Social Security Facts You Need to Know (Part 2 of 2)

Social Security can be daunting.  The Social Security Handbook has over 2,500 rules defining the benefits you may be entitled to under the program!  At Composed Financial, we continually try to simplify the process for you.  That is why we are proud to say we are now utilizing ‘Maximize My Social Security’ – a paid online service that we are providing to all our clients for free.  It incorporates your personal details and lays out the best filing plan so you and your family can be sure to get the highest benefit available.

In the 1st of our 2 part Social Security series, we described the most common types of benefits available.  This final part will lay out some strategies that are soon expiring that you can use to maximize your benefit.   We will show some details of our new tool ‘Maximize My Social Security’ as well.

A Form of Insurance

At its core, Social Security’s retirement benefits should be viewed as a type of insurance.   The benefits protect you at a time when you are no longer earning income.  You can’t outlive Social Security.  You can outlive your retirement assets (401ks, IRAs, etc.).  Our tool ‘Maximize My Social Security’ uses a default ending age of 100.  You may reduce that if you have a poor family history of longevity, but you should still be conservative and put it past what you might consider to be your expected date of death.  The reason is because the worst case scenario (from the viewpoint of providing you a comfortable income in retirement) is that you outlive your life expectancy.  That means more years of providing you a comfortable income, and that can be costly.  Pretty morbid right!   We won’t go as far as to recommend you start smoking and eating chili cheese fries 3 times a day, but we will plan that you live longer than expected – just in case you do.

Your life expectancy increases significantly as you age, as shown below.

SSA Facts 2.1

 

 

 

 

 

 

SSA Facts 2.2

 

 

 

 

 

Source:  “Social Security 2011 Period Life Table”.  Social Security Official Website.  https://www.ssa.gov/oact/STATS/table4c6.html

As you can see, when you were 25 years old you could be expected to live to the age of 77 (male) or 82 (female).  Once you reach the age of 75, you are expected to live to age 86 (male) or 88 (female).  Nice job!  All that hard work of getting older paid off.  I would also like to point out that the males closed the gap by living to 75.  When we were 25, my wife Christina was expected to live 5 years longer than me (82 vs 77).  When we hit 75, she is expected to live only 2 years more than me.  I can only assume that means my jokes and antics took their toll!

Social Security Strategies

In all the strategies below, husband and wife could be switched.  All the examples assume the husband is entitled to the higher benefit based on his work history for simplicity.  In reality of course the wife may be entitled to the higher benefit based on her work history and the facts in the examples would be reversed.  The examples also ignore and cost of living adjustments.

1.  Two Claim Approach (Restricted Application)

Husband:

Current Age 66;

Full Retirement Age (FRA) 66

FRA benefit $2,000

 

Wife:

Current Age 66;

Full Retirement Age (FRA) 66;

FRA benefit $900

Spousal benefit $1,000

 

Husband retires at 66 and files for FRA benefit for $2,000 per month.  Wife files for spousal benefits at age 66 with a restricted application so she does not file for her own benefit.  She then receives spousal benefit of $1,000 per month.  She receives delayed retirement credits on her $900 FRA benefit of 8% per year (maximum 32% if she delays until age 70).  If she then files for her own benefit, she could start receiving $1,188 per month ($900 multiplied by 132%).

This strategy is expiring.  For couples who are currently married, this strategy is available at full retirement age for those age 62 or older in 2015.  If you are under 62 in 2015, this strategy is unavailable.

 

2.  Claim Early / Claim Late (Restricted Application)

Husband:

Current Age 62;

Full Retirement Age (FRA) 66

FRA benefit $2,000

 

Wife:

Current Age 66;

Full Retirement Age (FRA) 66;

FRA benefit $900

Spousal benefit $1,000

 

Husband retires at 62 and files for early retirement benefit of $1,508 per month ($2,000 multiplied by early retirement reduction of 75.42%).  Wife files for spousal benefits at age 66 with a restricted application so she does not file for her own benefit.  She then receives spousal benefits of $1,000 per month.  She receives delayed retirement credits on her $900 FRA benefit of 8% per year (maximum 32% if she delays until age 70).  If she then files for her own benefit, she could start receiving $1,188 per month ($900 multiplied by 132%).

