Making the Best Social Security Claiming Decisions

Transcription

1 Making the Best Social Security Claiming Decisions David Littell, JD, ChFC RICP Program Director Director of the NYLCRI The American College

2 Trends in Claiming Behavior Sex/Birth Cohort Claim at 62 Claim at Claim at 65+ Male % 23.1% 21.5% Male % 16.4% 37.1% Female % 18.3% 24.9% Female % 17.2% 33.8% SOCIAL SECURITY CLAIMING: TRENDS AND BUSINESS CYCLE EFFECTS Owen Haaga and Richard W. Johnson: Center for Retirement Research WP

3 Most Important Retirement Decision You Will Make

4 Retirement Resources of the Average Married Couple 13% 60% 27% Source: Net Worth Data from U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 10; Present value of Social Security benefits based on a worker with $60,000 of wages, and a same aged nonworking spouse. The worker's PIA is estimated at $1,557 (calculated using the Social Security Quick Calculator). Benefits are claimed at 66 and the worker dies at 84 and the spouse at 89. Present value was based on a 0% real rate of return (a current approximation of the risk free rate of return)

5 Two-third s of Retirees receive more than half their income from Social Security

6 Maximum Benefit 2015 $1,997 a month ($23,967 a year) at 62 $2,663 ($31,965 a year) at age 66 $3,515 ($42,182 a year) at age 70 Couple both earning maximum benefit Age 62 $47,934 Age 66 $63,930 Age 70 $84,364

7 What is the Impact of Deferral?

8 Number 1 Goal Replace Income! George and Gracie $60,000 income PIA = $1,557 Spousal benefit = $778 Claim at age 62 Replace 34% ($1,167 / $ 544) Claim at age 66 Replace 47% ($1,557 / $778) Claim at age 70 Replace 57% ($2,055 / $778)

9 Effect on a Retirement Income Plan Retirees with greater amounts of guaranteed income are more satisfied, worry less, and show fewer signs of depression Address other risks Benefits last a lifetime Benefits have inflation protection Can t overspend annuity income

10 Protect Your Spouse George and Gracie $60,000 income PIA = $1,557 Spousal benefit = $778 Claim at age 62 ($1,167 / $ 544) Claim at age 66 ($1,557 / $778) Claim at age 70 ($2,055 / $778)

11 Who Benefits the Most From Deferral?

12 Happy Couples Defer Social Security

13 Break Even Analysis for Couples Example: Bob is 66 and Barbara is 62. Bob s PIA is $2,000 and Barbara s is $1,300. Bob s life expectancy is age 75 Barbara s is 90 Barbara s survivor benefit is $1,650 if Bob claimed at 62, $2,000 if he claimed at age 66 and $2,640 if he claimed at age 70 Bob s benefit is paid until age 94 Barbara s benefit is paid to age 75

14 Is This Annuity a Good Deal? Single woman two options Claim at 62 and receive $1,200 a month save that money and buy an annuity at age 70 Wait to 70 and claim $2,475 (inflation adjusted) Early claiming + annuity $ 2,183 Deferring Social Security $ 2,475 Difference at 70 $290 a month! Difference at 80 $524 a month!

15 Social Security Strategies

16 Social Security Issues For Singles Do-overs (payback within 12 months) Suspension of benefits Earnings test results in mandatory suspension Voluntary suspension of benefits

17 Suspension of Benefits Mandatory suspension under the earnings test Benefits reduced if begin prior to full retirement age and earn more than threshold ($15,720 for 2015) At full retirement age benefits are recalculated Example: Individual loses 18 months of payments due to earnings test. At full retirement age benefits are recalculated based on a retirement age 18 months later than initial calculation.

18 Voluntary Suspension After full retirement age, an individual can elect to voluntarily suspend Suspension again allows a recalculation of benefits when they begin again Can be used to trigger spousal benefits

19 Social Security Issues For Singles Worried about your life expectancy claim and suspend!

20 Martha Still working she s 65 1/2 Her friends convinced her to claim ($1,250) One month later she regrets her decision Payback the benefit and start over At 66 she claims her $1,000 divorced spouse benefit At 70 she claims her $1,700 worker s benefit

21 Divorced Spouse s Benefits Divorced spouses who were married for 10 years eligible for spousal retirement and widower benefits Benefits can begin as early as age 62, even if the former spouse has not claimed benefits As long as the worker is eligible for retirement benefits The couple has been divorced for at least 2 years. Generally have to be unmarried except survivor benefits marriages after 60 do not disqualify

22 Widow s Options Example Sally lost Saul this year when he 64 and she was 59 Sally is not working now and wants to potentially increase her SS monthly benefit. Sally s PIA is $1,500 and Saul s was $1,800 Sally s Options Begin a reduced survivor benefit at age 60 and switch to her work s benefit at age 70 ($2,244) Begin her reduced worker s benefit at age 62 ($1,050) and receive her survivor benefit at full retirement age ($1,800)

23 Married Couple Basics Pete and Paula are about to retire and they need funds. They also know that deferring benefits has some value. Pete is 66 with a $2,000 PIA and Paula is 62 and not entitled to worker s benefits. - Could the spouse claim now and the worker defer? Yes if the worker files and suspends - What is the spousal benefit that is paid if spouse claims now? $700 - Why would the spouse wait to age 66 to claim benefits? To get the full $1,000 benefit

24 Married Couple Basics - Is there any reason for the spouse to defer past full retirement age? No - What happens if the worker waits to age 70 to begin receiving benefits? Worker receives $2,640 - How much does the spouse get if her husband dies at age 75, assuming that the husband s benefit started at 70? $2,640

25 Married Couples Have More Choices Artie is 66 and entitled to a PIA of $2,500. Sally is 62 with a $2,000 PIA. They are determined to defer the larger benefit to age 70 but are ambivalent about the second benefit. What are the options and why might they choose one strategy over the other?

26 Alternatives Option 1: Sally claims now at 62 and receives $1,500. Artie who is full retirement age does a restricted filing for spousal benefits and receives $1,000 a month. At 70 Artie claims $3,300 Option 2: Wait until Artie is 70 he claims $3,300, Sally does a restricted filing for $1,250 spousal benefit. At 70 she claims $2,640. Option 3: Wait until Artie is 70 he claims $3,300 and Sally claims $2,000 worker s benefit.

27 What if Both Are 62? Option 1: Sally claims now at 62 and receives $1,500. At 66 Artie can claim $1,000 spousal benefit and at 70 claims $3,300. Option 2: At 66 Sally claims $2,000 a month and Artie receives $1,000 spousal benefit. At 70 Artie claims $3,300. Option 3: At 66 Artie claims and suspends to trigger Sally s spousal benefit of $1,250. At 70 each claim and receive $2,640 and $3,300.

28 Bridging the Gap In part with Social Security benefits Employment earnings Reverse mortgage Taxable account withdrawals 401(k) withdrawals Tax torpedo

29 Social Security Administration Not in the business of providing advice May not know all the rules May provide applicants of option to claim 6 months in arrears

30 Medicare is Important Too! Choosing traditional Medicare Medicare A, B, D and Supplement May be best choice for high medical expenses Choosing Medicare Advantage Additional services Lower total premiums could have higher total Changing plans each year Can always change Part D and Medicare Advantage plans Check to make sure that there are no changes for the subsequent year

31 Here is a video player with some of the best Social Security Videos from The American College s NYLCRI. Here is a link to an excellent booklet on the value of deferring Social Security Efficient Retirement Design Here is a link to the Towers, Watson article Annuities and Retirement Happiness Here is a blog from Mary Beth Franklin on the advantages of claim and suspend.

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