Why it’s Worth Reviewing your Approach?

This week weare talking about Social Security! With our event this evening on optimizing your benefits, and this Sunday’s Redefining Retirement, exploring even further in the importance of being well-informed when it comes to taking your Social Security income benefits, we would like to offer you one of the few, hypothetical case studies that we go over at the event. 

We cover various case studies at this event not only for couples but for single individuals as well. This particular case study is for a married couple. Joe and Jane are a hypothetical couple but they may be just like you. They may have come to our Maximize Your Social Security event in the past and one day began wondering “Wow, maybe we should have an analysis run and see if there is a better way.” Remember, Joe and Jane are fictional and your actual experience will vary and your decisions should be made in light of your own financial situations.

So here's their situation:  Joe is 60 and Jane is 59.  They're trying to plan ahead. Joe's benefit, if he waits until his  full retirement age is $2,335 and Jane's is $1,442.  For them their FRA (full retirement age) is 66. You can find out more regarding your FRA at SSA.gov or see their provided chart on your right.

The question is how can they optimize their social security benefits?

Remember, this example is not considering any other factors such as available savings, income needs, or life expectancy.

Using the Social Security Analyzer software and based on the client’s life expectancy and the spouse's life expectancy we receive a very colorful chart, each color representing a different strategy. While all of these strategies may not be appropriate for the individual’s circumstance, there are 37 different strategies on Joe's and Jane's particular chart. 

Joe and Jane are in good health, and so we can assume that they may live to a reasonable life expectancy, in which Joe lives until 85 and Jane until 92.  So, based on this they fall into a certain color, that represents a strategy that Joe and Jane may want to consider to optimize their social security benefits.  If he only lived to 75 and she lived past 80, than this moves them to a different color and strategy that will be the best one to optimize their benefits.  If he lived to 84 and she lived to between 78 and 84, then again, this moves them to a different color and strategy that they may want to consider for an ideal strategy.  You can see how your life expectancy has an enormous impact on which strategy makes the most sense for you.

For them, the primary strategy (after evaluating their unique scenario and several filing options available for their situation) helped them to determine how they could get the most lifetime income from Social Security and it also helped them meet the goal of increasing their monthly benefit amount. 

In our example....

  1. Joe should file and suspend his benefits when Jane reaches her full retirement age (66)
  2. Jane files a restricted application for spousal benefits only at that point
  3. Joe begins taking his benefits at age 70
  4. Jane switches to benefits based on her record when she turns 70

The primary strategy reflects a specific strategy for claiming Social Security benefits in line with the two goals of: maximizing expected lifetime benefit totals and minimizing longevity risk by evaluating life expectancy based on calculations in the software and optimizing benefits with projected longevity in mind. It also has incorporated additional strategies and spousal benefits that may result in a higher lifetime benefit amount. The primary strategy for Joe and Jane is based on life expectancy inputs built into the software and is the strategy that will likely provide the greatest cumulative lifetime benefit. However, as a married couple the survivor benefits should also be considered in the claiming strategy. A surviving spouse can receive the larger of the two benefit amounts, but not both. If at least the higher earner waits to begin benefits on his or her earnings record until age 70, survivor income will be greatest. If you live a short life, waiting may increase survivor benefits, but it may not provide the greatest cumulative lifetime payout over your joint lifetimes. 

So, let's look at how our primary strategy that we described above compares to taking their benefits at age 62, like they were planning. Again, assuming the life expectancy of 85 for Joe, 92 on Jane, and a 2 percent inflation factor:

  •  Using our primary strategy, cumulatively they would collect $1.8 million on social security benefits.  $1.8 million is a huge amount of money. 
  • If they would have taken at 62 they would have collected $1.3 million over that same period of time.   
  • The strategy analyzer provides a solution that represents a potential difference of $489,074, almost half a million dollars over their lifetimes.  
Of course we don't know for certain how long either Joe or Jane will live. If they live longer the benefits get bigger; if they live shorter the benefits are less. All we can do is make our best efforts by analyzing past statistics and mortality tables, to make the best assumption possible.    

The point is the analyzer provides a solution that is almost half a million dollars of a difference, when you have that much more money being paid out to you in your social security distributions, it’s a big deal. The amount of your benefit payment can make a difference in your retirement. It can be a big deal.

Maybe in your circumstance the number's bigger.  Maybe in your circumstances the number is smaller. What if it’s only half that? What if there is only a $200,000 difference in benefits paid out by the optimized strategy? I don't know about you but for most people, $200,000 is a lot of money and can have a huge impact.

If you're married we will see larger numbers, like in this example with Joe and Jane.  But even if you're single there's still potentially significant savings, or potentially significant benefits, that you can enjoy if you run these strategies properly.

The majority of the time, once you figure out how to optimize your social security, you may want to consider just that option. However, the optimization strategy is not ideal for all individuals and situations because social security does not represent all of your retirement income plan; it represents a portion of your retirement income plan.  Now it might be a significant portion but it's a portion.  Of course, you have not only social security as part of your retirement income but maybe you have a pension.  And maybe you have retirement savings.  Then the question becomes how do you manipulate all of those items together in order to get a strategy that meets your goals and takes into consideration your individual situation? 

Now, can you see the importance of making informed choices with you Social Security benefits? Do you see the importance of learning more about your social security benefits filing options and ways to coordinate them with your overall retirement income strategy?

If you would like to attend tonight's event, click here to register or if you would like to speak with a retirement planning specialist give our office a call at (775) 853-9033.

*These studies are only meant to assist you in seeing the importance of making informed decisions, and these specific examples are focusing solely on optimizing the retirement benefits.  Optimizing benefits may not be appropriate or realistic for everyone's individual situation.