Benefit – Surviving spouse benefit - A surviving spouse of a retiree drawing Social Security will receive 100% of that pension, with the following provisions:
- The survivor must be full retirement age. If not, the benefit will be reduced based on age.
- If the survivor is insured on his/her own record and the benefit of the deceased spouse is higher, the surviving spouse will receive the greater of his/her benefit or the deceased spouse’s benefit, providing he/she is full retirement age.
Options available to Married couples:
There are several options that will enable married couples to maximize their Social Security benefits.
1. File and take full benefits now.
2. File and suspend benefits until a later date.
3. File a restricted application. (taking a lower payout now and switching to a higher payout later)
According to Larry Montello, CFP®, CLU®, "the benefit options for married couples offer flexibility and planning strategies to maximize Social Security benefits".
Social Security Strategies:
For married couples, certain strategies can be used to maximize Social Security benefits. These strategies can only be used when one spouse is at full retirement age and beyond. The two basic techniques that enable these planning strategies are the “restricted application” and “file and suspend”
The File and Suspend:
This technique enables a retiree to file for benefits, immediately suspend benefits and earn delayed credits until benefits are taken (up to age 70). This technique is primarily used to make the spouse eligible for spousal benefits under the retirees earnings record.
The Restricted Application:
Once normal retirement age is reached the retiree will have the option to restrict the Social Security application to exclude certain benefits. For example, a spouse may want to file a “restricted application” at Normal Retirement Age to receive the spousal benefit then, at some point in the future, switch to his/her own benefit if it will be higher than the spousal benefit.
Using the two basic techniques of Social Security planning can help maximize retiree and spousal benefits over their lifetimes. The following examples illustrate how a married couple can maximize their Social Security benefits.
Example #1: The husband files for benefits and the wife files for the spousal benefit. The husband then immediately requests a voluntary suspension of his pension. The wife will be able to collect her spousal benefit while the husband’s future benefit will grow by 8% annually. At age 70, the husband will start collecting his own retirement benefit at the maximum amount available. This is a great strategy because it allows the married couple to bring in Social Security income while the husband is maxing out both his future pension and his wife’s future survivor benefit.
Example #2: Suppose the husband wants to wait until age 70 to start his pension but his wife also qualifies for benefits based on her own work record. She could start her benefit at normal retirement age and the husband could sign up for the spousal benefit while waiting until age 70 to start his own. At that point the husband switches to his own higher benefit. This will increase the survivor’s benefit, but will do so while bringing extra income into the household. And the wife could also switch to a spousal benefit based on what the husband’s benefit would have been at age 66.
Example #3: If the husband is 70 and the wife is 62, she should consider beginning her spousal benefit at the reduced rate. Why? Because the husband is likely to die earlier and, at that time, her survivor’s benefit (based on HIS pension) would be available. This is the same benefit she will receive whether she starts at age 62 or not, so she should consider bringing the extra money into the household now. Remember, only one of the spouses has to be normal retirement age to use these strategies.
Example #4: Instead of having both spouses wait until age 70 to start collecting, it is possible for one to collect an unreduced spousal benefit while both earn the 8 percent annual delayed retirement credits on their own benefits. To accomplish this, the lower-earning spouse can file and suspend his or her benefit at full retirement age, making the higher-earner eligible for a spousal benefit. This spousal benefit can be collected for up to four years, from age 66 to age 70, at which point both spouses can start their own worker benefit, now 32 percent higher than they would have been if both started collecting at full-retirement age.
A rule of Caution: Social Security rules change so please check with the Social Security Administration about the current rules concerning benefits.
For more information about Social Security planning startegies call Larry Montello, Managing Director at Montello Wealth Management.
Montello Wealth is a Registered Investment Advisory Firm located in the State of Florida.
2401 PGA Blvd # 280, Palm Beach Gardens, Florida 33410. 561-694-6660 or on the web at http://www.Montellowealth.com