4 th Quarter 2013 The Siller & Cohen Report INSIDE THIS ISSUE Opportunities to Maximize Your Social Security Retirement Income Benefit Timing is Everything! S i l l e r & C o h e n Family Wealth Advisors
4 th Quarter 2013 Page 1 Opportunities to Maximize Your Social Security Retirement Income Benefit -Timing is Everything! By Josh Marriott, CFP If, like many baby boomers, you are in or approaching your 60 s, you should carefully review when and how to claim your Social Security benefits. This is because implementing the right Social Security strategy, at the right time can boost your retirement income by hundreds of thousands of dollars over your lifetime. A proper review should include: (1) a careful calculation of your retirement income needs, (2) an understanding of the amount of Social Security retirement benefits that are available to you and your spouse, including if you take them at the earliest claim age of 62, at your Full Retirement Age (FRA), or at some later age, and (3) a review of the different Social Security strategies that are available to you and your spouse, and the financial impact of adopting each strategy. Common Questions Those Approaching Their Filing Age Ask... Year Born Full Retirement Age Should I file at age 62, and receive only 70-75% of the higher Social Security benefit I would receive if I waited until my Full Retirement Age (see box to right), because I require retirement income immediately? If I have other sources of retirement income, does it make financial sense to delay taking my benefit until age 70, which will allow me to increase my benefit by 8% per year, plus cost of living increases? 1946-1954 Age 66 1955 66 and 2 Months 1956 66 and 4 Months 1957 66 and 6 Months 1958 66 and 8 Months 1959 66 and 10 Months 1960 + Age 67 How can I coordinate when I take my benefit with when my spouse takes his or her benefit, to maximize our overall income? Would a combination of different filing approaches by me and my spouse produce a better financial outcome? How will the age at which I start taking my benefits impact the Social Security Survivor income benefits for my spouse after I have died? Why a High Earner Might Choose Not to Start Benefits Early at Age 62 1. If you start taking benefits at age 62, when your FRA is age 66, your benefits will be permanently reduced by 25%. To evaluate the financial impact of this over time, the chart to the right illustrates three different start ages, and the difference in cumulative benefits through age 90. The chart assumes a high income earner who would be
entitled to the current maximum benefit of $2,533 per month ($30,396 per year) if she were to begin taking benefits at her FRA of 66. As the chart shows, by age 90, starting benefits at the FRA of 66 results in over $200,000 of additional benefits, as compared to starting benefits at age 62. Even better, delaying benefits until age 70 results in over $400,000 of additional benefits versus starting benefits at age 62. (Of course, the chart assumes that the person receiving benefits lives until age 90; if she dies earlier, the additional cumulative benefits may be less than above; if she dies really early, then delaying her start date may actually reduce her cumulative benefits rather than increasing them.) Your Age 4 th Quarter 2013 Page 2 Cumulative Social Security Benefits Based on Benefit Start Age Start Age: 62 Start Age: 66 Start Age: 70 62 $22,797 $0 $0 66 $120,549 $33,946 $0 70 $229,719 $179,505 $50,042 75 $384,281 $385,588 $322,071 80 $561,728 $622,184 $634,378 85 $765,448 $893,811 $992,926 90 $999,332 $1,205,656 $1,404,561 Cost of Living Adjustment: 2.8% Reinvestment Rate: None 2. Filing early also negatively impacts survivor benefits. If a husband who is a high earner starts benefits at 62 and thus receives a reduced benefit, when he dies his surviving wife s retirement benefit continues at the same reduced amount, instead of the higher benefit she would have received if her husband had waited and started benefits at his FRA. (Unless the wife is entitled to a higher benefit based on her own lifetime earnings, in which case she receives her higher benefit.) 3. There is a Social Security benefits cap if you start Social Security benefits at 62 and are still working. If you have wage income of more than the earnings cap of $15,120 (2013), your current benefit is reduced by $1 for every $2 of your wage income over the cap. You will receive these dollars as an addition to your monthly benefit when you reach your Full Retirement Age, but it makes little sense to take a reduced benefit, only to have an additional amount deferred, thus reducing your present benefit even further. If you are still working at Full Retirement Age or greater, you won t be subject to the earnings cap. 4. Finally, filing early eliminates your ability to access the more sophisticated Social Security maximization techniques such as the barbell approach, file and suspend, and claim now, claim more later. We will analyze these strategies in the next section. Advanced Social Security Maximization Techniques For simplicity, the scenarios below assume a married couple of the same age, both of whom have 66 as their Full Retirement Age. Husband: Higher Earner (FRA Benefit: $2,533 / Month) Wife: Low Earner (FRA Benefit: $1,000 / Month) Barbell Approach Couples who individually file at opposite ends of the transition period one early at age 62, one delayed at age 70. This strategy allows the lower wage earner to generate lifetime income for a longer period of time, while the potential benefit for the higher wage earner increases by 8% each year until age 70 (note: if the higher wage earner dies prior to applying for their monthly benefit, the surviving spouse is entitled to the Full Retirement Age benefit, not the stepped up benefit). Also, the lower wage earner can realize a greater survivor benefit in the event that the higher wage earner dies after beginning his/her benefit at age 70. The reason is because the surviving spouse is entitled to the higher benefit the deceased spouse was receiving when he/she died.
