Making the most of Social Security

Making the most of Social Security

Much has been made of the daunting puzzle of Social Security benefits in the past few years, and rightly so. The country’s baby boomers are hitting age 65 in droves, and with the ageing of the population, many more folks are considering how best to maximize their social security income benefits.

Social security matters for a number of reasons, for starters, its benefits currently make up a full 38 percent of the annual income received by elderly Americans. With over 10,000 people turning 65 each day, and given their substantial reliance on the income it provides, it’s probably worth familiarizing ourselves with one of the more popular maximization strategies.

In many cases once a benefit is elected, there is no turning back. Every decision in this arena should be weighed, considered, and reviewed with a professional before the election is made. Let’s get to it.

Facts of the puzzle

The history of Social Security’s creation would suggest anything but the baffling array of obscure and impenetrable rules and regulations it has become. The 1935 Economic Security Act, which is responsible for having created Social Security benefits, was only 64 pages long. Relative to recent legislation, like the Patient Protection and Affordable Care Act (aka Obamacare), the 1935 act was a study in brevity, with Obamacare weighing in at over 2,000 pages.

In total, Social Security benefits expected to have been paid out over 2014 have been estimated by the Social Security Administration to amount to $863 billion provided to approximately 59 million Americans.

Among elderly recipients, 52 percent of married couples and 74 percent of unmarried individuals count on their Social Security benefit for over 50 percent of their annual income. As an aside, the average monthly benefit for retired workers is $1,294, which should say something about Americans’ woeful ill-preparedness for retirement.

Solving the puzzle
The Rubik’s cube of social security benefits does not require the aptitude of a genius, but rather the preparedness of an informed public and the adventurous spirit of an explorer.

Many well-meaning baby boomers will suffer a lifetime of reduced benefits by claiming their benefit at age 62, the earliest age at which a benefit is available. Many may not consider the fact that each successive year of postponed benefit would have earned them a greater income for life, and so these folks have unwittingly denied themselves a 132 percent pay raise from age 66, full retirement age for most boomers, to age 70.

File and suspend

In this strategy, the higher earning spouse will file for his benefit upon reaching full retirement age (age 66) for the sole purpose of clearing the path for his spouse to file for spousal benefits. By suspending his own benefit immediately and choosing to wait until age 70 to un-suspend, the higher earning spouse’s benefit will continue to earn delayed credits thus entitling him to the highest benefit available when he finally does take it.

It’s confusing, I know, so let’s consider a fictional couple executing the strategy.

Sally and Barry are both at full retirement age, age 66, and Barry plans on continuing to work until age 70. His income has been higher than Sally’s, which yields him a greater Social Security benefit than her. If Barry files and then immediately suspends, his social security benefit (an assumed $1,500 a month) will continue to increase each year by 8 percent until he reaches age 70, where the benefit growth tops out. He isn’t receiving the benefit yet and it continues to accrue, so it is as if he had not filed for his benefit at all.

Because Barry has filed, Sally now has the ability to file for spousal benefits. The spousal benefit is equal to half of Barry’s full retirement age benefit (yielding a $750 monthly income). Additionally, because Sally is not claiming a benefit based on her own income, her own benefit will continue to accrue much like Barry’s does, which then allows her to receive the maximum benefit at age 70 as if she had never filed at all either.

Don’t kid yourself, this is a complex strategy and a number of other strategies exist which may prove more suitable for your situation. Be sure to consult your financial professional for additional help.

Anthony M. Conte is Managing Partner at Conte Wealth Advisors with offices in Camp Hill, Pennsylvania and Fort Myers, Florida. He has a Master’s Degree in Financial Services and the Certified Financial Planner™ certification, and he welcomes your emails: 

Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors, LLC are not affiliated.

The opinions expressed in this column are solely the writer’s and do not reflect the opinions of or The Patriot-News.

Before acting on any financial advice, readers should consider whether it is suitable for their circumstance and consider seeking advice from a financial or investment adviser.