Social Security Benefit Report. Brandon and Nikki Sample

Transcription

1 Social Security Benefit Report for Brandon and Nikki Sample June 13, 2013 The Social Security Maven Peter M. Weinbaum, JD 128 Bliss Road Montpelier, VT Your trusted source for Social Security advice

2 Dear Brandon and Nikki, There are many approaches to Social Security benefit claiming, and the right decision depends almost exclusively on your priorities and your overall financial situation. In other words, there is no right decision, but there should be an option that fits and feels best for your situation. My objectives are to help you understand how Social Security works and to show you at least one strategy that can help you come closer to achieving your goals than would your current thinking about benefit claiming. Your priorities. My point of departure is determined largely by your rank ordering of priorities and your current thoughts about your Social Security claiming. Just to reiterate, it is my understanding that your top priorities are as follows: (1) Start taking income as early as possible (2) Maximize combined income at older ages (3) Maximize cumulative income to assumed life expectancies 1 (4) Maximize survivor benefit for Nikki Your current thinking is that Nikki would claim her benefit as early as possible, which would be at age Brandon would claim his benefit at age 65 or 66. As I explained in my of June 11, Brandon s earnings would prevent him from actually receiving benefits before 66, and so I am assuming he would claim at 66. I will call this approach Strategy 1, and it is an intelligent way of maximizing early income. However, it lags behind other approaches when it comes to other priorities. That said I will show you a range of strategies that produce different results in terms of your various priorities. It will be your task, perhaps with your financial advisor s assistance, to weigh these options in the context of your larger retirement planning picture. Assumptions Dates of birth: Nikki 8/13/1951 Brandon 11/25/1952 Primary Insurance Amount, per SSA statement: Nikki $1,030; Brandon $2,591 Expected stop working date: Nikki is retired; Brandon to retire in 2018 Average Future Earnings: Brandon Social Security Maximum Life Expectancy: Brandon 85; Nikki 90 Please keep the following in mind as a context for reviewing this report: 1 This analysis assumes that Brandon will live until 85 and Nikki will live until 90. I will have something to say towards the end of the report about the impact of different mortality assumptions on your claiming choices. 2 When you see an age reference like 62-1 in this report it simply means 62 years and 1 month. You cannot claim benefits until you are 62 for an entire month. Since Nikki turns 62 in August 2013, the first month in which she is 62 for the entire month is September; she would receive her September payment in October. 2

3 1. One of the more attractive features of Social Security is that your benefits are inflationprotected to some degree. In most years, everyone s Social Security benefits are increased by a Cost of Living Adjustment (COLA) based on a particular Consumer Price Index (CPI-W). I have not assumed any COLA increases in this report, believing that it is preferable to use today s (2013) dollars as a point of reference in evaluating your options. 2. As stated earlier, the Social Security Administration estimated Nikki s Primary Insurance Amount (PIA) 3 to be $1,030 per month; that is the amount she would receive if she claimed benefits on her own record at age 66. SSA estimated Brandon s Primary Insurance Amount to be $2,591, assuming annual earnings of $106,800 through age You should regard these and any other figures I provide you as estimates, to be confirmed by the Social Security Administration before you take any action. Please forgive modest inconsistencies in the numbers, as they are sometimes caused by different rounding modalities. 4. Finally, keep in mind once again that while I illustrate uninflated 2013 dollars, you can expect Cost of Living Adjustments to increase the nominal dollar amount of your benefits, possibly as early as 2014 and frequently thereafter. General Principles. As I mentioned previously in an to Brandon, if both of you apply for your Social Security benefits as early as possible it will be difficult to achieve any of your priorities other than taking income as early as possible. When you review the options shown in this report, you may consider whether or not the benefits of delaying application to some extent outweigh the advantages of claiming early. Spousal benefits are available under certain circumstances. In their purest form, spousal benefits are equal to 50% of the other spouse s PIA. Theoretically, either spouse can collect spousal benefits on his or her spouse s record, but: (1) You cannot file for spousal benefits until your spouse has claimed his or her own benefit (2) A husband and wife cannot both collect spousal benefits at the same time (3) If a person is already receiving benefits on their own Social Security record, they may be eligible for a spousal add-on to their existing benefit but only if that person s PIA is less than half of their spouse s PIA. The total of one s own benefit and a spousal add-on cannot exceed 50% of the other spouse s PIA. 3 The Primary Insurance Amount (PIA) is the benefit for which you are eligible if you first claim benefits on your own earnings record at Full Retirement Age (FRA). I have included a Glossary of Terms in the Appendix to this report to explain some of the jargon you will find here. 3

