Tuesday, May 11, 2010

Maximize Your Social Security Benefits

Scanned image of author's US Social Security card.Image via Wikipedia

Brief History of Social Security
The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.
"We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."--
President Roosevelt upon signing Social Security Act

Double Your Social Security Benefits
By now what was an innocuous expression: “social insecurity,” has become a serious concern for many people approaching retirement age. “Will Social Security be there for me?” is the fearful question; especially for those who never could build a 401K or IRAs.

The Congressional Budget Office (CBO) projects Social Security will reach a $10 billion deficit this year and bleed another $9 billion in 2011. But, will the politicians the let program go bankrupt? Hardly! You can bet your bottom dollar that the program will be patched up and continue for a long time to come.
The soon-to-retire waves of Baby Boomers account for the largest voting bloc, and they will insure that their benefits aren’t taken away. Knowing this, wouldn’t you like to double the size of your Social Security checks?

By delaying the start of your benefits from age 62 to 70 you can maximize your benefits. If it is impossible for you to wait till you are 70, at least try to avoid taking Social Security until age 66. This little maneuver will increase the size of your checks by one third. Now is the time to start reading up, getting involved, getting immersed in the details. Most retirees don’t have the luxury of financial advisors—they must figure things out by themselves.

A Few Facts to get started:
About 75% of seniors apply for their pension between age 62 and 65 and 67. The earliest age at which one can sign up for the program is 62.

Married couples can employ advantageous strategies to collect social Security early and still maximize their checks how.

Why we should wait
For example: Joe Senior born on January 2, 1948, who earns $80,200, would receive $2,157 a month from Social Security at his normal full retirement age of 66. But if he retires this year (at 62), he'll receive only $1,458 a month--about a third less. Using Social Security's projections, if he waits until 70, his checks will start at $3,303 — more than double what he'd get at 62.
In six years the money forfeited from age 66 to 70 ($150,000), Joe Senior recoups the $150,000 by receiving the bigger checks. From 77 on he’ll be enjoying his wise decision. Through age 85, he'll have collected $786,450, or $219,462 more than if he had started benefits at 62.

Working after retirement
Under Social Security rules, in 2010, if you receive Social Security checks before the full retirement age (65), you must forfeit $1 of your benefits for each $2 you earn over $14,160 (you can't collect any benefits if you earn more than $42,960). If you reach your full retirement age in 2010, Social Security holds back one dollar for every $3 earned over $37,680. After you've reached full retirement age the earnings penalty stops.

Evaluating the Numbers
According to the agency's web site if you start at age 62, you'll get 25 percent to 30 percent less than at your full retirement age. To get good idea what your actual benefits will be based on what you've earned (your checks are based on the average of your 35 highest-paying years), use Social Security's retirement estimator calculator.

Before you start your Social Security consider:
Your health: For those with a serious illness or family history of short life expectancies, taking benefits right away makes sense. But for most people, delaying benefits until their normal retirement age or later is best because, on average, Americans in their 50s and 60s will live until their mid-80s.

Two websites provide calculators to estimate life expectancy (factoring in family history and lifestyle): livingto100.com and bluezones.com.

Marital status: For married couples, delaying your checks will not only improve your benefit, it will mean a larger survivor benefit for your spouse — larger benefits that will last for the rest of his or her life. Statistics show that there's an 81% chance that one or both members of a 65-year-old couple will live to 85, a 58% chance that one or both will make it to ninety.

Personal plans: Of course advice here can't take into account your very personal goals: You may want to put off taking Social Security late because you love to work and wish to keep on working into your late 60s and don't need the government checks. Or, you may want to receive the money early so you can move to Guatemala, or Greece—where the cost of living is much cheaper.

Marriage has its benefits
1. You can claim a Social Security benefit based on your own work record or your spouse's work record. The maximum spousal benefit is 50% of what your husband or wife will receive.
2. A widow or widower who starts collecting survivor benefits at the normal retirement age or older generally earns 100 percent of the deceased spouse's benefit. But the amount shrinks to 71 to 99% if you start getting survivor benefits between 60 and your normal retirement age.
3. You can forget about collecting your benefit and your spousal (or survivor's) benefit at the same time. You can only receive the larger of the two.
4. You must wait to apply for a spousal benefit until your husband or wife has filed for Social Security.

Couples May Collect Early Under the “62/70 Strategy”
Married couples who can't afford postponing Social Security altogether can use a technique known as the "62/70 Strategy" to maximize benefits over the long term. With this system, the lower-earning spouse files for Social Security at age 62 and the higher earner delays until age 70. No matter which spouse dies first, the smaller benefit will die off too.

Example: Assume Tom's full benefit will be $2,157 a month. His wife Tina's full retirement benefit will be $1,081 a month; at 62, she'd receive $721 a month. Tina applies for her $721 benefit at 62, and Tom delays claiming his checks until 70, when he'll collect $3,303. If Tom dies at 82, his monthly benefit will have grown to $4,601 because he had waited until 70 to start collecting. That $4,601 then becomes Tina's survivor benefit, and it will be 88% more than Jane would have received if Tom had begun collecting at age 62.

Although Tom is waiting until 70 to start receiving his benefits, at 66 he can apply for a spousal benefit based on Tina's work record while his own benefit keeps growing. (If he was younger than 66, he couldn't do that). Because he has reached his full retirement age, Tom qualifies for the maximum spousal benefit: $541 a month, or 50 percent of Tina's $1,081 benefit. When John hits 70, he'll drop the spousal benefit and start collecting his own larger benefit.

This article doesn’t claim perfection or even accuracy. Some of the figures are estimates and should not be relied in their entirety; they are simply used to illustrate major points. Visit the Social Security Administration website and get to know it, get acquainted with it and you’ll be pleasantly surprised about the wealth of information. If you can, work with a retirement specialist, a financial advisor, tax preparer, or an accountant.
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1 comment:

  1. Social Security Income Planner (https://ssincomeplanner.com) web-site allows cashflow modelling of Social Security strategies.