Maximize Social Security Income
One of our clients' top concerns is outliving their retirement savings. The decision about when to collect Social Security retirement benefits is a key factor in creating a succesful retirement strategy.
To assist clients in making this decision, we offer a calculator that helps individuals and married couples determine the optimal age for collecting maximum lifetime Social Security benefits. Using a patent-pending Social Security Benefits Estimator, we can illustrate various collection options and their impact on combined lifetime benefit.
- Understanding all the rules behind Social Security (SS) benefits can be a difficult task.
Fortunately, you do not have to be an expert to tackle the tough decisions of "when"
and "which" benefits to collect. Having a few of the right conversations can help you determine optimal strategies that will increase your retirement income.
- Deciding when to collect benefits may be one of your largest concerns. It will
determine the size of your monthly benefit and, ultimately, the amount of Social Security (SS) income you collect over your lifetime. Your benefit amounts are based on your Primary Insurance Amount, or PIA (which is the monthly benefit you are eligible
to receive at FRA).
The Benefit Tradeoff
- If your spouse passes away, you may be eligible to collect benefits off of the deceased spouse's earnings history. Unlike spousal benefits, which are at most 50% of the spouse's PIA, survivor benefits are usually equal to the benefits the deceased spouse had been receiving. Therefore, your survivor benefits will be impacted by when your spouse collects benefits. This is one of the main reasons why married couples' strategies should account for the life expectancies of both spouses.
- If one spouse has a high likelihood of outliving the other for a substantial amount of time, the couple's best overall strategy may involve maximizing survivor benefits.
- If you are at least FRA when he or she starts collecting survivor benefits, you would be entitled to the greater of:
- 100% of the deceased spouse's benefits.
- 82.5% of the deceased spouse's PIA. This option only matters if the deceased spouse had collected benefits early and faced a reduction of more than 17.5%.
- If you start collecting survivor benefits before FRA, the benefits may be reduced by up to 28.5%. The reduction is prorated monthly between age 60 and FRA. In the case of early collection, the SSA compares the following three amounts and, depending on how they compare, will pay either the lowest or the middle amount.
- The individual benefits the deceased spouse was collecting.
- The deceased spouse's PIA (recalculated at the time of entitlement) reduced by up to 28.5% for early collection.
- 82.5% of the deceased spouse's PIA (recalculated at the time of entitlement).
Additional Discussion Opportunities
- While the above information should allow you to work through many of your questions and scenarios, there are a number of items that may signal a need to dig deeper. Here are some common signals:
- Pensions: Government pensions (i.e., pensions from work where your clients did not pay into the SS system) can impact you in two ways:
- Reduction of individual benefits due to the Windfall Elimination Provision (WEP). This reduction will not be reflected on your SS statement.
- Reduction of spousal or survivor benefits due to the Government Pension Offset (GPO). Under GPO, your spousal and survivor benefits will be reduced by two-thirds of your government pension.
- Divorce: Divorced individuals may be eligible to collect spousal or survivor benefits. If you were married for at least 10 years, are currently unmarried (or current marriage started after reaching age 60), or you are at least age 60 and the ex-spouse is deceased, you are likely eligible for divorced spouse and/or survivor benefits. The same reductions apply for early collection as they do for regular spousal and survivor benefits.
- Working while collecting benefits: Individuals who collect benefits before FRA but continue to work will be subject to an annual earnings test and you may have some or all of your benefits withheld. In its basic form, the earnings test allows you to earn up to $14,160 before the SSA starts to withhold $1 of benefits for every $2 above $14,160. There is a different test applied in the year you turn FRA and in the first year of collection. All forms of the test apply to earned income only.
- For married couples, the decision of when to collect Social Security (SS) is more than just a question of longevity. Individuals may be able to switch between different types of benefits throughout their lifetime in order to maximize their SS income. Although each situation is unique, most would benefit from adopting some simple strategies which aim to maximize lifetime benefits for married couples, and work best for couples that are close in age.
Please Note: All timelines are for illustrative purposes only. The timelines assume a full retirement age (FRA) of 66 for both spouses.
Married Couple - Large Difference in Benefits
Married Couple - Small Difference in Benefits
Married Couple - Small Difference in Benefits (Alternative)