Thursday, April 5, 2012

Which Social Security Payout Option is Best?

Introduction

When people are considering their options for taking Social Security they often overlook some strategies available to them. In fact, there are actually 20 different possible benefit choices, and an individual should consider each strategy in full before making their final decision. Sometimes utilizing the correct approach can amount to over a million dollars in additional lifetime benefits. Three strategies are often overlooked or never considered; claiming and suspending, restricting Social Security, and investing the benefit amount. Let’s review the three scenarios:

Claim and Suspend

Consider the example of Sam and Sally Sample, ages (66) and (62). To maximize their Social Security benefits it makes the most sense for Sam to utilize the claim and suspend strategy. Once he reaches his full retirement age (66), he can file for his benefits and immediately suspend them. By suspending his benefit he will receive an 8% annual benefit increase until he reaches age (70). However, because Sam filed for benefits at (66), Sally (62) has the ability to collect a spousal benefits based on Sam’s full retirement age benefit. At age (70) Sam will receive the maximum payout for his Social Security. See the table below.

Total Lifetime Benefit

Both Received Benefits 62

Both Receive Benefits 66

Utilize Suspension Strategy

$613,765

$664,822

$723,912

Restricting Social Security

Let’s now consider the restricted application strategy. In this case, Sally takes her Social Security now at the earliest age of eligibility (62) to start her own benefit based on her work history. When Sam reaches full retirement age (66) he will elect to restrict his application with the Social Security Administration, which enables him to receive a 100% spousal benefit (50% of Sally’s benefit). Once Sam reaches age (70) he files for his own personal worker benefit at the higher amount which has been earning delayed retirement credits increasing 8% per year. See the table below.

Total Lifetime Benefit

Both Received Benefits 62

Both Receive Benefits 66

Utilize Restriction Strategy

$613,765

$664,822

$697,656

Reinvestment the Benefits

Sam and Sally are in a great position; they have a pension which will cover their immediate monthly expense during retirement. Even though they do not need Social Security to cover their living expenses, they should still consider the option of taking their benefits early.

In this situation it makes the most sense for them to take Social Security as early as possible and invest their benefit. Even though they will be receiving a reduced benefit, by investing early it will be able to compound for a longer period of time. See the table below representing a 6% return.

Total Lifetime Benefit

Both Received Benefits 62

Both Receive Benefits 66

Utilize Reinvestment Strategy

$613,765

$664,822

$1,306,214

Table Comparison

The table below displays a side-by-side comparison of each option and its total lifetime benefit amount. Be sure to receive an in-depth assessment of your Social Security options when you are selecting your benefit method.

Client Information

Client Name

Sam Sample

Sally Sample

Client Age

66

62

Monthly Worker Benefit

$1,500

$900

Total Lifetime Benefit

Both Received Benefits at 62

$613,765

Both Receive Benefits at 66

$664,822

Utilize Restriction Strategy

$697,656

Utilize Suspension Strategy

$723,912

Utilize Reinvestment Strategy

$1,306,214

Conclusion

Getting the most out of your Social Security should be at the forefront of your mind as you get ready to transition from the workplace to retirement. You have been paying into Social Security all your life; make sure you receive the benefit that you deserve. While we only considered three possible strategies, be sure you consider each of your 20 options before making a million dollar decision. The ages of each spouse and their benefit amounts have a tremendous impact on which Social Security strategy is most profitable. Net Worth Advisory Group’s Social Security Maximizer considers each of these factors, along with your financial plan, to determine which Social Security option is best for you.

2 comments:

Rex said...

It definitely takes some financial planning before making a decision. Fortunately there are a lot of resources to help you make an informed decision that is best for you and your finances.

Wealth Management said...

Excellent Blog! I certainly like the layout and the theme. The information is also excellent and I look forward to coming back again later on.
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