2018 Social Security Raise – Better Than a Stick in the Eye

photo credit: Vitaly. Unsplash.com.

The Social Security Administration projects a 2.2% increase for those receiving retirement benefits in 2018. While this is actually the biggest increase in years – 2017 saw an increase of only 0.3% and 2016 social security recipients saw no increase at all – it’s not likely to bump you into a new tax bracket.

In dollars, the projected increase adds up to about $28 per month for the average social security recipient.

As my grandfather, himself a longtime social security beneficiary, is fond of saying, “it’s better than a stick in the eye”.

The Fed Keeps Rates Unchanged

As expected the Federal Reserve voted to keep interest rates unchanged at its most recent Open Market Committee meeting last week. This comes after four rate increases in the Federal Funds Rate since they began raising interest rates in December of 2015.

The Federal Funds Rate remains at 1.25%.  The next FOMC meeting is scheduled for September 19-20 when many Fed watchers predict another increase or possibly a change in tactics.

Savvy Social Security Planning Leads to Greener Pastures For This Couple

photo-1433185000771-ec45c869c61bWhenever I meet with clients who plan to retire in the next few years, the topic of social security benefits always comes up – usually right away. “What’s the best way to maximize our social security benefits in retirement?” they ask.

This post addresses one of the most effective planning strategies married couples can use to get the most out of their social security dollar.

Jack and Carole

I recently met with a married couple that was planning to retire later this year. Having been born in 1949, both Jack and Carole have attained their Full Retirement Age (FRA) as defined by the Social Security Administration. This presented a wonderful opportunity to maximize their potential lifetime benefits while still allowing them to receive at least some income right away.

File and Suspend

Since Jack and Carole have both reached their FRA, age 66 for each of then, they can implement a strategy called “File and Suspend” in which one spouse files for benefits based on their work record (Jack, in this case) while the other spouse (Carole) claims a spousal benefit on the other spouse’s work record. Meanwhile, the social security benefit based on Carole’s earnings record continues to earn delayed retirement credits until she reaches age 70.

For this strategy to work, Jack must file for benefits based on his earnings record. Carole should have reached Full Retirement Age as well. Carole can claim a spousal benefit only if Jack is receiving benefits based on his earnings record. Carole may apply for a spousal benefit based on Jack’s earnings record now and switch to her own benefits later in life.

Once Carole’s benefits start, Jack can suspend his benefit and continue to earn delayed retirement credits on his own social security benefit until he is ready to begin receiving benefits on a more permanent basis – probably at age 70.

Leveraging Spousal Benefits

Using this strategy Carole is able to receive about $1,000 a month in social security benefits for 48 months between when she turned 66 and when she turns 70. When Carole turns 70 she will qualify for maximum social security benefits under her own work record. The current social security rules allow Carole to switch from her spousal benefit that she began receiving when she turned 66 and switch to her own benefit at age 70. Jack will turn age 70 the same year and can begin receiving his maximum benefit at that time as well.

Assuming Carol and Jack live past about age 78 or so, they will receive more social security dollars per month and more dollars over their lifetime. Of course, there is an obvious risk with this strategy. What happens if one of them dies before age 78? If you don’t expect to live past age 78, this strategy may not be for you.

Since none of us know how much time we have left on Earth, I usually recommend going with the odds. Odds are that a healthy 66 year old will likely live beyond age 78. The longer you live the better this strategy gets.

It’s Not for Everyone

“File and Suspend” works best when couples can afford to delay their social security benefits and expect to live longer than age 78. However, like most financial planning strategies, the “file and suspend” strategy isn’t for everyone.

Carefully consider all your options before making your final decision. For more information visit the Social Security Administration’s website or click here.

How to Maximize Your Social Security Income

shutterstock_120133108According to some analysts, there may be as many as 80 or more different ways to maximize your social security benefits. The best strategy for you depends on your circumstances and your work history.

However, if you are not currently taking social security benefits, there is one thing that nearly everyone can do to maximize the size of their social security check in retirement: delay your benefits.

I know that’s hard for a lot of people to do. You have worked and paid into the system for your entire life. The first thing most people look forward to when they turn 62 is that social security check. And why not? It would be nice to start getting some of that money back.

Before you rush off to the social security office, however, be sure to carefully consider all your options. The decision of when to start benefits will be one of the most important decisions you make in your retirement planning. Don’t take it lightly.

Delaying the start of your benefits could result in a larger monthly check and potentially more money being paid to you over the course of your lifetime. It could also have a profound impact on your spouse’s social security income as well.

How long will you live?

If you can tell me when you are going to die, I can answer a lot of other questions for you. The question of when to begin your social security benefits certainly falls into that category. The longer you live, the more it benefits you to delay social security.

The breakeven point for most people is usually somewhere around age 78. If you live longer, you will get a larger monthly check as well as more money over your lifetime. If you die before then, you may be better off taking benefits sooner.

With few exceptions, no one knows how much time they have left on earth. One of the most common arguments for taking benefits sooner is that when you die your benefits end. So, some argue, take benefits now while you can. If you are confident you will die before age 78, maybe you should. Then again, maybe you shouldn’t.

Even if you die before age 78, when you start your social security benefit will affect the survivor benefit your spouse is entitled to. Even if you are confident the end is near, I still recommend delaying the start of your benefits, if possible. You may get your social security benefits sooner, but it will come at a cost to your surviving spouse in the form of a permanently reduced benefit for them.