4 Spousal benefits are often the secret sauce I use to illustrate options that are superior to what people are generally thinking about when they come to me. In your situation, you will see how spousal benefits can be used to your advantage. Survivor benefits will be available to Nikki if Brandon predeceases her. She will get the same benefit that Brandon was receiving when he died in place of, not in addition to, her own benefit and will continue receiving it for the rest of her life. If Nikki predeceases Brandon, he will simply continue to receive his own benefit, as it is higher than what his survivor benefit would be. The impact of claiming age. Although I have more to say on this subject (see page 14), one of the primary principles I will illustrate in this report is the ability to increase benefits on one s own record by waiting past age 66 to claim them. SSA calls them Delayed Retirement Credits (or DRCs), and the effect is that for every month you delay past age 66, your benefit grows by 2/3% per month (8% per year) until you reach age 70. You will see Delayed Retirement Credits demonstrated in Strategies 3, 4, and 5. Mortality assumptions play a significant role in Social Security claiming. The primary strategies I illustrate here are based on life expectancies of 85 and 90. I will comment later about the impact that shorter or longer life expectancies would have on the claiming strategies. Strategies Strategy 1 Nikki begins benefits based on her earnings record in September 2013 at age 62-1 Brandon begins benefits based on his earnings record in November 2018 at age 66 In November 2037 Nikki switches to survivor benefits This is the claiming approach you indicated you were considering before I began my work. It does a very good job of maximizing early income from Social Security, which you indicated was your number 1 priority. If you didn t notice footnote 2 on the first page of this report, you might wonder why Nikki s benefits begin at 62-1 rather than at 62. The footnote explains it. However, the consequence of claiming at 62-1 is that Nikki s monthly benefit is reduced by nearly 25% of her PIA from $1,030 to $777 for claiming early. As noted earlier, Brandon s earnings effectively prevent him from claiming before age 66, but when he does claim he will be entitled to $2,591, an amount exactly equal to his PIA. These are the amounts that both of you will receive for the rest of your lives (not counting COLA increases), except that if Brandon predeceases Nikki, she will switch from her own retirement benefit to a survivor benefit of $2,591. 4

5 The following table shows what the cash flow might look like under Strategy 1: Brandon's Age Nikki's Age Brandon s Monthly Nikki's Monthly Combined Monthly $0 $777 $ $2,591 $777 $3,368 Brandon assumed to die 86-3 $0 $2,591 $2,591 at 85-0 Nikki assumed to die at 90-0 Cumulative to Life Expectancy $590,748 $341,925 $932,673 Notice that your combined monthly benefits are $3,368, beginning when Brandon reaches age 66 and continuing at that level until one of you dies. Notice also that your cumulative income to assumed life expectancy is estimated to be $932,673. As mentioned previously, Nikki s survivor benefit equals $2,591, the amount Brandon was receiving at the time of his death.. Strategy 2 Nikki begins benefits based on her earnings record in September 2013 at age 62-1 Brandon begins benefits based on his earnings record in November 2018 at age 66 Nikki adds spousal benefits in November 2018 at age 67-3 In November 2037 Nikki switches to survivor benefits. This approach demonstrates how spousal benefits can enhance just about any strategy. On page 3 of this report I provided some basic information on spousal benefits. One of the rules in play is that you cannot file for spousal benefits until your spouse has filed for his or her own benefits. Here, Nikki files immediately for her own benefits, and then for additional spousal benefits when Brandon reaches age 66 and files for his own benefits. The maximum combination of her own benefits and spousal benefits Nikki can receive is 50% of Brandon s PIA, or $1,296. In this case, because Nikki filed for her own benefits at 62-1, the reduction of $253 remains in place so that she will receive $1,042 until Brandon predeceases her, at which time she will switch to a survivor benefit of $2,591. Brandon meanwhile will receive $2,591 beginning at age 66 and continuing for the rest of his life. The following table shows what the cash flow might look like under Strategy 2: 5

