Social Security – The Foundation of Your Retirement Planning
Too often, retirement planners do not acknowledge or even include Social Security benefits in a financial plan – they get too focused on accumulation and not the retirement income side of the whole process.
Regardless of the politics surrounding the 80-year old program (which all working people have paid into through FICA withholdings their entire working careers), there are realities that people planning for retirement must consider — including the question of how to maximize Social Security payments.
The Social Security system includes, seriously, hundreds of claiming strategies. Why wouldn’t you want to examine the strategy that would produce the highest possible income as part of your retirement income plan?
So, in this first of my series on Social Security claiming practices, I thought it might be prudent to start by addressing a recent controversy about what some critics are calling “gaming” of the Social Security payment system. The implication is that many people are somehow “improperly” using existing Social Security regulations to draw out more in payments than that to which they are entitled.
Currently about two-thirds of Social Security recipients are claiming payments earlier than their full retirement age (FRA) – 66 for folks born between 1943-1954. This results in receiving up to 25% lower benefits, starting at age 62, than if they waited until age 66. Moreover, Social Security also permits an 8% per year increased payment for each year past FRA, until age 70, that claims are delayed. These are some baseline facts about Social Security to begin the discussion.
Today, I am drawing from a recent article by David Cechanowicz of Social Security Timing (September 2015 issue) to discuss this matter.
“A recent MarketWatch article’s headline went so far as to say, ” Let’s Close Down Social Security Gaming.” The first thing to acknowledge is that using existing Social Security regulations in a logical manner to receive an optimized income, is not gaming the system. There is nothing immoral or illegal about doing so.
“In citing the reason why these strategies should be removed, the author of the…MarketWatch article writes: ‘But it turns out that those most likely to take advantage of ‘claim now, claim more later’ are the husbands in two-earner couples. The reason stems from the fact that married women will generally maximize the couple’s lifetime benefits by claiming early.'”
“Follow the [author’s] logic. The low-earner wife files early, then the higher-earner husband can collect a spousal benefit while earning delayed retirement credits on his own account. The husband will have a higher retirement benefit at the time he ultimately files. The writer goes on in a 2015 MarketWatch article to state: ‘The husband is then free to continue working and receive delayed retirement credits, which increases not only his monthly benefit but also his wife’s.'”
Is this really a flaw? In fact it is not – the author of the Marketwatch article is flat wrong. “A husband who delays his retirement past full retirement age cannot increase his wife’s benefit. Spousal benefits are capped at 50% of the worker’s primary insurance amount (PIA) at his or her full retirement age. Collection of delayed retirement credits cannot increase a spousal benefit.”
What the Marketwatch author misses is the distinct benefit that will accrue to a surviving spouse in the event of the death of the spouse that delayed claiming the benefit to a later age. “You’re helping middle-income Americans and especially surviving spouses get the retirement income that they’ve earned, that they deserve and that the law allows. Once the public is aware of the value of claiming strategies, demand for your service grows.”
So I hope, using this as an example, we’ve addressed that the controversy over analyzing the many and varied options available to you in selecting which claiming strategy works best for you when considering Social Security payments, there is no “wrong” in taking advantage of your legal rights.
Next time – we’ll start at the beginning with what Social Security is, and then move into claiming strategies and making Social Security a solid foundation for your retirement income plan.
As always, please call with any questions or feedback. If you have an idea for a subject you’d like addressed in a future email, please let me know. My number is 303.912.5490.
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R Allan Jensen, CLTC
Investment Advisor Representative
Southwind Financial Services, LLC
Financial Planning and Investment Management Services offered through Jolliffe Capital, Inc., Registered Investment Advisor.
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