Category Archives: Social Security Planning

July 6, 2015

The Social Security Reset

Written by Andrew Hunt

As many people know, delaying the receipt of Social Security provides an increased benefit until age 70. Many times the amount of the increase is misunderstood. It is often substantial, especially if the benefit is taken before Full Retirement Age!

It’s a little known fact that you can reset your Social Security payment amount during the first twelve months after initiating the benefit. We find that the best way to illustrate the details of how this change can be made is through an example:

Let’s say that you chose to take your reduced Social Security benefit at the early retirement age of 62 and lets say that benefit amount is $1000 per month. If you had waited until the Full Retirement Age of 66, your benefit would have been 33% greater or $1,333 per month. As you can see, this is a significant difference! Once you learn about the disparity in lifetime benefit you might change your mind on which benefit to take. And you are entitled to do so, as long as it has been within the first 12 months of receiving your benefit.

To have a Social Security reset you must payback all of the money you received within the first 12 months of starting payments.

 There is no interest or penalty for choosing to reset your Social Security benefits. Once you payback the amount received, you can re-apply for benefits at your new attained age or wait until a later date.

An important note to remember is that you can only do this once and you cannot revoke the decision once you have made the election to reset your payments.

 Consult a Professional

Unfortunately, most people make Social Security decisions without consulting a professional. You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit. An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision. Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management

June 8, 2015

The $900,000 Social Security Mistake

Written by Jason Hiley

Recently I read a story in the Omaha World Herald about a woman in central Nebraska that passed away on her 110th birthday.   Upon reading this, I began thinking about the lifetime Social Security benefits someone would collect if they lived 110 years.   Her husband passed away in 1975, so she spent the last 38 years as a widow likely receiving a Social Security survivor income benefit.  The implications of her husband’s decision on when to take Social Security would have been profound.

Utilizing today’s rules, let’s examine how the age at which her husband elected to receive Social Security would have impacted her cumulative lifetime Social Security benefits as a widow.  First some facts and assumptions:

  • His benefit at Full Retirement Age (66) would have been $2,000 per month
  • By electing at 62 he receives 75% of his benefit, $1,500 per month
  • By electing at 70 he receives 132% of his benefit, $2,640 per month
  • She collects a survivor income benefit for 38 years

Let’s look at the impact the timing of when her husband elected Social Security would have had on her lifetime survivor income benefits.

SurvivingSpouse’s   Age Cumulative   Lifetime Benefit*(spouse   elected @ 62) Cumulative   Lifetime Benefit*(spouse   elected @ 70) Difference 
72 $18,000 $31,680 $13,680
80 $181,381 $319,230 $137,840
90 $443,528 $780,609 $337,081
100 $789,050 $1,388,742 $599,678
110 $1,244,465 $2,190,258 $945,793

*Assumes the annual benefit is increased by 2.8% annually due to Cost of Living Adjustments

The difference between electing at 62 and 70 would be more than $900,000 dollars! 

Although this example may be a bit extreme, it’s obvious there can be a tremendous advantage to delaying the receipt of Social Security.  For many retirees, outliving their money is a primary concern, and living well beyond life expectancy can turn concern into reality.  Delaying Social Security can be a great way to hedge against that risk.

Consult a Professional 

Unfortunately, most people make Social Security decisions without consulting a professional.  You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit.  An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision.  Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management

Social Security Switch Strategies for Widows

Written by Jason Hiley

Widows nearing retirement may be able to utilize one of two lesser known “claim and switch” Social Security election strategies in order to increase total lifetime Social Security benefits by as much as six figures.  More information regarding the basic rules and requirements of survivor benefits can be found in the article Social Security Survivor Benefits.

Claim and Switch Strategy #1:

     Claim your worker benefit at 62 and switch to your survivor benefit at 66

This strategy works best for a widow who has a benefit available on her own work record that is substantially less than her survivor benefit.

Jane is a widow planning to retire at age 62, and she would like to begin drawing Social Security.

