Maximize Social Security Income and Benefits
Watch to Learn about the potential of Advanced Claiming Strategies!
The definition of an annuity is basically exchanging one’s money with some entity in return for a reliable income stream over a period of time based on a predetermined agreement. The strength of the annuity in this case is the full backing of the US government which is considered to be the safest financial haven of the entire world. With this, Social Security’s ultimate annuity aspects are:
- Full Backing of the US Government
- Tax advantaged – 0 to 85 percent is taxed based on income
- Inflation Protection – cost of living increases (COLAS)
- Income for life – eliminating longevity risk
- Spousal, Family and Survivor benefits
- Priced less than commercially available annuities
- Negative Caveat; No Contractual Guarantees – Subject to Legislative Changes.
Advanced Social Security Calculators
The Social Security Administration offers mostly simple calculators that are based on an individuals’ eligibility age and earnings history. They have a quite limited ability when it comes to comparing the multitude of more complex scenarios;
Social Security employees do not typically give advanced planning advice but do offer retirement income benefit information for individuals based mostly on eligibility, age and past earnings history.
Social Security Facts
- Passed by Congress in 1935 and signed into law by President Franklin D. Roosevelt;
- In 1956, it was amended to include disabilities;
- Eligibility and benefit payout is gender neutral;
- Additional income earning at full retirement age (FRA) is allowed with no reduction in benefit;
- Earning additional income after election at an early retirement age (ERA) is allowed with some reduction in benefit. Benefits reduced by earnings increase future benefits;
- Same sex marriage partners do not qualify for spousal benefits since they fail the definition of marriage under “The Defense of Marriage Act”;
- Social Security benefits are officially referred to as “Old Age Benefits”;
- The retirement income benefit (RIB) is calculated from the primary insurance amount (PIA);
- 35 years of the retiree’s highest earnings are added and averaged using an average index monthly earnings (AIME) formula in determining his or her PIA.
- PIA is based on several factors and is calculated to allow enrollment at FRA to receive the full RIB..
Taxation of Social Security Benefits
Social Security is taxed based on predetermined income levels.
A portion of a retirement income benefit may be taxable based on Provisional Income.
Single Social Security; Taxed Portion 2010 Percentages
- Up to $25,000 is 0%; $25,000 to $34,000 is 50%; $34,001+ is 85%
Joint Social Security; Taxed Portion 2010 Percentages
- Up to $32,000 is 0%; $32,000 to $44,000 is 50%; $44,001+ is 85%
ThisCase Study Video looks at an income need starting in ten years. A must see Income Planning example.
Tim was concerned about Laura having enough income if he predeceased her. This educational video shows the inside story on how Tim and Laura solved their dilemma by using Income Planning with Social Security and annuities specifically suited for their needs.
Starting Social Security Early
- Age 62 is considered the beginning of one’s early retirement age (ERA). One must accept a discounted or lower retirement income benefit (RIB) for starting benefits early;
- Age 65 to 67, depending on when one was born, is considered full retirement age (FRA). This is the age where the RIB is paid in full with no discount to the PIA;
- Early retirement age (ERA) income benefits at 62, for those born between 1943 and 1954 are reduced by about 25 percent based on the PIA at FRA. Spousal benefits are reduced even more by about 30 percent;
- Being deemed at an early retirement age signifies that one has been deemed to have received all of the benefits available in one’s month of entitlement;
Choose an income planner with the skill set to avoid the pitfalls when optimizing Social Security for maximum income and benefits. .
Learn How to File and Suspend or use Restricted Applications to Delay Social Security
- Delayed retirement credits are earned when income is delayed beyond FRA. The annual credit is based on approximately 8 percent simple interest or monthly interest of .0066667 percent;
- A restricted application can be filed after FRA for a married couple to claim a spousal benefit while continuing to receive delayed retirement credits;
- File and suspend is a strategy that can be used to receive delayed retirement credits this also allows an eligible spouse to make a spousal claim;
- One, file and suspend strategy (of which there are many) is for spouse one at FRA to file and suspend, allowing spouse two to claim a spousal benefit. This allows spouse two to receive substantial income while spouse one can grow his or her income benefit with delayed credits.
- Cross claiming is not allowed where both spouses receive spousal benefits with or without restricted applications simultaneously.
- Switching between strategies and using different eligibility ages creates a multitude of possible family benefit (couples) outcomes;
This next Case Study Video looks at income starting next year. Another must see Income Planning example.
Cindy wanted to retire next year but did not want to risk retiring too early and running out of money. This educational video explains how Cindy and Bill used an Inflation Hedged Income Strategy that included Social Security and Annuities..
Social Security Spousal and Survivor Benefits
- Individuals are allowed to receive their retirement income benefit based on their own earnings record or up to 50 percent of the higher earning spouse’s PIA, if it calculates to a higher retirement income benefit less any reductions for claiming at an early retirement age;
- This calculation is sometimes explained as topping off or topping up.
- Topping off or up is actually receiving the lower earning spouse’s retirement income benefit and then topping it off or up with the higher earning spouse’s PIA until it reaches half of the higher earning spouses PIA.
- Spousal survivor’s retirement income benefit can begin as early as age 60 (and age 50 if disabled) provided the marriage was not less than nine months and the decedent was eligible. When dependent children are younger than sixteen, the surviving spouse can be eligible at a younger age;
- Taking spousal survivor benefits prior to FRA will discount or reduce retirement benefit income based upon a disproportionately lower rate rather than a discounted PIA based on an individual’s own earnings record and PIA.
- Un-remarried divorcees are entitled to survivor benefits if they were married for 10 years or more during the decedent’s lifetime;.
Windfall Elimination Provision and Government Pension Offset
- The Windfall Elimination Provision (WEP) may reduce but not eliminate benefits for individuals with pensions that were earned outside of the Social Security System depending on multiple factors such as earnings record, years of social security credits and age of eligibility;
- Government Pension Offset (GPO) – when one earns a government pension not based on Social Security, it is likely to reduce spousal or survivor benefits by two-thirds and can be reduced to zero;.
Refunding and Restarting Social Security
It is possible to start over with an election
decision within a twelve month period in the event one feels that a mistake was
made. To do this, one must fill out a form and payback all benefits received..
Always get a second or third opinion to avoid costly Social Security mistakes..
“Choose Social Security based on benefits and math instead of general concepts.”
Work with a vetted advisor having proven expertise in Optimizing Social Security..
Those that understand the importance of optimizing Social Security will inevitably need some outside planning help. The Social Security Administration offers little guidance in the area of optimization other than giving income payouts based on the retirees’ earnings record and a proposed start date with no maximization analysis of the family benefit. The vast majority of advisors do not offer social security planning and are ill equipped, so generic advice is given instead of actually knowing what’s best.
Comprehensive Social Security planning takes a specialist –having the proper analytical software combined with experience and the knowledge to design cash flow strategies in retirement that can produce optimum results. This type of expert can be scarce and in more demand than a general advisor or broker, so one may have to search more diligently to find this type of retirement planning advisor. They should be able to help with not just the Social Security aspect but also the cash flow analysis to weave the entirety of a successful retirement income and estate plan together. Using available assets and income streams for income at optimal time periods will achieve a retirees’ most optimized total cash flow in retirement considering all factors.
Social Security optimization is not intended to be a stand-alone income stream or calculation rather it is an integral portion of one’s overall retirement income planning.