6 Brandon's Age Nikki's Age Brandon s Monthly Nikki's Monthly Combined Monthly $0 $777 $ $2,591 $1,042 $3,633 Brandon assumed to die 86-3 $0 $2,591 $2,591 at 85-0 Nikki assumed to die at 90-0 Cumulative to Life Expectancy $590,748 $402,345 $993,093 Notice that your combined income after Brandon reaches age 66 is $3,633 per month, which is $265 more than the income generated under Strategy 1. Cumulative income to assumed life expectancy is estimated to be $993,093 which represents a healthy enhancement over Strategy 1. Nikki s survivor benefits are once again $2,591. Strategy 3 Nikki begins benefits based on her earnings record in September 2013 at age 62-1 Brandon files a restricted application for spousal benefits in November 2018 at age 66 Brandon switches to benefits based on his earnings record in November 2022 at age 70 Nikki adds spousal benefits in November 2022 at age 71-3 In November 2037 Nikki switches to survivor benefits This approach builds upon the concept of adding spousal benefits to the mix, as we did in Strategy 2, but this time both of you get to apply for those benefits in tag-team fashion. We begin the same way as we did under strategy 2, with Nikki claiming at 62-1 and beginning to receive $777 per month. But now it is Brandon who first files for spousal benefits when he reaches age 66. Because he has not yet claimed his own benefits, he can restrict his application to spousal benefits only, which are equal to 50% of Nikki s PIA, or $515. Brandon collects that amount for 4 years until he reaches age 70 and switches to his own benefits. During that 4-year period, Brandon has been earning Delayed Retirement Credits (see page 4) so that by age 70 his benefit has grown to $3,420. At this point, Nikki is free to file for that spousal add-on benefit of $265, raising her total benefit to $1,042 an amount she will receive for the rest of her life, or until she switches to survivor benefits. 6

7 The following table shows what the cash flow might look like under Strategy 3: Brandon's Age Nikki's Age Brandon s Monthly Nikki's Monthly Combined Monthly $0 $777 $ $515 $777 $1, $3,420 $1,042 $4,462 Brandon assumed to die 86-3 $0 $3,420 $3,420 at 85-0 Nikki assumed to die at 90-0 Cumulative to Life Expectancy $640,320 $426,930 $1,067,250 Notice that your early income has decreased markedly when compared to the first two strategies, but now your combined monthly income beginning at Brandon s age 70 is $4,462 and your cumulative income to assumed life expectancy has increased to $1,067,250. Nikki s survivor benefit has increased to $3,420. Strategy 4 Nikki begins benefits based on her earnings record in August 2017 at age 66 Brandon files and suspends in November 2018 at age 66, which makes Nikki eligible for spousal benefits at age 67-3 Nikki adds spousal benefits in November 2018 at age 67-3 Brandon begins benefits based on his earnings record in November 2022 at age 70 In November 2037 Nikki switches to survivor benefits In this approach we abandon the strategy of having Nikki apply for benefits at the first opportunity, just to illustrate the impact on longer term benefits. Nikki waits until age 66 and claims her own benefits of $1,030 per month. 15 months later, when Brandon reaches 66, she would like to add spousal benefits. If you recall from page 3, there is this pesky rule that says she cannot receive spousal benefits until Brandon has filed for his own benefits. But here we d like Brandon to be able to wait until 70 before receiving benefits so that he can earn Delayed Retirement Credits. The apparent conflict can be resolved by using a technique called file and suspend, which is available only after a person reaches Full Retirement Age. This means that Brandon files an application for benefits at age 66, but simultaneously requests that benefits be suspended. In other words, he makes it clear to the SSA representative that he does not want to receive any actual payments until he lifts the suspension. That act of filing enables Nikki to begin receiving 7

8 spousal benefits at age 67-3, which increases her monthly payment to $1,296. When Brandon reaches age 70, he switches to his own benefit, which has once again grown to $3,420. The following table shows what the cash flow might look like under Strategy 4: Brandon's Age Nikki's Age Brandon s Monthly Nikki's Monthly Combined Monthly $0 $1,030 $1, $0 $1,296 $1, $3,420 $1,296 $4,716 Brandon assumed to die 86-3 $0 $3,420 $3,420 at 85-0 Nikki assumed to die at 90-0 Cumulative to Life Expectancy $615,600 $464,838 $1,080,438 Early income has decreased even further when compared to Strategy 3, but now combined monthly income beginning at Brandon s age 70 is $4,716 and your cumulative income to assumed life expectancy has increased to $1,080,438. Nikki s survivor benefit remains at $3,420. Strategy 5 Nikki begins benefits based on her earnings record in August 2017 at age 66 Brandon files a restricted application for spousal benefits in November 2018 at age 66 Brandon switches to benefits based on his earnings record in November 2022 at age 70 Nikki adds spousal benefits in November 2022 at age 71-3 In November 2037 Nikki switches to survivor benefits The following table shows what the cash flow might look like under Strategy 5: Brandon's Age Nikki's Age Brandon s Monthly Nikki's Monthly Combined Monthly $0 $1,030 $1, $515 $1,030 $1, $3,420 $1,296 $4,716 Brandon assumed to die at $0 $3,420 $3,420 8

