Optimizing Social Security Income

For many clients Social Security represents a secondary, though important, contributor to an overall retirement income strategy, offering them two key benefits: guaranteed income for life and inflation-adjusted payments. Consequently, maximizing social security payments is a critical element for ensuring your clients’ financial security in retirement.

How to Maximize Benefit Payments

The passage of the Bipartisan Budget Act of 2015 eliminated two key strategies for maximizing Social Security benefits: “file and suspend” and “restricted application.” Yet, there remains several key steps that individuals should consider as they approach retirement.

1. Avoid Taking Social Security Early—According to the Social Security Administration, 71 percent of retired Americans receive reduced benefits due to commencing benefits prior to full retirement age.^* Since taking early benefits can reduce payments by as much as 25 percent or more, this can be a very expensive mistake over the long-term.

Waiting until full retirement age to begin Social Security also benefits the surviving spouse since he or she is eligible to claim the higher benefit amount of the deceased spouse as a survivor benefit.

For those who expect a reduced longevity due to health issues, it may prove advantageous to begin taking benefits earlier.

2. Defer Benefits Until Age 70—Individuals who defer Social Security benefits beyond full retirement age can increase future benefit payment amounts by up to 8 percent per year. This deferral bonus continues to accrue until an individual reaches age 70, so there is no additional advantage to deferring beyond 70 years old. Thus, someone whose full retirement age is 66 with a hypothetical benefit of $2,000 per month can increase that monthly payment by 32 percent to $2,640 per month by waiting until age 70 to commence benefits.

3. Consider Payment Options—A beneficiary’s spouse is typically eligible for a Social Security benefit equal to 50 percent of the working spouse’s benefit. For working couples with large differences in earnings histories, it may behoove the couple to calculate the spousal benefit since it may be higher than the lower income spouse’s regular Social Security benefit amount.

Remember, an individual’s plans to work in retirement may affect Social Security since benefits taken prior to full retirement age are reduced by $1 for every $2 in income earned more than $16,920 (in 2017).

Final Thoughts

An advisor is in a unique position to add tremendous value to clients by assisting them in determining the best strategy for taking Social Security. The right moves can add up to decades of financial security, and help preserve their legacy objectives.

Source:

*https://www.ssa.gov/policy/docs/statcomps/supplement/2016/highlights.pdf

See referenced disclosure (2) at https://blog-dev.americanportfolios.com/disclosures/ 

See referenced disclosure (2) at https://blog-dev.americanportfolios.com/disclosures/