There are a many different benefits offered by the Social Security Administration, and knowing your options and requirements is essential. Don’t expect the Social Security Administration to know who you married, who you divorced, whether your spouse or ex-spouse died, whether or not you are caring for a young or disabled child, or if you are taking care of dependent parents. You need to equip yourself with some knowledge of the benefit provisions, ask if you don’t know, and/or find a well-informed advisor. Decisions made regarding claiming Social Security are critically important. This is the third piece of a series of articles with the objective of assisting you in making better decisions regarding claiming Social Security.
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HOW SOCIAL SECURITY BENEFITS ARE DETERMINED
Social Security is a valuable resource for older and disabled workers as well as the worker’s survivors and dependents. It provides 90% of the cash flow for one-third of retirees. It delivers 28% of the cash flow for high income retirees. A mistake in claiming these benefits can be permanent and costly to the worker and his/her family. This is the second in a series of articles on Social Security. The objective of the series is to help you make better decisions regarding claiming benefits. To make good decisions we need to identify, determine, and appreciate certain terms and concepts. The theme of this installment is the procedure used to calculate Social Security benefits and a brief discussion of average benefits. Estimating your benefits is the essential first step in the SS decision-making process.
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SOCIAL SECURITY DECISION-MAKING
Decisions regarding Social Security can be deviously complicated. There are thousands of rules, thousands upon thousands of additional codicils to clarify the rules, annual changes, and recent legislation, the Bipartisan Budget Act of 2015 (BBA), which drastically modified the planning landscape. Each day 10,000+ “baby-boomers” reach retirement age and many other individuals of pre-retirement age make critical choices impacting their potential Social Security benefits. These decisions involve when to claim benefits, what kind of benefit to request, and when to marry, divorce, or remarry. Too often people are misinformed and mislead when they make these assessments. We need to be aware of certain fundamental concepts in order to get the maximum benefits from Social Security and avoid costly mistakes. After all, we have paid for these benefits, and we should get what we are entitled to.
This article is the first of a series of articles that will highlight factors we need to consider to make better choices with respect to claiming Social Security. This particular article will discuss two concepts, eligibility and full retirement age. It will also describe the first two steps to start the Social Security decision-making process.
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The Bipartisan Budget Act of 2015: How it Changes Social Security Claiming Strategies
By Francis C. Thomas, CPA PFS
The Bipartisan Budget Act of 2015 (BBA) has introduced substantial changes to Social Security law. The BBA passed the federal legislative branch on Halloween weekend 2015 without public input or debate. It became effective when the act was signed by the President on November 2nd. The Social Security aspects of this act were a great surprise to the general public and planning profession. Specifically, the new law has limited Social Security claiming strategies that would have resulted in more retirement income for you. The legislation has affected millions of Americans who were planning to use “file and suspend” and “restricted application”. These two provisions were created by the Senior Citizens Freedom to Work Act of 2000 to encourage seniors to continue working, provide a more satisfying retirement, and extend retirement portfolios of middle-income Americans. The new rules impact married, single, and divorced individuals.
Social Security Planning
Finding the right age and correct strategy to claim Social Security retirement benefits can have a substantial impact on a retiree’s financial security. It is essential for CPA personal financial planners to educate clients about the options and run the numbers pertaining to different claiming scenarios assuming different life expectancies. Traditionally, the Social Security Administration’s (SSA) default position has been to recommend the option that provides recipients the largest benefit today, which may be a good idea if you are in ill health and without sufficient assets. However, after considering early retirement penalties, delayed retirement credits, survivor benefits, inflation cost of living adjustments, two-income households, the tax advantage of Social Security and longer life expectancies, it may make sense for one or both spouses to delay to age 70.
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