  • Jane expects to live to age 90.
  • Jane is eligible for a $1,200 monthly benefit on her own record at age 66.  If she elects early at age 62, the worker benefit would be reduced to $900.
  • As a widow, Jane is eligible to receive a survivor benefit of $2,000 at age 66.  If she elects early at age 62, the survivor benefit would be reduced to $1,620.

 

Jane’s Age Worker Benefit Survivor Benefit
62 $900 $1,620
66 $1,200 $2,000

 

Given Jane’s life expectancy, she will receive greater lifetime benefits if she waits until age 66 to claim her survivor benefit. Jane can file a restricted application at age 62 to receive only her worker benefit ($900). At age 66 she can amend her claim to begin receiving 100% of her survivor benefit ($2,000).

Using this approach, Jane will receive $900/month from age 62-66 and $2,000/month until her death.  Utilizing this little known “claim and switch” strategy, Jane will collect an additional $43,200 in lifetime Social Security benefits.

Claim and Switch Strategy #2:

     Claim your survivor benefit at age 62 and switch to your worker benefit at age 70

This strategy works best for a widow with a benefit available on her own work record that is close to, or greater than, her survivor benefit.

Mary is a widow planning to retire at age 62, and she would like to begin drawing Social Security.

  • Mary expects to live to age 90.
  • Mary is eligible for a $2,000 monthly benefit on her own record at age 66.  If she elects early at age 62, it would be reduced to $1,500.
  • If Mary waits until age 70, she will receive delayed retirement credits that will boost her worker benefit to $2,640.
  • Mary is also a widow and is eligible to receive a survivor benefit at age 66 of $1,800.  If she elects early at age 62, it would be reduced to $1,458.

 

Mary’s Age Worker Benefit Survivor Benefit
62 $1,500 $1,458
66 $2,000 $1,800
70 $2,640 $1,800

 

Given Mary’s life expectancy, she will receive greater lifetime benefits if she waits until age 70 to claim her own worker benefit, as her worker benefit will have grown through delayed retirement credits.  At age 62, Mary can file a restricted application (a widow could do this as early as age 60) to receive only her survivor benefit ($1,458).  At age 70 she can amend her claim to begin receiving her own worker benefit ($2,640).

By utilizing this claim and switch strategy, Mary will collect an additional $140,000 between the ages of 62-70 as compared to a strategy of simply delaying Social Security to age 70.

 

Consult a Professional 

Unfortunately, most people make Social Security decisions without consulting a professional.  You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit.  An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision.  Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management

Diamonds Aren’t a Girl’s Best Friend, Delayed Retirement Credits Are!

Written by Jason Hiley

Typically people nearing retirement age decide when to claim Social Security based on their current needs and what they see as their own projected life expectancy.  People who do not anticipate outliving average life expectancies may claim Social Security benefits early.  Conversely, those who expect to live a longer than average life may consider delaying their election.

Furthermore, many people fail to consider that, after their own death, their Social Security election decision may have a significant impact on their spouse. Social Security benefits often continue in the form of a survivor income benefit and can total hundreds of thousands of dollars.  This may be THE most important factor as married couples decide when to claim Social Security.

(Men and women are both eligible for survivor income benefits.  Statistically speaking, women are most often the surviving spouse.  For the sake of simplicity, the surviving spouse will be referred to as “widow.”)

Delayed Retirement Credits

At full retirement age (FRA-66 for those born between 1943-1954), a person is eligible to receive 100% of his/her Social Security benefit, or Primary Insurance Amount (PIA).  He/she can elect to begin receiving benefits as early as 62, but doing so will reduce the monthly benefit by 25%.

On the other hand, a worker can delay the receipt of Social Security benefits beyond his/her FRA, up to age 70.  By doing this he/she receives what is known as delayed retirement credits (DRC).  DRC accumulate at a rate of 8% per year for up to four years, for a potential maximum benefit increase of 32%.

Consider Jim and Linda Wilson.  They are both 62 and contemplating when to claim their Social Security benefits.  Jim is eligible for $2,300/month in Social Security income at FRA.  His wife Linda is eligible for $300 on her own record at her FRA.