This strategy is expiring.  For couples who are currently married, this strategy is available at full retirement age for those age 62 or older in 2015.  If you are under 62 in 2015, this strategy is unavailable.

 

3.  File and Suspend – Married

Husband:

Current Age 66;

Full Retirement Age (FRA) 66

FRA benefit $2,000

 

Wife:

Current Age 66;

Full Retirement Age (FRA) 66;

FRA benefit $600

Spousal benefit $1,000

 

Husband retires at 66 and files for FRA benefit for $2,000 per month.  Wife files for spousal benefits and receives spousal benefits of $1,000 per month.  Husband suspends his benefits and delays until age 70 so he can receive delayed retirement credits on his $2,000 FRA benefit of 8% per year (maximum 32% if he delays until age 70).  If he then files for his own benefit, he could start receiving $2,640 per month ($2,000 multiplied by 132%).

This strategy is expiring.   This strategy is available to those who will be age 66 by April 29, 2016 and they must file and suspend benefits by April 29, 2016. 

 

4.  Lump Sum Payback (File and Suspend – Individual)

Husband:

Current Age 66;

Full Retirement Age (FRA) 66

FRA benefit $2,000

 

Husband files and suspends his FRA benefit of $2,000 per month in order to earn delayed retirement credits on his of 8% per year (maximum 32% if he delays until age 70).  However, if he gets bad news that he has a terminal condition and will not live until the age of 70, he can retroactively claim all benefits going back to the date of the original suspension.   He will get a lump sum payment for those benefits, forfeiting any delayed retirement credits.

This strategy is expiring.   This strategy is available to those who will be age 66 by April 29, 2016 and they must file and suspend benefits by April 29, 2016.

 

Maximize My Social Security

Our new tool that we provide free-of-charge to our clients takes the guesswork out of filing for Social Security benefits.  There are thousands of SSA rules, as well as thousands of different possible scenarios for people’s lives.  The program lets you custom-tailor your family’s inputs to get the maximum benefit that is specific for your situation.  The tool provides easy to understand results, as seen in the example below, and then details how to go about filing for your maximum benefits.

SSA Facts 2.3

 

 

 

 

 

 

Sources:

 

1 – “Social Security 2011 Period Life Table”.  Social Security Official Website.  https://www.ssa.gov/oact/STATS/table4c6.html.

2 – “Navigating the Effective Date Deadlines for the New File-and-Suspend and Restricted Application Rules”.  Michael Kitces Blog.  https://www.kitces.com/blog/navigating-the-effective-date-deadlines-for-the-new-file-and-suspend-and-restricted-application-rules/.

3 – “44 Social Security ‘Secrets’ All Baby Boomers and Millions of Current Recipients Need to Know – Revised!“.  Forbes Website.  http://www.forbes.com/sites/kotlikoff/2012/07/03/44-social-security-secrets-all-baby-boomers-and-millions-of-current-recipients-need-to-know/.

4 – “4 Unusual Ways to Boost Social Security Benefits”.  Investopedia.  http://www.investopedia.com/articles/retirement/08/unusual-social-security-strategies.asp?header_alt=false.

Disclosures:

None of the information or data presented herein constitutes a recommendation by Composed Financial Management, LLC (“the Firm”) or a solicitation of any offer to buy or sell any securities. None of the information presented here should be construed as legal, tax or other professional advice.  Information presented is general information that does not take into account your individual circumstances, situations or needs, nor does it present a personalized recommendation to you. Although information has been obtained from and is based upon sources the Firm believes to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.  Past performance is no guarantee of future results.

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