File & Suspend Higher wage earner files at Full Retirement Age and suspends taking payments. 4 th Quarter 2013 Page 3 Husband: Higher Earner (FRA Benefit: $2,533 / Month) Wife: Low Earner (FRA Benefit: $250 / Month) This strategy allows the lower wage earner to claim their spousal benefit, which is 50% of the higher wage earner s benefit, while the potential benefit for the higher wage earner increases by 8% each year until age 70 (again, if the higher wage earner dies prior to applying for their monthly benefit, the surviving spouse is entitled to the Full Retirement Age benefit, not the stepped up benefit). Claim Now, Claim More Later Where both husband and wife are high wage earners, one of them files at Full Retirement Age and claims his/her spousal benefit, but delays taking their own benefit. The other simply delays their benefit. This strategy allows one of the high wage earners to receive benefits based on their spousal benefit, while their personal benefit has the potential to grow at 8% each year until age 70. The advantage is that while both high earners can take their increased personal benefit at age 70, one of the two has the ability to collect benefits from 66 to 70 using their spousal benefit. In Closing As with any strategy, your particular set of circumstances will dictate the most appropriate plan of action. Your projected life expectancy and overall retirement income needs both play an important part in arriving at your ultimate decision. The best way to make this determination is by collecting your Social Security statements and analyzing each strategy to determine what makes sense for you mathematically. Husband: High Earner (FRA Benefit: $2,533 / Month) Wife: High Earner (FRA Benefit: $2,533 / Month) Note: Keep in mind that because of space limitations, this article does not cover areas of Social Security planning including, divorce planning, the Windfall Elimination Provision for state/local/government pension earners, same sex marriages, dependent coverage, and more. As always, if you have any questions please don t hesitate to contact us.
4th Quarter 2013 Page 4 BROUGHT TO YOU BY Randy P. Siller, ABOUT SILLER & COHEN CPA1, Masters in Tax, CIMA,CRPC Principal rsiller@sillerandcohen.com Siller & Cohen is a boutique family wealth advisory firm providing financial solutions for the past twenty-five years to institutions and high net worth individuals. We combine the detail and careful attention of a smaller firm with the deep resources of a national organization. Our team includes CPAs1, Certified Investment Management Analysts, and attorneys.1 While we offer our clients the full range of planning services, our core areas of expertise include wealth transfer, investments, and business succession planning. Jeffrey S. Cohen, CFP A member of Siller & Cohen has been named by Barron s Magazine as a Top 100 Investment Advisor for 11 Consecutive Years!2 Principal jscohen@sillerandcohen.com 1 2 Siller & Cohen Family Wealth Advisors Licensed, not practicing The list was compiled by RJ Shook, Financial Industry Consultants. This is an objective ranking based on assets under management. Westchester Supervising Office 800 Westchester Avenue Suite S-504 Rye Brook, NY 10573 Tel: 914.305.9050 Fax: 914.305.9060 New York City 250 Park Avenue 7th Floor New York, NY 10017 Tel: 212.572.4874 Fax: 914.305.9060 www.sillerandcohen.com Associates of Siller & Cohen are registered representatives of Lincoln Financial Advisors Corp. Securities and advisory services offered through Lincoln Financial Advisors Corp.,a broker/ dealer (Member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. This material is for information purposes only. We do not offer legal or tax advice. Seek the advice of a tax advisor prior to making a tax-related insurance/investment transaction. Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor. CRN-787612-123013 Siller & Cohen is not an affiliate of Lincoln Financial Advisors Corp.