There is more than one election in our future.
Yes, many are already tired of the presidential electioneering (though, I must say, if it weren’t for the fact that the next four years of our national direction were at stake, it would be much more entertaining than elections past!).
But for many of us, whether it’s very soon or in the somewhat-distant future, there is another election that will have a much more significant impact on your family’s situation than the presidential one.
So I thought I would take this week’s note to speak to those on the verge of retirement and have a frank conversation about Social Security benefits. (If you’re not yet close to filing for those, share this with somebody who is … they’ll thank you.)
Social Security benefits can represent a six-figure chunk of change. A typical monthly benefit of $2,200 has a present value of well over $500,000.00. So, despite the fact that it seems like an easy decision, you need to consider all your Social Security options carefully to avoid making a costly mistake.
And so the obvious question for people who are nearing eligibility: when should you take it?
It’s not so simple, but I happen to have some advice:
The Complexity of Social Security Benefits For metro NY Retirees
“It takes a great man to be a good listener.” -Calvin Coolidge
Like most government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been piled onto it, and have thereby added to the complexity. So to make the best decision about how to file for it, you’ll need to consider four things: 1) health, 2) income before retirement and 3) income during retirement, and 4) taxes.
Retirees from metro NY cannot rely on conventional wisdom! Simplistic “rules” such as “Always file for early benefits” or “You need to stop working to receive benefits” are NOT always true. There are specific cases that break every rule of thumb. And these one-size-fits-all answers leave many retirees failing to maximize the benefits they have earned.
At least four methods are used when electing how to take Social Security. And if you’re married, the two of you can mix and match these in more than 16 different ways (!). Each choice results in a different cash flow. By using the cash flows and the time value of money, you can determine which method will offer you the best maximum value.
So these methods differ significantly… they depend on your historical earnings, marital or divorce status, continued work in retirement, life-longevity and rates of return. The choice alone could be worth $250,000 of income or more.Filing options include “early filing,” “standard filing,” “delayed filing,” and many combinations of these options for married couples. It is DEFINITELY worth careful study and analysis of each option… yet a majority of Americans make their choice impulsively and emotionally.
The decision is even more crucial for many women. For 42% of single women older than 62, Social Security is their sole source of income. Women on average outlive men. Thus, planning for retirement is usually much easier for men (who statistically tend to have more assets and die younger). Widows are twice as likely to live under the poverty line as men who have lost their wives. And the poverty rate for elderly single women is 23% compared with just 5% for retired couples.
So couples must take their joint longevity into account before either one files for benefits. The person with the longer life expectancy will inherit either a wise or a foolish decision that will last a lifetime. Given that a husband’s benefits are often higher and the wife’s life expectancy longer, each case needs to be analyzed carefully.
Unfortunately, many people in metro NY file after considering only one or two options in isolation. Even worse–the Social Security Administration’s new online filing system enables quick decision-making. People can easily submit their request without any professional advice or planning.
Before filing, then, you obviously should be informed about all the options. To begin, you need to know your personal Social Security earnings and the projected benefits for both you and your spouse. You can request an estimate athttp://1.usa.gov/27s5kyX and then print the results. Or call the Social Security Administration at 800-772-1213. You can also get a copy of “Retirement Benefits” (Publication No. 05-10035) online.
Social Security planning is crucial for everyone. People with significant assets should carefully consider both the lifetime benefits and tax consequences of Social Security in light of their overall portfolio strategy. For the less well-off, Social Security benefits will dictate their retirement lifestyle. Proper planning could well determine what they can afford to eat.
So, there’s obviously a lot to consider here. I recommend you sit down with somebody you trust that can walk you through your different options. It could make a BIG difference in your lifestyle.
And regardless of whether that happens to be us, I do hope this helps.
To your family’s financial and emotional peace…
Barry Picker, CPA, CFP Zesha Auerbach, CPA
Picker & Auerbach CPAs