Don’t Miss Out on Important Social Security Benefits!
By Brad Haverback, Investment Advisor Representative, World Trend Financial, Linn County LIVING WELL Magazine
While the ongoing viability of Social Security is being called into question, it remains an important component of most retirement plans. Generally, participants have a basic understanding of when and how to collect Social Security retiree benefits; however, they often miss opportunities to maximize benefits.
To illustrate, consider the following scenario involving the Spousal Benefit and Survivorship Option. Jay and Kay both reach age 66, their full retirement age under Social Security. Each has earned a monthly benefit of $1,900. Jay elects to retire and begin collecting benefits. Kay decides to continue working until age 70. Despite the decision to continue working, Kay has attained full retirement age and has two basic choices related to her Social Security benefit.
Option 1: Kay can begin collecting her full monthly benefit of $1,900 for the rest of her life.
Option 2: Kay can defer her monthly benefit – increasing her benefit 8% up to age 70, after which no further credits can be earned. At this time, her monthly benefit for the rest of her life would be $2,508.
In actuality, both of these features can be enjoyed utilizing a third option.
Enter Option 3: Since Kay has reached full retirement age and Jay has elected to start his benefit, she can elect to begin receiving the Spousal Benefit (50% of Jay’s benefit), resulting in $950 monthly. At the same time, her benefit will continue to grow by 8% each year. At age 70, Kay can retire and elect to switch to her $2,508 monthly benefit.
Assuming Kay lives until age 80, how do the three options compare?
Option 1 Aggregate Benefit: $342,000
Option 2 Aggregate Benefit: $331,056
Option 3 Aggregate Benefit: $376,656
Obviously, over time, Option 3 can provide significantly more benefit than the Option 1 or 2. The actual break-even date is age 76. If Kay survives past age 76, Option 3 provides the most benefit.
The risk is that Kay passes away prior to age 76. If she does, the Survivorship Option becomes applicable. The Survivorship Option allows a spouse to elect the higher of their benefit or that of the deceased spouse. If Kay passes away at age 70, Jay would elect to stop his $1,900 monthly benefit and begin collecting Kay’s $2,508 monthly benefit.
There are countless other tax considerations, early retirement scenarios as well as the impact of divorce and a second marriage. Each individual situation varies, so it is important to visit with someone who has a thorough understanding of the program. For specific tax and benefit questions, it is advisable to visit with a competent tax accountant or experienced financial advisor.
The advisors at World Trend Financial and Terry Lockridge & Dunn specialize in assisting all of our clients with the complex decisions facing them as they plan for retirement. Reach them at 319-364-2945 in Cedar Rapids, or 319-339-1884 in Iowa City.