Due to his personal and family medical history, Jim feels strongly that he won’t live past the age of 77.  Assuming he lives until 77, Jim’s cumulative lifetime Social Security benefits would be:

Election   Age Percentage   ofPIA Monthly   Benefit Cumulative   Lifetime Benefitto   77*
62 75% $1,725 $331,200
66 100% $2,300 $331,200
70 132% $3,036 $291,456

*In current dollars

Jim does not think he will live past 77, so if he only considers his own projected lifetime benefit, he may come to the conclusion that there is no benefit to delaying claiming Social Security beyond 62. However, Jim and Linda need to consider the impact his election strategy may have on Linda’s survivor income benefit.  She is the picture of good health, has a strong history of longevity in her family, and thinks she will live until she is 92.

The Survivor Income Benefit

 After the death of her spouse, a widow is entitled to “step into” her husband’s Social Security benefit, provided it would be an increase over her current benefit.  Returning to the Wilson’s example, after Jim’s death at 77, Linda will spend the next 15 years collecting a survivor’s benefit.  As illustrated below, her total lifetime benefit varies greatly depending on the age at which Jim elects to claim his Social Security benefits.

Jim   Elects at 62 Jim   Elects at 70 Difference
Linda’s Monthly Survivor Income Benefit $1,725 $3,036 $1,311
Linda’s Cumulative Benefit in Widowhood $310,500 $546,480 $235,980(76% increase)

 

The numbers say it all – when deciding when to claim Social Security, a husband should not only consider his life expectancy, but that of his spouse as well.  By taking into consideration their combined life expectancy, the Wilsons will receive an additional$235,000 in lifetime Social Security benefits!  They say diamonds are a girl’s best friend, but maybe they should be asking for delayed retirement credits!

Consult a Professional 

Unfortunately, most people make Social Security decisions without consulting a professional.  You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit.  An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision.  Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management

Social Security Switch Strategy – Restricted Application

Written by Jason Hiley

(When discussing Social Security, genders are interchangeable in all instances.  For the sake of simplicity, the husband will be referred to as the higher wage earner.)

Waiting to claim Social Security benefits can result in undeniable advantages – the increase in the total lifetime benefits received can increase by as much as six digits.  Although delaying Social Security increases your cash flow the most significantly, other strategies are available to you to provide monthly income benefits while you delay claiming your own benefits.

Basics of Restricted Application

Anytime you apply for Social Security benefits, the Social Security Administration assumes (unless you indicate otherwise) you are applying for all of the benefits available to you: your own worker’s benefit, spousal benefit, and/or widow’s benefit.  Your total monthly income benefit is then determined based on the highest benefit (or combination thereof) for which you are eligible.

Once you have reached full retirement age (FRA- 66 for those born between 1943-1954), the Social Security Administration permits you to limit, or restrict, the scope of your application to exclude specific benefits available to you.  This option is known as a “restricted application” and is only available to those at or past FRA (exceptions may apply for widow/widowers).  The restriction must be made unequivocally at the time of application.

Restricted Application Strategies

Filing a restricted application allows you to claim one of the Social Security benefits (personal/spousal/widow) for which you are eligible while allowing the other(s) to grow and potentially earn delayed retirement credits (DRC).  If you file a restricted application, you are essentially filing for one benefit with the plan to switch to a higher benefit at a later date.

The first scenario in which filing a restricted application  may be advantageous is if the lower earning spouse has a worker’s benefit that is greater than, or could potentially grow greater than (through DRC), her spousal benefit.  At FRA, she could restrict her Social Security application to exclude her own worker’s benefit, only claiming her spousal benefit.  Her worker’s benefit would then earn DRC through the age of 70.

Consider the case of Jim and Linda Wilson.  Linda is 66 (FRA) and is eligible for $1,000 on her own record.  Her husband Jim’s benefit at FRA is $2,000 making Linda’s spousal benefit also equal to $1,000.

