Maximize Your Social Security Benefits

By |2013-12-27T22:04:29+00:00December 26th, 2013|Retirement Planning, Social Security|

social security benefitsBy Chuck Bartman

Social Security (SS) is one of the largest retirement assets and makes on average 64.8% of total household incomes and is often the largest and most mismanaged asset in your retirement income plan. 74% of Americans voluntarily receive reduced income.

When you retire your income stops and you start living off the money you’ve saved. You need to maximize your Social Security benefits to put as little pressure on your retirement assets.  Every dollar you increase your Social Security income means less money you’ll have to withdraw from your nest egg to maintain your lifestyle.

When you elect to start your SS benefits it could be the difference between tens of thousands if not a hundred thousand dollars or more in lifetime benefits, impacting your retirement lifestyle.

1. What’s the best option and time to elect Social Security benefits? 

Nearly 50% of all Americans file for benefits at age 62. Some need income because of poor health and don’t think they’ll live long enough to benefit them or their family. For married couples, a simple break even analysis is usually the wrong answer. I believe people collecting at age 62 simply don’t understand their options and make decisions based on rumors or emotion.  It’s tough to generalize SS strategies.  Each spouse’s age, benefit amounts and health outlook play a big role in how and when to claim.  The point is, don’t claim before you look at the multiple benefits and strategies. These strategies are available for married, single, widowed, government employees and people that have already started benefits but are not 70 years old yet.  Don’t be fooled into thinking SS is a “Slam Dunk!”  Through, 2728 separate rules and guidelines outlined in a 170 + page manual by the Social Security administration, 9 strategies which include switch options, 81 yearly or 972 monthly age combinations, and 567 sets of calculations.  You need to maximize your lifetime benefits by using strategies available to both you and your spouse.

2.Who will provide you with reliable advice for making these decisions?

Most people look to their financial advisors for SS claiming advice, but most financial advisors don’t understand SS’s complex rules or guidelines. People tell me all the time that their financial advisors tell them to call the Social Security Administration or start your benefits as soon as possible and invest the income.  Which could have significant risk.

3. Why not ask Social Security for advice?

SS representatives are actually prohibited from giving election advice, are not licensed to ask you about your retirement accounts, other assets, or evaluate the impact of your decision on the rest of your financial plan. Plus SS representatives in general are trained to focus on monthly benefit amounts for the individual not lifetime income for the family. Taking SS benefits at the right time will be one of the biggest financial decisions you’ll ever make, so you need to get it right.  Getting it right on your own is almost impossible.

4. Why is it important to use someone trained in SS timing?

Taking your SS benefits at the right time will have a lifetime impact and could make a huge difference to a retiree’s standard of living.  It will have an effect on your retirement and savings accounts.  That’s why it’s imperative to coordinate the preservation and distribution of these accounts to delay your SS income and avoid paying excessive and unnecessary taxes. SS is taxed at a lower rate than your retirement accounts or any other income.

5. How will earnings effect my benefits?

When taking benefits prior to your Full Retirement Age (FRA) could cost you 50% of your benefits.  At ages 62-65 $1 of your SS benefits is deducted for every $2 of earnings over $15,120. In the year of your FRA, $1 of your SS benefit is deducted for every $3 of earnings over $40,080 (only applies to months before FRA). Once you reach FRA, you will receive your full benefit payment regardless of how much you earn but Federal taxes will apply.

As an example: 

Social Security Taxation (Filling Jointly) 

Threshold Income                                       Taxable Portion of Benefits

Less than $32,000                                                      0%

$32,000 to $44,000                                                  50%

More than $44,000                                                     85%

 

Managing the impact of taxes.  As much as 85% of your benefits may be subject to income taxation. Nearly every source of income is included: wages, pensions, dividends, capital gains, business income; tax-exempt interest. It’s important to time your SS benefits along with the withdrawals from your retirement accounts to reduce or eliminate unnecessary or excessive taxes. Forbes had an article in reference to SS “Secrets.” “When it comes to possibly paying federal income taxes on your Social Security benefits, withdrawals from Roth IRAs aren’t counted, but withdrawals from 401(k), 403(b), regular IRAs, and other tax-deferred accounts are. So there may be a significant advantage in a) withdrawing from your tax-deferred accounts after you retire, but before you start collecting Social Security,  b) using up your tax-deferred accounts before you withdraw from your from your Roth accounts, and  c) converting your tax-deferred accounts to Roth IRA holdings after or even before you retire, but before you start collecting Social security.

6. How can you maximize your lifetime Social Security benefit?

This is not the government’s money it’s your money that you’ve paid into the system for years. This is not Welfare or Food Stamps. You need to know the rules to maximize your SS benefits for yourself and your family.  Get what you are owed!

7. Why should I delay my Social Security benefits?

From age 62 to 66 your benefits will increase by an average of 6.25% per year and from age 66 to 70 it goes into supercharge mode at 8% per year plus Cost of Living Adjustment (COLA). Most people are unaware that married couples have strategies like restricting or filing and suspending their application available to them, leaving money on the table. These strategies have the potential to increase their lifetime benefits by tens of thousands if not a hundred thousand dollars or more.

8. What else is there to consider?

People learn to focus on tax efficient ways to acquire assets, my responsibility is to find the most tax efficient way to distribute your assets.  Your SS may be taxed, if you have a pension, depending on what state you live in could be taxed (like Michigan), and when you turn 70 1/2 you have Required Minimum Distribution (RMD) your retirement account is taxed.

The IRS has a plan for you, what’s your exit strategy?  One simple approach is to provide more money for your retirement and less for the IRS. This requires a complete in depth look at your overall financial situation and determining what assets should be planned for retirement, education and other life expenses. 

About the Author:

Bill Broich
Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet. To follow Bill's profile, click here.