Savvy Social Security Planning:
What Baby Boomers Need to Know to Maximize Retirement Income
The decisions you make can have a tremendous bearing on the total amount of benefits you stand to receive over your lifetime. By coordinating Social Security with the rest of your retirement income plan, you can pursue the universal dream of a comfortable, worry-free retirement.
Baby boomers want to know:
• Will Social Security be there for me?
• How much can I expect to receive?
• When should I apply for Social Security?
• How can I maximize my benefits?
• Will Social Security be enough to live on in retirement?
A few days ago I attended the Pasco School District Back to School Expo and benefits fair at Pasco High School, my alma mater. It was a chance to talk with teachers and staff a little bit about their jobs and their plans for the year. Since I didn't have a fancy table display, I brought along my cool, old letterman's jacket with all my sports patches and pins. Everyone loved the 80's hairdos of my volleyball teammates, shown in a picture on one of the pins.
Since I am "just" a few years out of high school, it seems there are fewer and fewer district employees that I know or who worked with my mom back when the district was much smaller. But it is still a great opportunity to meet new teachers and see old friends, like Diana, an old UW friend now teaching in Pasco. It reminds me that even as things change, they still stay the same. The high school looks completely different than when I was there, but the thrill I got just walking past the gym brought me right back to my high school sports days. And being back in the new cafeteria with its high ceilings and wall of windows, doesn't even begin to resemble my old, stuffy cafeteria. But I can clearly remember many, many lunches in that room with friends or maybe by myself if no one was daring to eat school lunch that day. But a buck and a quarter, couldn't beat that for lunch.
I am doing a class at the end of September called Savvy Social Security Planning: What Baby Boomers Need to Know to Maximize This Million Dollar, Lifetime Benefit and so I was telling people about this. I was surprised to learn that many who were still working had already started collecting their social security, many as early as age 62. I let them know that there were strategies that may have helped them maximize their annual and cumulative social security benefit and we would learn about these in my class. Unfortunately for those that have already started to collect there isn't much they can do unless they were willing to suspend and perhaps even pay back the benefits they had earned, but only if they had started less than 12 months ago.
However, if their spouses hadn't started to collect there still might be hope for them to pick up a spousal strategy that might increase their combined lifetime benefits. The thing about SS is there are about a million permutations of ways to do it, and it really pays to learn about some of the ways you personally could make SS work more in your favor.
So I'll be back at PHS next year to keep spreading the word because I really believe this is an area that affects everyone, especially women, and what you don't know can hurt you.
One of the things I do is teach a class on smart Social Security strategies. Married spouse, divorced-spouse, survivor and divorced-survivor strategies play an important role in a woman's retirement plan. Because women live longer than men and traditionally earn less over their lifetime, Social Security planning is really too important to ignore.
In 2006, 43.4% of all elderly unmarried females receiving Social Security benefits relied on Social Security for 90% or more of their income. With the average monthly benefit in 2011 being $1,181.60, that describes a less than comfortable retirement.
One of the strategies I'd like to share here is for a divorced women (it works for men too) who was married at least 10 years and is currently unmarried. Social Security is gender neutral so any strategy that works for a woman, will apply to a man as well.
You may take your divorced-spouse benefit at age 66 and allow your own benefit to earn delayed credits up to age 70. Your divorced-spouse benefit will be one-half of your ex-spouse's Primary Insurance Amount or PIA. The PIA is the dollar amount at age 66-67 found on your Social Security statement. The PIA is basically your base amount that all other amounts are calculated from.
If you have been divorced more than two years, your spouse doesn't need to have filed for their own benefit, but must be over age 62 (and eligible for SS benefits). Typically SS likes to give you the highest benefit you are entitled to receive, even though it may not be the preferred strategy that you are trying to implement. So even if your own PIA is higher, you don't want to take your own but restrict your application to your divorced-spouse benefit. In this case, your own PIA is irrelevant. It will become relevant when at a later date, preferably age 70 for the greatest growth in your benefit due to delayed credits, you will then apply for your own benefit. If you were in your highest earning years during this time as well, your own benefit will be even greater at age 70.
Too many women make the mistake of taking benefits too early, at age 62. We find that many want to take it because they don't know if it will be here later and they just want to start getting that check. Delaying the start of benefits to at least full retirement age (age 66-67) can make a tremendous difference in the amount one receives at age 80 or 90.
One of the best parts of this strategy is that the ex-spouse will never know that your are utilizing this strategy. They will never be notified and their own benefits are not affected. This strategy is especially beneficial for divorced women in order to allow them to maximize their own benefit and lifetime income from Social Security.
It's very important to understand that there are many things to consider when deciding when and how to start Social Security and realize there are many smart strategies out there that may help you maximize your lifetime benefit. Be sure to do some research or consult with an advisor when deciding on your strategy.
Angie Furubotten-LaRosee, CFP® is a financial planner who helps regular people with "big picture" planning, focusing on their money and their lives.
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