By Sandy Keir, CFP®, Suncoast Advisory Group
Don’t be fooled by all the rumors about the Social Security system going broke! There’s no way in the world Congress can sit back and let millions of retirees lose their primary source of income. In 2014 alone, 59 million Americans collected $863 billion in Social Security benefits and the frightening thing is that 22% of married couples and 47% of unmarried persons relied on Social Security for 90% or more of their income!!!!!
Now that you know so many retirees rely on Social Security for their very existence, I think you’ll agree that the system will still be around when you’re ready to retire. That being the case, there are several things you need to know RIGHT NOW that will affect the amount of income you’ll be eligible to receive in the future.
#1: A successful woman in her 50s or 60s who’s earned the maximum taxable earnings since the age of 22 can fully expect to receive the maximum monthly benefit of $2,685, or almost $1 million in Social Security benefits if she lives for 30 years after retiring!!! So, even if you’ve done a great job of investing and don’t need to rely on Social Security for the majority of your retirement income, that’s still a lot of money to not care about! The Social Security Administration will look at up to 35 years of your past earnings and then choose those years with the highest indexed earnings to determine what your benefit amount will be. So, if you’re currently in your highest earnings years, you’ll increase your benefit amount every year that you continue to work.
#2: Claiming benefits before full retirement age results in permanently lower benefits. How many of us hear from friends who’ve decided to retire early that they don’t really NEED their Social Security benefits, but they take them anyway? Believe it or not, that’s the rule rather than the exception! Nearly half of all retired workers claim their benefits as early as possible (age 62) and almost all claim them at some point before full retirement age!!! What they may not understand is that their reduced benefit is never going to “catch up” to what it would have been if they waited until full retirement age (when they’d receive 100% of their benefit). And, if your spouse takes his benefit early and predeceases you, it could mean that your survivor benefit would be smaller, too. So, even if you decide to stop working early, you may want to wait to start receiving benefits.
#3: If you’re married and wait until full retirement age to file for benefits, if often makes sense for one spouse to take ONLY their spousal benefit from the other’s earnings record and, at the age of 70, switch back to their own benefit, which will have grown 8% a year (plus any cost of living adjustments during those years). There are several strategies like this one that will significantly increase the amount of benefits you and your husband will receive over your lifetimes. Your financial advisor should be able to help you maximize your benefits.
#4: If you’re divorced, you may be eligible to receive benefits from your ex-spouse’s earnings record!!!! If you were married at least ten years, have been divorced at least two years and have not remarried, you’re eligible to receive a spousal benefit from your ex-husband. Once again, this works best if you wait until full retirement age to file. While you’re taking your spousal benefit, your own benefit amount is growing 8% a year and will be 32% higher when you switch to your own benefit at age 70. I’ve found that many women are reluctant to take advantage of this strategy because they don’t want to “get permission” from their ex-husband to do this. Keep in mind that you’re entitled to this benefit, you don’t need to ask for permission from your ex-husband, he won’t be notified and your ex-spouse’s benefit amount (and that of his current wife) won’t be reduced.
#5: Up to 85% of your Social Security benefits could be taxable if you earn more than the maximum income allowed. So, if you plan to file for benefits and continue to work part-time after retirement, if your spouse is still working or your retirement income is higher than the limit set by law, you could end up paying income tax on a portion of your Social Security benefits. So, make sure you talk to your CPA before you file for your benefits.
Deciding when to take Social Security benefits is only one of the many things you’ll need to plan before you actually stop working. You and your financial advisor will also need to develop a Retirement Income Plan to coordinate the timing of your Social Security benefits with income from your retirement accounts. You’ll need to work together to decide if one of the strategies mentioned in this article is beneficial and you’ll need to decide when to take income from your IRAs, pensions, mutual funds and annuities and other investment accounts.
Don’t wait until you’re ready to retire to start researching Social Security! It’s something you’ll need to prepare for many years before you file for benefits!!
If you can relate to any of the issues Sandy writes about in this month’s article, call her at 941-201-1231 or email her at email@example.com to receive complimentary information.
Sandra “Sandy” Keir, CFP®, CRPC, CLTC
Sandy’s “aha” moment came at an early age. She had a wonderful childhood in Duluth, Minnesota. Her father was a good provider. Her mother was a devoted wife and mother. But when it came to the household finances, her father was the decision-maker. Sandy made the connection that the breadwinner was the boss. Money was power. “I decided that I always wanted to be in control of my own destiny,” she says.
A lifelong wealth advisor, Sandy’s passion is to help other women pursue the financial independence she has gained. “As women, many of us are going to be on our own at some time in our lives,” Sandy says, “so we either need to gain an understanding of money and finances or we need to partner up with a financial advisor who can guide us. Many of the decisions we make, such as when to start taking Social Security, are irrevocable. However, only about 30 percent of women currently seek advice before making those decisions.”
During her 25 years in the wealth management industry, Sandy has worked for such companies as Merrill Lynch, Lincoln Financial Group and Transamerica Capital. She lived in Sarasota for 15 years before moving to Pennsylvania in 2009, to become the Regional Sales Manager of Western Pennsylvania for Kades-Margolis Corp. She returned to Sarasota in 2014 to join Suncoast Advisory Group.
In addition to being a Certified Financial Planner, of which only 23 percent are women, she holds the Chartered Retirement Planning Counselor (CRPC) and Certified in Long-Term Care (CLTC) designations. She earned her bachelor’s degree in Political Science from the University of Minnesota in Minneapolis.