  Monthly   Benefit Amount
Linda’sAge Claim   Own at 66 File   Restricted at 66/Claim   Own at 70
66 $1,000 $1,000
67 $1,000 $1,000
68 $1,000 $1,000
69 $1,000 $1,000
70 $1,000 $1,320

 

By restricting her application at 66 to claim only her spousal benefit then changing to her own benefit at 70, Linda has increased her monthly benefit by $320 (almost $4,000/year) while not foregoing any benefits from age 66-70.

A second instance in which filing a restricted application can result in a greater lifetime Social Security benefit is if the higher earning spouse is of FRA but wants to earn DRC by delaying his own Social Security claim.  If his wife is 62 or older and has already applied for Social Security, he may benefit from filing a restricted application to receive only the spousal benefit on his wife’s record.  He will receive a monthly spousal benefit until age 70, when he will switch to his own Social Security benefit that has grown by 32% through DRC.

Bob and Kathy Smith may benefit from this second “file and switch” strategy.  Bob has a benefit of $2,000 at FRA.  He wants to wait until 70 to draw his Social Security to earn the maximum amount of DRC.  Kathy has already claimed her full Social Security benefit of $1,600.

  Monthly   Benefit Amount  
Bob’s   Age Claim   Own at 70 File   Restricted at 66/Claim   Own at 70 Additional   Benefit
66 $0 $800 $9,600 yr
67 $0 $800 $9,600 yr
68 $0 $800 $9,600 yr
69 $0 $800 $9,600 yr
70 $2,640 $2,640

 

By restricting his application to a spousal benefit only at age 66 then changing to his own benefit at 70, Bob increases his total lifetime benefit by nearly $39,000 without losing out on the opportunity to earn DRC.

Consult a Professional 

Unfortunately, most people make Social Security decisions without consulting a professional.  You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit.  An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision.  Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management

Social Security Survivor Benefits

Written by Jason Hiley

Whether you have experienced the loss of a spouse recently or sometime in the past, you may be eligible for a Social Security survivor benefit. As with most Social Security benefits, the amount you will receive depends on a variety of factors including your age, the work history of you and your spouse, and your current marital status.

(Men and women are both eligible for survivor income benefits.  Statistically speaking, women are most often the surviving spouse.  For the sake of simplicity, the surviving spouse will be referred to as “widow.”)

Basic Rules and Requirements

A widow’s eligibility for a Social Security survivor benefit is determined by a few basic requirements. In most cases, you must have been married for longer than nine months.  If you remarry prior to age 60, you cannot receive a benefit as a surviving spouse while married.  However, if you divorce or your current spouse dies, you are again eligible for a survivor benefit.  If you remarry after you reach age 60, you will qualify for a survivor benefit regardless of marital status.  Divorced spouses can also qualify for a survivor benefit, providing they were married longer than ten years.

If a widow meets the above requirements, she is eligible to claim Social Security benefits based on her late husband’s work record.  This is true regardless of whether or not her husband had claimed his own Social Security benefits.  The amount a widow is eligible to receive is determined by her age and her late husband’s Social Security benefit amount.

Surviving spouses are eligible to begin collecting a survivor benefit as early as age 60, though the monthly benefit amount will be at a reduced rate until the surviving spouse reaches full retirement age (FRA-66 for those born between 1943-1954).  Survivor benefits are not eligible for delayed retirement credits (beyond those accumulated by the deceased) – the monthly benefit amount does not increase beyond full retirement age.

Let’s examine the case of Jim and Linda Wilson.  Jim passed away before his FRA, but his monthly Social Security benefit amount at FRA would have been $2,000.   If Linda elects to taker her survivor benefit when she reaches age 60, she will receive $1,430 (2,000 x 71.5%) each month for the rest of her life.  This percentage gradually increases, until, at age 66 (her FRA), she will receive 100% of Jim’s $2,000 benefit.