It pays to wait

Your social security benefit is based on the amount you would receive at Full Retirement Age or FRA. For me that’s 67. For you it may be between 66 and 67 years of age. I will spare you the gory details of social security math, but the gist of it is that every year you delay your benefit (up to age 70), your benefit increases by about 8%. By waiting to age 70 to take benefits, your benefit could be as high as 132% of the benefit you would receive at your FRA.

Taking benefits before FRA results in a reduction of your benefits. Taking benefits at age 62, for example, may result in a reduced benefit of as little as 70% of the benefit you would receive at FRA.

The $64,000 Question

According to the Social Security website life expectancy calculator, a woman born in 1954 can expect to live another 26.1 years. Her husband born that same year has another 23.4 years to go. Since most people age 60 and older will live to the age of 82 or greater, you may want to think carefully about when you choose to start your social security benefits.

The increased monthly social security check you earned by delaying your benefits will really start to add up as the years go by. Assuming you live to just an average life expectancy as described above, the extra benefits could tally up to over $60,000 or more. Obviously, your exact number will vary depending on your earnings history, when you were born and when you started your benefits, among other things.

The decision of when to start your social security benefits is a big one. And it’s one that will affect your retirement income for the rest of your life. Before signing up for benefits, take some time to consider all your options.

In the meantime, if you would like help with your social security and retirement planning, just Ask Mike.

How Savvy Social Security Planning Increased One Couple’s Retirement Income by $100,000

Retirement coupleIn an earlier post I argued that you may be better off to delay social security benefits up to age 70. By waiting you earn delayed credits which may allow your benefit to increase by as much as 1/3 or more.

Assuming you live to about age 78 or so, you may be able to potentially increase your monthly benefit as well as your lifetime social security benefit by waiting. But what if you can’t wait? What if you need to have some of that benefit today? What then?

Social security planning is a big part of what I do for clients who list retirement income planning as a primary concern. Frankly, social security planning should be a major concern for anyone planning to retire in the next 10 years. Savvy social security planning can result in tens of thousands of dollars of extra income over your lifetime.

Following is an example of a couple I worked with recently. This is just an anecdotal story. Your experience may be different. How much you receive from social security depends on your work history, when you were born, if you have ever been married, your life expectancy and many other factors.

Meet Lyle and Linda

Lyle and Linda are the same age and are both entitled to their full social security benefit when they reach age 66.

Linda was a public employee for many years and enjoyed a good salary. When she retired she was entitled to a monthly social security benefit of $1,348 each month starting at age 66 – her Full Retirement Age. However, if she waited to age 70 her monthly benefit jumped to $1,907 each month – a 41% increase.

Lyle worked at as a manager at a Fortune 500 company. At Full Retirement Age Lyle is entitled to receive $2,513 as a monthly benefit.

Like most of my clients they were concerned about having enough income in retirement. They worked hard to be able to have a comfortable life in retirement and they wanted to be sure they were making the most of their social security benefits.

Today, they enjoy the confidence of knowing they are getting the most out of the social security system that they paid into for all these years – 45 to be exact.

Here is how they did it…

Assuming that Linda lived to age 87 – her actuarial life expectancy according to the social security life expectancy calculator – she would collect about $340,000 over her remaining lifetime if she starts benefits at age 66. However, if she waits to age 70, she would collect over $389,000 during her lifetime – a difference of almost $50,000. That’s a lot of lattes.

But there was a problem. Linda needed the income right away and couldn’t afford to wait to age 70. Enter Lyle…

Lyle’s benefit at his Full Retirement Age was $2,513 a month. As a spouse Linda is entitled to receive 50% of his monthly benefit (approximately $1,256) or take her own. You can’t to both at the same time.

A little known fact

Many people don’t know this, but as a spouse Linda is entitled to a spousal benefit based on Lyle’s work record – $1,256 a month in this example – for as long as she wants. In the meantime, her social security benefit continues to grow earning delayed credits until she chooses to take benefits based on her work record. At age 70, Linda may switch to her own benefit of $1,907 a month.

By taking a spousal benefit, Linda received $1,256 a month from age 66 to age 70. She gave up only about $92 a month in lost benefits (remember her own benefit at age 66 was $1,348). Meanwhile her benefits based on her work record continue to grow. At age 70 she will switch to her benefits based on her work record of $1,907 per month giving her a raise of more than 50% or $651 a month.

The significance of this strategy is more apparent when you combine the numbers. Waiting to receive benefits on her own work record added more than $40,000 to Linda’s pocket over her lifetime. Taking a spousal benefit based on Lyle’s work record Linda added another $60,000 to her pocket between her ages 66 and 70 for a grand total of over $100,000 of additional benefits.

Some disclosure

The above example is based on a real case, but your numbers will likely be different. We are also making a lot of assumptions here. The primary assumption being that Linda will live to her average life expectancy or at least beyond her break even point (approximately age 78 in this example).

How much you receive from social security and the best strategy for you depends on many factors as mentioned above. However, this is not an isolated or unusual case. If you are married or were married for 10 years or more, you should very carefully consider all your options with a qualified professional before you make your social security decision.

If I can help, just Ask Mike.

The link(s) in the materials above are being provided strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site and assume total responsibility and risk for your use of the web site you are linking to. We make no representation as to the completeness or accuracy of information provided at these web sites.