Getting More from Social Security

Many fear that Social Security benefits will be stopped or reduced; however, 55+ million retirees now getting SS will vote out any politician who supports stopping or lowering benefits. Over 70% of current SS recipients started benefits before normal retirement. This has proven to be a huge financial mistake for those that could have afforded to delay benefits. It’s time to stop worrying about SS ending and turn attention to maximizing lifetime SS benefits. Here are some ideas.

If healthy and financially able to forego SS early in retirement, delaying benefits is a very smart retirement decision. The earliest starting age is 62 but if you continue working, benefits will be reduced until normal retirement age is reached (66 if born between 1943 & 1954); however, you can file for SS and suspend without penalty so a dependent spouse can have benefits. Benefits grow for each month you delay SS from age 62 to 70. If your annual benefits would be $12,000 at age 62, delaying until 66 raises them to $16,000 and waiting until age 70 yields $22,000. These amounts are before the annual increase for inflation. Where else can you invest money to earn 7.877% with no risk, backed by a government promise, annually adjusted for inflation and tax-favored when received? That is what you get by postponing SS. Also, the surviving spouse gets, for the remainder of his or her life, the higher of their own benefits or those of the deceased spouse. An average couple can have over $200,000 more in lifetime SS benefits if the primary breadwinner delays until age 70 rather than starting at age 62.

SS benefits are tax advantaged because regardless of your income level, it will never be 100% taxed. After reaching normal retirement age you can draw spousal benefits [regardless of gender] while delaying your own benefits. Delaying SS and using other moneys (401k, IRA, investments & savings) during the early years of retirement is probably the best investment you can make in today’s world. There is no other riskless investment that can match delayed SS growth plus a dependent surviving spouse will get increased benefits for their remaining lifetime. The only way to have more of your retirement income coming from this risk-free, high-growth, tax-advantaged, inflation-adjusted, spouse-friendly source is to delay SS as long as you can up to age 70.

Let’s say the primary breadwinner delays SS until age 70 but the couple believes the higher benefits will still be short of providing the retirement they’ve planned. Why not supplement it with a “lifetime income” guaranteed by an insurance company? Let’s say that you believe $50,000 a year (in today’s dollars) will be needed for retirement but total SS benefits will only be $30,000. The remaining $20,000 (adjusted for inflation) can easily be obtained by working with your financial advisor and using an annuity with a guaranteed lifetime income option or a “ladder” of annuities. The “ladder” staggers the maturity of annuities so that when income from one stops it starts from another. This is a simple procedure that financial advisors use in retirement planning. Money not needed to supplement SS income can be enjoyed for other uses or left to loved ones as a legacy. This approach allows you to forget market fluctuations, interest rates gyrations and outliving your money. Social Security offers you an option for higher lifetime income and I strongly recommend you investigate this opportunity.