Surviving  Spouse’s   Age Percentage   ofSurvivor   Benefit Survivor   Monthly Benefit Amount* Cumulative   Lifetime Benefit to Age 92*
60 71.5% $1,430 $549,120
61 76.3% $1,526 $567,672
62 81% $1,620 $583,200
63 85.8% $1,716 $597,168
64 90.5% $1,810 $608,160
65 95.3% $1,906 $617,544
66 100% $2,000 $624,000

*In current dollars

By waiting until FRA, Linda would collect an additional $75,000 in lifetime Social Security benefits.  Unless you feel strongly that you will fall significantly short of your projected life expectancy, you should strongly consider delaying to maximize your benefits.

(In this case, Jim died before he claimed Social Security benefits.  If he already elected Social Security benefits, additional complexities and calculations would apply.)

Benefit Election Strategies

Depending on a widow’s own Social Security worker’s benefit, she may benefit from utilizing one of the following lesser known “claim and switch” strategies in order to maximize her total lifetime Social Security benefit.

Your Own/Survivor:  If a widow’s own Social Security benefit is relatively low compared to the survivor benefit, it may be to her advantage to file a restricted application at age 62 in order to collect a benefit on her own work record.  At FRA, she could then switch over to the larger survivor benefit.  By delaying the claim of the survivor benefit, the total monthly benefit will have increased to 100% of the survivor benefit amount. She will also collect income based on her own work record while she waits until FRA to collect her full survivor benefit.

Survivor/Your Own: Conversely, if the surviving spouse’s Social Security benefit is close to or exceeds the survivor benefit, it may be worthwhile to claim the survivor benefit as early as age 60 and switch to her own benefit at a later date.  This allows the surviving spouse to receive monthly income based on her survivor’s benefit while allowing her own benefit to grow, collecting delayed retirement credits , until age 70.  In order to utilize this strategy, the surviving spouse may need to file a restricted application.

For more details, check out our post  Social Security Switch Strategies for Widows.

Consult a Professional 

Unfortunately, most people make Social Security decisions without consulting a professional.  You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit.  An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision.  Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management

Social Security Spousal Benefits

Written by Jason Hiley

Most Americans look forward to claiming their own Social Security benefit in retirement.  Did you know that if you are married, you may also be eligible for a spousal benefit?  Spousal benefits are Social Security benefits available based on your spouse’s earnings record while s/he is still alive.

 (Men and women are both eligible for spousal benefits.  For the sake of simplicity, the husband will be referred to as the higher wage earner.)

Spousal Benefit

At full retirement age (FRA-66 for those born between 1943-1954), the Social Security spousal benefit is equal to 50% of your spouse’s primary insurance amount (PIA).  You can claim the spousal benefit as early as 62, but the monthly benefit amount will be reduced to 35% of your spouse’s benefit.   The reduction is gradually phased out as the spouse claiming a spousal benefit nears FRA.

Age   of Wife Husband’s   Benefit Amount Percentage   Eligible Spousal   Benefit Amount Annualized   Spousal Benefit Amount
62* $2,000 35% $700 $8,400
63* $2,000 37.5% $750 $9,000
64* $2,000 41.7% $834 $10,008
65* $2,000 45.8% $916 $10,992
66 $2,000 50% $1,000 $12,000

 

*When a person claims a spousal benefit before full retirement age, she is deemed to have filed for her own worker’s benefit as well as her spousal benefit.  This locks in the monthly benefit amount for her own worker’s record, therefore making her ineligible for delayed retirement credits.

In order for a wife to claim Social Security spousal benefits, her husband must have applied for his own Social Security benefit. If her husband still wishes to delay taking his Social Security benefit, he can utilize the file and suspend strategy as explained here. Please note that only one spouse is allowed to claim a spousal benefit at any given time.

Consult a Professional 

Unfortunately, most people make Social Security decisions without consulting a professional.  You may be surprised to learn that the Social Security office is not allowed to give advice on strategies that would help maximize your potential benefit.  An expert in Social Security planning can take into account variables such as your current age, life expectancy, and financial assets in order to help you identify an election planning strategy best suited to maximize your lifetime Social Security benefit.

Don’t miss out on tens if not hundreds of thousands of dollars in lifetime Social Security benefits by making an uninformed decision.  Call or email us today to arrange a time to discuss your unique situation.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE – Financial Planning and Investment Management