9 Cumulative to Life Expectancy Nikki assumed to die at 90-0 $640,320 $452,070 $1,092,390 This approach differs from Strategy 4 only in that Nikki delays claiming spousal benefits until 71-3 to enable Brandon to claim spousal benefits for four years beginning at his age 66. Extra leverage results from the fact that Brandon s spousal benefits add $515 monthly to the mix, while Nikki gains $266 in spousal benefits. Everything else remains the same as in Strategy 4. The impact of this change in spousal filing is that combined monthly income between Brandon s age 66 and age 70 increases from $1,296 to $1,545, while cumulative income to life expectancy tops out at $1,092,390. Comparing the Strategies The table below illustrates fairly clearly the differences among the strategies, which are based on assumed life expectancies of 85 (Brandon) and 90 (Nikki). As you can see, if early Social Security income remains your number 1 priority, Strategy 2 is the clear winner. However, if you can (and want to) find replacement income for Nikki from other sources, some of the other approaches may be worthy of your consideration. This is one place where your financial advisor could be especially helpful to you. Priorities Strategy 1 Strategy 2 Strategy 3 Strategy 4 Strategy 5 Cumulative Income Before Brandon s $209,838 $222,558 $110,190 $77,658 $89,610 Age 70 Combined Monthly Income Brandon s $3,368* $3,633* $4,462 $4,716 $4,716 Age Cumulative Income to Assumed Life Expectancy (85/90) $932,673 $993,093 $1,067,250 $1,080,438 $1,092,390 Maximize Survivor Benefit for Nikki $2,591 $2,591 $3,420 $3,420 $3,420 *This level of income begins at Brandon s age

10 Mortality Assumptions One of the key operating assumptions we have used is that Brandon will live until 85 and Nikki will live until 90. One question that you might ask is: what if either or both of us live longer or shorter lives? The following chart maps out cumulative income to assumed mortality Husband Life Expectancy As you can see, if one or both of you were to die well before the life expectancies we have assumed, Strategy 2 (shown in blue) becomes more attractive: not only does it deliver superior early income and cumulative income to actual mortality, but it diminishes the importance of monthly income after age 70 as well as Nikki s survivor benefit. 4 4 I have not paid much attention to the possibility of one of you dying before 75, but clearly Strategies 1 and 2 work best with short life expectancies. 10

11 On the other hand, mortality combinations shown in green tend to favor Strategies 3, 4, and 5 (Strategy 5 is shown here) because of the multiplication effect of longevity. Of course there are literally hundreds of possible claiming combinations that are available in between the five approaches I have illustrated, but these should give you some ideas about how to approach your claiming decisions. In Conclusion All the flexibility you have in making Social Security claiming decisions occurs before age 70. That means that if expected mortality or your financial situation changes significantly within the next couple years, you may wish to revisit and possibly change your claiming strategies based on the impact those changes could have on your results. However, after you reach age 70 there is virtually nothing you can do to change your decisions. As I indicated at the outset, it is my opinion that Social Security should not be viewed as a stand-alone decision; rather it should be considered in the context of your larger retirement planning picture. I encourage you to include your financial advisor in your discussion of this report, and I will certainly make myself available to join the conversation as needed to offer further clarification of anything that appears here. Peter 11

12 THE FINE PRINT This report is provided by Consultant 5 for informational purposes only. Its purpose is to provide you and your financial advisor with information and guidance to help you craft a personalized approach to your Social Security claiming strategies. All the information provided in this report is predicated on current Social Security rules, benefit calculations, and payout promises based on existing funding levels and without taking into account future COLA increases or changes in the Social Security system. Limitation of Liability: Consultant intends and believes that all the information and illustrations are accurate and sound, even though they can be regarded as no more than estimates. However, the Social Security system is highly complex, and errors related to interpretation, mathematical calculations, and transferring numbers from calculation software to this report can occur. In addition, Consultant relies on information provided by you and the Social Security Administration, as well as on third party calculation software. Therefore, you should not take, or delay in taking, any action in reliance on this report without first confirming its accuracy and viability with the Social Security Administration. 6 Consultant shall not be liable for any loss incurred by you with respect to the subject matter of this report, except where such loss directly results from Consultant s gross negligence or willful misconduct. In no event shall Consultant be liable for damages in excess of fees paid by you to Consultant for services provided to you. Use of this report signifies your awareness of, and your consent to be bound by, this limitation of liability. 5 This report is provided by Stillpoint Associates, Ltd., a Vermont corporation. Stillpoint Associates, Ltd., is represented by Peter M. Weinbaum, doing business as The Social Security Maven, which is a registered trade name of Stillpoint Associates, Ltd. Peter M. Weinbaum, The Social Security Maven, and Stillpoint Associates, Ltd. are collectively referred to herein as Consultant. 6 Please keep in mind that you may encounter an SSA employee who is unfamiliar with some perfectly sound strategies and may indicate that they are not available. If that occurs, please bring it to my attention to make sure that the SSA employee is providing accurate information. 12

