Financial advisers can help clients make the most of their Social Security benefits by considering key details about their age, marital status and work history, according to an
InvestmentNews webcast,
“Social Security bootcamp: The retirement income puzzle.”
Here are some key takeaways from Tuesday's session, as told by
InvestmentNews contributing editor Mary Beth Franklin on the webcast.
Try to wait until age 70 to collect benefits
It is key to know the right time to claim benefits. Collecting Social Security at 62 permanently reduces an individual's benefits by 25%. If a person claims Social Security before full retirement age of 66, then he or she cannot use creative claiming strategies. That is why Ms. Franklin pointed out that
66 is the magic age, where one can engage in creative claiming strategies without an earnings cap.
For example, if someone waits until age 70 to collect benefits, they will be eligible to earn delayed retirement credits worth 8% per year for every year benefit claim is postponed. That can add up to as much as 32% more &mdash 8% for every year postponed — plus a cost of living adjustment every year. It's the hottest deal out there, Ms. Franklin said.
COORDINATING CLAIMS
Married couples should coordinate claims
Financial advisers want to come up with the best strategy that suits married couples. These can differ with age and income gap between spouses. Couples can
either file and suspend at 66 to trigger benefits for a spouse while their own benefit grows until they reach age 70. The other option would be to file a restricted claim for spousal benefits and collect half of the spouse's primary insurance amount (PIA) while their own benefit grows until age 70. If both spouses reach retirement age around the same time, it might be worthwhile to combine strategies. For example, if both spouses are entitled to get $2,000 a month and are both 66, the husband can file and suspend and not collect anything while the wife can claim a spousal benefit equal to half the benefit amount — $1,000. Then when they both reach 70, they can each switch to their benefits, which have grown by 32% plus cost of living adjustments, and their income is more than $63,000 a year.
If the spouses are far apart in age and the wife is older and not the sole earner, there isn't much that can be done as far as a creative claiming strategy.
Divorcees may be able to claim their ex's benefits
Divorced couples are also entitled to Social Security benefits if the marriage lasted at least 10 years, each ex-spouse is at least 62 years old and the person collecting the spousal benefits is single. Even if the ex-spouses are no longer in touch, the Social Security Administration can offer assistance as to whether they are eligible for spousal benefits.
Public sector employees must follow special rules
There are two provisions
public sector workers must keep in mind when assessing their eligibility for Social Security benefits. The Windfall Elimination Provision (WEP) applies to workers who have work histories in both the public and private sectors and are therefore entitled to both a pension and Social Security. In that case, their Social Security benefit is reduced by up to one-half of the pension.
The other provision is the Government Pension Offset, where public sector employees apply for Social Security benefits for the spousal or survivor benefits. That is reduced by two thirds of their pension.
Military pensions are not affected by either the WEP or GPO rules.
ONE COMPONENT
Social Security is only one component of retirement planning, albeit a significant one, according to Ms. Franklin. For more assistance in considering claiming strategies, recommends a few easy-to-use software products for both financial advisers and clients. These include Social Security Analyzer, Social Security Pro, Maximize My Social Security, Social Security Maximizer, Social Security Timing and Social Security Income Planner.
