Do you know what your best possible strategy is to draw Social Security benefits for your family? For a husband and wife, there are 729 different possible combinations for when to draw Social Security benefits.  Collecting Social Security benefits as soon as you can is very tempting for many families; however, drawing benefits right away could be a costly mistake. Reviewing the variety of strategies available can mean the difference between thousands, and in some cases hundreds of thousands of dollars over the span of a retirement. Yet, with all of the choices and options available, most families are confused on the best possible time to draw Social Security benefits.

How do you know if you are eligible to start receiving Social Security benefits? Americans who are between the age of 62 and 70 can start at anytime they choose. The longer a person waits to draw, the more benefits that person will be able to receive. Full retirement age is 66 for people born between 1943 and 1954, and increases for those younger. The maximum monthly benefit for a worker retiring in 2012 at the age of 66 was $2,513.  There is roughly a 30 percent reduction in payments for someone who retires at 62 and starts Social Security benefits. Workers who wait to draw benefits can get as much as an 8 percent increase for each year they delay payments. To find your exact benefits, visit www.ssa.gov and log in to your account online.

For some families, drawing Social Security benefits as soon as they are eligible may be the best possible strategy. This could be good for a family that needs the income now to live off of and has limited options. It also might make sense for a family where both individuals are disabled or have severe health problems that could limit the number of years of income they expect to receive. Yet, for most people between 55 and 66 who have not yet started Social Security payments and have a pension along with investment income, proper planning should be done to maximize the expected benefits a family could receive.  

Drawing Social Security benefits along with work income can result in additional taxes and reduced payments. There is $1 in benefits deducted for every $2 earned above $14,640 for those younger than full retirement age. After full retirement age, the reduction is $1 in benefits for every $3 earned above $38,880. To compound the problem of drawing benefits while receiving work income, not only could benefits be reduced, but the remaining benefits could be considered taxable income.

Taking benefits right away at the age of 62 may not be the best option, even for someone who is retiring. We recently ran an analysis for a husband and wife, both 60, who plan on retiring in two years. Assuming they live for another 25 years, the best possible strategy provides an expected $1,102,205 during their lifetimes. This strategy involved applying for and then immediately suspending benefits then drawing in the future to maximize the spousal benefits for both of them. If they both applied for benefits right away at age 62, it is projected they would only receive $915,575. That is a difference of $186,630 during their lifetime!

Not understanding how to correctly use spousal benefits can also be a costly mistake. Your spouse may be eligible for benefits even if he or she never worked under Social Security. Even if the spouse is entitled to their own benefits, drawing spousal benefits may be a much better option. Those benefits can be as much as half of your benefits if they start getting benefits at their full retirement age. We recently showed a couple this example, which resulted in the lower income earner being able to get $817 more a month by drawing from the spouse’s income record versus her own.

The big Social Security mistake is starting to collect benefits without running an analysis. Get educated about your family’s best possible strategy concerning Social Security benefits. Don’t just assume what worked for your neighbor or what we said in today’s column is the best option for you and your family. Instead, take action and have the numbers run to develop a customized plan for you. Again, there are 729 possible combinations are available when it comes to drawing benefits. We encourage you to utilize the technology available to see the over 700 possible outcomes. Take action and determine the best possible combination of when to draw benefits for you and your loved ones. To help our Toledo Free Press readers pick their best strategy, we have posted the software on our website at www.RetirementGuysRadio.com.

Sources: www.ssa.gov and www.socialsecuritytiming.com.

For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.

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This entry was posted on Thursday, January 24th, 2013 at 6:19 pm and is filed under Retirement Guys, Toledo Business Link.
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