13 Appendix Glossary of Terms You may find some of these terms used your report. Cumulative : Lifetime total payout of Social Security benefits. Delayed Retirement Credits: Increases in your monthly Social Security benefits if you delay claiming benefits on your own record past your Full Retirement Age. Earnings Record: The history of your Social Security earnings for the years you have worked in your lifetime. Earnings Test: If you claim before FRA and earn more than a specified amount ($15,120 per year in 2013), $1 of benefits is withheld for every $2 of earnings over the limit. Once you reach age 66, the Earnings Test no longer applies to you. See the next page for further explanation. File and suspend: This is a strategy where a spouse files for benefits on his or her own record but then immediately suspends payments. Most often this is employed to enable the other spouse to claim spousal benefits, while the spouse who filed and suspended earns delayed retirement credits. This strategy may be used only after attaining Full Retirement Age. Full Retirement Age (FRA): The age at which you are eligible for your full monthly benefit without reduction for early claiming. For people born between , FRA is age 66. FRA increases by two months for each subsequent birth year after 1954, capping out at age 67 for those born in 1960 or later. Longevity Risk: The risk of running out of resources in your lifetime. Primary Insurance Amount (PIA): This is the benefit you would receive if you first claimed benefits at your Full Retirement Age (FRA). Restricted Application: A claim filed after attaining Full Retirement Age that is restricted to spousal benefits. Spousal : paid to the spouse of an eligible worker and based on the Social Security earnings record of the eligible worker. You must be at least age 62 to claim spousal benefits. Survivor : paid to the surviving spouse of a deceased eligible worker. 13

14 BOILERPLATE 7 The Impact of Starting Age on Monthly Many factors can influence your Social Security retirement benefits, and perhaps the most significant is your age when you begin benefits. As a general rule, the earlier you claim your Social Security benefits the lower your monthly benefits will be. If you delay the start of benefits until after your Full Retirement Age (FRA), your benefits will be increased for every month you delay. So the basic tradeoff is between beginning earlier and receiving more, but smaller, payments or beginning later and receiving fewer, but larger, payments. Let s look at an example. Assume that Husband will reach FRA at age 66 with a PIA of $2,000. If he stops working and claims his benefits at age 62, he will receive $1,500 per month, which is 25% less than his PIA and 43% less than his maximum possible benefit, which would have been $2,640 had he waited until age 70. Put another way, as compared to claiming at 62, Husband could increase his benefit to $1,600 (6.67%) by waiting until 63; to $1,733 (15.53%) by waiting until 64; to $1,866 (24.4%) by waiting until 65; and to $2,000 (33.3%) by waiting until 66. Not only that, but for each year he waits beyond FRA his benefit will grow by 2/3% per month or 8% per year. Thus, if he waits until age 70 instead of claiming at 62, his benefit would be $2,640 76% larger than his age 62 benefit. Timing is Everything Not only does the age you begin benefits impact your monthly payments, but it also affects your "longevity risk" - the risk of outliving your resources. If you are married, and your Social Security earnings are higher than your spouse s, the impact of claiming early and locking yourself into smaller benefits becomes magnified, since if your spouse survives you he or she will (in most cases) inherit the benefit you were receiving when you died. There are several factors that should be considered before selecting the optimal date to begin benefits. Your health status, life expectancy, current need for income, whether or not you plan to continue working, and how concerned you are about running out of money in your older years could all be considerations in determining your date to begin benefits. Married couples often consider the need to maximize income for a surviving spouse who was the lower wage earner. The process can be complex, and the number of possible claiming strategies can be daunting. While having a strategy for when to begin Social Security benefits is important, the analysis requires careful consideration of your claiming options in the context of your overall retirement planning, which involves working closely with your financial advisor. 7 At least I wrote it myself and some of it may be helpful in understanding your Social Security benefits and this report. 14

