There are many factors that come into play when it comes to planning for retirement. Investments, taxes, health care costs, withdrawal strategies, living expenses, estate planning - each of these factors must be considered, In particular, the decision as to when to file for a Social Security benefit must be made with full consideration of not only Social Security's web of complex rules, but also within the larger context of one's own retirement and tax planing picture. The failure to consider all of these factors can cost a married couple as much as several hundred thousand dollars in lifetime benefits.
Because of Social Security's tax treatment, it is also important to understand how Social Security benefits will fit into one's overall retirement income stream from an after-tax perspective. The passage of the 2015 Bipartisan Budget Act also affected several key Social Security claiming strategies whch had previously been in use for many years.
While Social Security personnel try their best to be helpful, they are not authorized to provide advice or to take a comprehensive look at one's overall financial situation, nor are they able to analyze all of the possible claiming strategies in order to determine the most optimal filing strategy for a particular individual or married couple. The following questions touch upon a number of the issues that need to be considered when determining the optimal claiming strategy:
How do age and earnings differences between spouses impact the decision as to when each spouse should file? Because the surviving spouse “steps-up” to the higher of the two benefits, Social Security should be seen as a joint-and-survivor annuity that provides "longevity insurance" for both spouses. Often, it is most optimal for the higher-earning, older spouse to wait until age 70 to file - but not always. And depending on the age difference between the spouses, it can often make sense for the younger spouse to file earlier, depending on a variety of other factors.
Why are women particularly vulnerable to the consequences of filing too early? Because women live, on average, three years longer than men, are often younger than their spoues, and have a one-in-three chance of living to at least age 90, many married (and divorced) women have an extremely high chance of outliving their spouse or ex-spouse by many years. And because their spouses often file too early for retirement benefits, many women may receive "survivor" benefits for many years that are far smaller in size than would have been the case with a better planned timing strategy.
Should one spouse file a "restricted application" for spousal benefits? Filing a restricted application permits one spouse to obtain a spousal benefit while also allowing one's retirement benefit to continue to grow. The restricted application has often been worth as much as $50,000 in "free" spousal benefits. As a result of the 2015 Bipartisan Budget Act, the restricted application strategy is no longer available to those who were born in 1954 or later.
How can working past sixty impact the size of your Social Security benefits, and those of your spouse? Because "indexing" of one's earnings expires at age 60, working past this age can provide a sizeable increase in one's overall retirement benefit, depending on a number of factors.
If you or your spouse were previously married for more than ten years, are there survivor or spousal benefits that may be overlooked? Depending on when one remarried, and the earnings history of a previous spouse, there may be benefits to using a prior spouse's work record to claim certain benefits.
Are your Social Security payments going be impacted by a government pension? Both the Windfall Elimination Provision and the Government Pension Offset can affect your Social Security payments as well as the ideal claiming strategy.
How should your current investment allocation take into account your present or future Social Security, pension, or other income streams? Given the bond\annuity-like nature of a pension or Social Security income stream, many investors fail to consider that their remaining portfolio allocation may need to be adjusted as a result.
If waiting until age 70 to collect your worker benefits is the most ideal option, should IRA withdrawals be taken before then? Often, it can be beneficial to accelerate IRA withdrawals in order to postpone Social Security.
The filing rules pertaining to Social Security are often complex and can have a significant financial impact. Social Security consultation for individuals and couples are included as part of a general financial planning review, or provided on a stand-alone basis.
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