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.

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