15 Incorporating your benefits into an overall retirement income plan may make a material difference in the amount of income available to you in retirement. How Your are Determined Your actual benefits will depend on: How much you earned over your working career The age at which you apply for benefits Whether you qualify for Spousal benefits extra money available to married couples Survivor benefits benefits available to help a surviving spouse with lower Social Security retirement benefits Social Security benefits are based on the average of your highest 35 years of covered earnings earnings that were subject to Social Security taxes with earnings through age 60 indexed to reflect increases in U.S. workers' average wage level. For example, if the wage level in the U.S. is twice as high when you turn 60 as it was when you were 40, the formula doubles your age 40 earnings. If you worked less than 35 years, the "missing" years are calculated as zero. The maximum income in any year is equal to that year's maximum income subject to Social Security taxes. For those who claim benefits earlier than Full Retirement Age (FRA) and continue to have more than a modest amount of earned income (e.g., wages and salary), the Social Security Earnings Test may cause you to lose some or all of your Social Security benefits. Social Security Earnings Test If you continue to work while receiving benefits, and have not yet reached age 66, you are subject to the Social Security Earnings Test. That means that if you have earnings subject to Social Security tax that exceed the earnings limit ($15,120 8 in 2013), your benefits will be reduced by $1 for every $2 earned over the limit. During this time, if a family member (e.g., spouse or dependent child) is receiving benefits on your record, their benefits may be reduced as well. This is how it works: SSA asks you each year how much you expect to earn in the coming year. [In the year of your initial application, the Earnings Test operates on a monthly basis.] Then they subtract the exempt amount ($15,120) from your anticipated earnings and divide by 2. The result of these calculations is called excess earnings. Now you might think that it would make sense for SSA to withhold a proportional amount of the excess from each monthly benefit payment. If they did that, you would simply get smaller benefit payments for the entire year. But that, it seems, would be too easy. 8 During the calendar year in which you reach Full Retirement Age, the exempt amount goes up significantly ($40,080 in 2013), and $1 is withheld for every $3 of excess earnings. 15

16 So they divide the excess earnings by the monthly benefit you are receiving, and round up the quotient to the next whole number. That will be the number of months, beginning in January, in which you will get no benefits. During the balance of the year you will get full benefits. Any extra amounts withheld will be paid to you early in the following year. SSA stresses that these benefits are merely being withheld rather than lost, and it s true that you will recoup some of that money. When you reach age 66, SSA will calculate how many months of benefits have been withheld and then they will adjust your benefit based on age. In other words, if you first claimed your benefits at age 63 and a total of 12 months were withheld, when you reach 66 they will add 12 months to your original claiming age. They will then pay you benefits at the level you would have received if you had originally filed at age 64. The software I use is programmed a bit differently. Since all of those excess earnings are estimates anyway, it ignores the small repayments that you might get each year for excess withholding and instead simply acts as though all months were withheld without refund. It s a good reminder that many of the numbers discussed in this report are estimates, but they provide pretty accurate approximations of what you could expect given the assumptions we have made. The Impact of Mortality Assumptions We all face a variety of risks that have financial implications. If one spouse dies too soon, the survivor may experience a reduction in the income and in the accumulation of assets that he or she had anticipated. On the other hand, if one or both spouses live too long, especially in the context of chronic illness or cognitive impairment, there is a risk that their assets could be depleted and that their standard of living could suffer in later years. A variety of financial vehicles is available to protect against these risks; your financial advisor knows all about these tools and how they might apply to your situation. In the world of Social Security, the selection of claiming strategies is dictated by your financial goals, your overall financial situation, and decisions about where you will accept risk and where you will insure against risk. Social Security is really a form of insurance. You may be familiar with the acronym OASDI, which is actually the official name for Social Security: Old-Age, Survivors, and Disability Insurance. Claiming benefits early is for some people a strategy designed to protect against dying early and thus leaving money on the table that could otherwise have been added to the family coffers. Sometimes it s just about enjoying retirement and wanting to have sufficient cash flow to support an active lifestyle. Delaying benefits is a form of longevity insurance, which protects against outliving one s assets. If we only knew when we were going to die, we could all make very intelligent decisions about when to claim our benefits just as we could be very smart about acquiring life insurance and annuities. 16