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Consider This Case Study: Hank & Susan
DO YOU WANT TO GET THE MOST FROM SOCIAL SECURITY? HERE ARE THREE EXAMPLES OF HOW PROPER PLANNING CAN MAKE A BIG DIFFERENCE. PLEASE KEEP IN MIND THAT I SPECIALIZE IN SOCIAL SECURITY PLANNING. CONTACT ME SO THAT I CAN HELP YOU CREATE A WINNING RETIREMENT INCOME STRATEGY THAT MAXIMIZES YOUR SOCIAL SECURITY RETITREMENT BENEFITS.
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Tyrone Clark, President, BCA
Licensed Insurance Professional
Hank and Susan, Married
3 Scenarios to Consider.
Option One: Maximize Lifetime Benefits
The longer you wait to claim Social Security the greater the benefit amount that will be paid. For each year you don't claim benefits you would otherwise be eligible for from age 62 to age 70, payments can increase by up to 8% a year.
You may want to consider this strategy if you feel it's likely that you could live an average to above average life expectancy and you and your spouse have similar earnings histories. A downside is that waiting to claim Social Security may cause you to tap into retirement assets earlier to bridge the income needed to the later claiming date.
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Let's assume Hank will live to age 88 and Susan will live to age 90, their incomes are $75,000 and $70,000 respectively.
If Hank and Susan both claim at age 62 they would receive a combined lifetime benefit of $1,100,000. But if they live to be ages 88 and 90, respectively, deferring to age 70 would mean about $250,000 in additional benefits.
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NOTE: All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 88 and 90 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
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Option Two: What If I Have Health Concerns?
As most folks are aware you can file for reduced Social Security benefits at age 62. If you and your spouse are concerned you may have a shorter time horizon due to health issues, filing earlier may make sense. If you don't feel that at least one of you could live into their late eighties then filing earlier may be a good option to consider.
EXAMPLE
Hank is 64 years old and feels like living to age 78 is reasonable, he currently earns $70,000 annually. Susan his spouse is 62 and feels she could live until age 76. She is the higher earner in the family at $80,000 annually.
By claiming at their current age, Hank and Susan are able to increase their lifetime benefits. Compared with deferring until age 70, taking benefits at their current age, respectively, would yield an additional $113,000 in benefits, an increase of nearly 22%.
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NOTE: All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 78 and 76 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
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Option Three: Focus On Increasing the Benefits For The Surviving Spouse
When a spouse dies the surviving spouse is entitled to receive the higher of the two benefits previously received. This ensures the largest benefit check continues while the lesser benefit ceases. Although this is a great benefit, some couples do not consider the loss or reduction of a benefit check on the surviving spouse. If you take your social security benefits early this will permanently impact your survivor benefits.
You may want to consider this option if you and your spouse have different benefit amounts and believe at least one of you could live a full life expectancy, outliving the other.
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EXAMPLE
Hank & Susan are both about to turn age 62. Hank expects to get $2,000 a month from Social Security when he reaches age 66 ½. He feels he is in good overall health and should reach average longevity for a man his age, which is around 85. Susan will get a $1,000 spousal benefit at age 66 1/2 and, based on her health and that both of her parents lived to over age 95, that living to an above-average age of 94 is quite possible.
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As an alternative to full retirement age, Hank and Susan are considering retiring at 62, when he would get $1,450 a month, and she would get $725 in benefits. Claiming early will cause their monthly benefits to be reduced by 27.5% over their full benefit available at age 66 ½. In addition, taking payments at age 62 would reduce Susan's benefits during the 9 years she expects to outlive him.
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If Hank waits until he's 66 ½ to collect benefits, he'll get $2,000 a month. If he delays his claim until age 70, his benefit, and his Susan's survivor benefit will increase another 28%, to $2,560 a month. Waiting until age 70 will not only boost his own future cumulative benefits, it will also have a significant effect on his wife's benefits. In this hypothetical example, her lifetime Social Security benefits would rise by about $69,000, or 16%.
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NOTE: All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 78 and 76 for husband and wife, respectively. The numbers are sensitive to life expectancy assumptions and could change.
Social Security payout figures are in today's dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.
All hypothetical examples here were calculated using benefit calculators provided by the Social Security Administration and can be found here: https://www.ssa.gov/benefits/calculators
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