Category Archives: Women In Transition

September 25, 2017

Divorce Division of Assets: QDRO Part 1

Written by Jason Hiley

One of the toughest realities to prepare for after a divorce—and especially after a difficult one—is the division of financial assets. Wealth accumulated throughout a life’s hard work could be severely and negatively impacted in a matter of months, creating problems that could continue for years if the proper details are not attended to during the divorce proceedings. That is why today we will be discussing one of the most important acronyms to pay attention to during a divorce settlement: QDRO.

What Is a QDRO?

A qualified domestic relations order (QDRO) is a court order, judgment, or decree that allows a qualified retirement plan, such as a 401(k), 403(b), or pension, to pay benefits to the former spouse (or other dependent individual) in addition to the individual who controls and contributes to the plan. Without a QDRO, the alternate payee (the person assigned to share these types of benefits) is not entitled to receive any monies the plan will pay out. A QDRO agreement does not extend to include outside workplace retirement accounts such as savings/checking accounts, houses, etc.

Steps to Acquire a QDRO

Approval of a QDRO, which is finalized when the divorce itself is finalized, is generally granted before the divorce judgment is handed down. Any competent divorce attorney will know the steps needed to obtain a QDRO during the negotiation phase of a divorce.

But let’s say that a QDRO was not drafted for approval by your spouse, the retirement plan itself, or the judge during the proceedings for your divorce. This does not mean that you are out of luck. There is still a chance that you can obtain a QDRO and receive a fair portion of your now-ex-spouse’s retirement account. Here is what you need to do in order to make that happen:

  1. Sit down with an attorney who specializes in QDROs. Generally speaking, negotiating a QDRO during the divorce proceedings makes the division of assets easier. Once that time has passed, however, meeting with a lawyer to discuss how to obtain a QDRO will still ensure that you have the best chance to receive a post-decree settlement. The American Academy of Matrimonial Lawyers is one resource you could consider using to locate an attorney who specializes in family law which includes QDROs. It is important to lay out a clear legal plan before the proceedings.
  2. Send the resulting QDRO draft to the retirement/pension plan administrator. This is the most important step in the QDRO process. If the retirement/pension plan rejects your draft, you’ve wasted valuable time, which could prove costly. Oftentimes, the plan will return a copy of the draft with suggestions for changes based on the plan’s own rules and regulations. Consulting with an attorney with expertise in the QDRO process might enable you to circumvent some of these issues.
  3. Get the needed signatures from a judge and all affected parties. Once the retirement/pension plan has given its approval, it is important to obtain signatures from a divorce judge and all interested parties. The sooner this step is completed, the closer you will be to receiving your share of the benefits.
  4. Send a copy to the pension/retirement plan. Send the pension/retirement plan administrator a copy of the QDRO for approval. This will ensure that the benefits are paid out.

The steps listed above might take only a few months to complete, if everything happens quickly. Any delay, however, will mean more time before you receive the benefits, assuming all is in order. If your former spouse remarries or dies, it will become almost impossible to get any portion of the retirement account from the employer.

Divorce is one of the most difficult events a person may have to go through in life, and the aftermath of a divorce can be harder to handle if the marital assets were not divided well. A QDRO could be one of the most important financial documents obtained during this emotionally charged period of time. Seeking advice from a team of legal and financial experts will do wonders for your financial well-being and give you peace of mind.

July 24, 2017

Half of a Whole: When You Lose a Spouse

Written by Andrew Hunt

PLEASE DOWNLOAD OUR DETAILED GUIDE: WEALTH MANAGEMENT FOR WIDOWS

 

Whether it’s sudden and unexpected or after an already lengthy ordeal, there’s nothing that can prepare you for losing your spouse. Grief and mourning affect each of us uniquely, but all widows and widowers share a painful dilemma: On the one hand, the world seems to demand rapid response to a barrage of critical questions – financial and otherwise. On the other hand, it’s usually a terrible time to be making big decisions, especially if they really can wait.

Here are some helpful handholds to hang onto if you have been recently widowed (or you know someone who has), plus preemptive steps to take if you’re reading this in happier times.

If you’ve just been widowed …

Don’t decide anything you don’t have to – especially about your finances.

This may seem like odd advice from a financial advisor. Our usual role is to help people make sound money decisions and get on with their lives. The thing is, when you’re experiencing grief, it’s not just an emotion. It’s a biological process affecting your ability to make rational decisions regarding your financial interests. Even small choices can feel overwhelming, let alone the big ones. That’s why our advice at this time is to put off anything that can wait.

By the way, most financial decisions are NOT as urgent as they might seem.

This brings us to our next point. Remember, service providers, friends and family (who may also be grieving) may mean well. But their sense of urgency – and your own – may be off-kilter. Basically, unless all heck is about to break loose if you fail to act, give yourself a break and assume most financial decisions can wait.

Create the space to focus on matters that actually are urgent.

Putting long-term plans on hold also helps create space to take care of the essentials, such as making funeral arrangements, managing immediate expenses, and simply taking care of yourself and your dependents. Do make sure you’ve got enough cash flow available to make daily purchases and pay your bills, so these don’t become a source of added stress. Gather imminently critical paperwork such as any pre-planned funeral arrangements, and multiple copies of the death certificate. It’s also best to ensure your and your children’s healthcare coverage remains in place. Let everything else slide for a little while, and/or …

Lean on others, even if you don’t usually.

You don’t have to go it alone. For practical and emotional support, turn to friends, family, clergy and similar relationships. For financial and legal paperwork, contact professionals such as your financial advisor, CPA and insurance agent. Focus on relationships that help relieve your burden and avoid those that burn up your limited energy. Be cautious about forming brand new relationships at this time; unfortunately, seemingly sympathetic con artists prey on those whose defenses are down.

Take some time to learn more about the types of clients we serve and our process for partnering with women in transition from the loss of a spouse.

After a little time has passed …

Assess where you’re at.

Once you feel ready to take on some of the mid- and long-range logistics, slow and steady remain the ways to go. It can be helpful and cleansing to start by gathering up your scattered resources. Wills and trusts, insurance policies, financial statements, personal identification, mortgages, retirement benefits, safety deposit box contents, business paperwork, military service records, club memberships … Whether on paper or online, take stock of what you’ve got.

Reach out.

Continue reaching out to others to address your evolving needs. Turn to your financial advisor for assistance in organizing your investment accounts, shifting ownerships as needed, closing or consolidating unnecessary ones, and sorting through your spouse’s retirement and work benefits. Contact your spouse’s employers to learn more. Work with a lawyer for settling the estate. Meet with an insurance specialist to revisit your healthcare coverage. Speak with your accountant about the necessary tax filings. Contact creditors about resolving any outstanding debts. Firm up your ongoing banking and bill-payment routines.

Shift your focus outward.

When it comes to lifetime transitions, each of us is on our own schedule. But eventually, the time will come when you’re ready to circle back to those larger decisions you put on hold. Again, don’t go it alone. Your financial advisor can help you take a fresh look at your finances – your earning, saving, investing and spending plans. You also may start to look at your larger wealth interests, such as your will, trusts, overall insurance coverage and more. Whether you determine everything is fine or adjustments are warranted, wait until you’re at a place in which you can make these sorts of decisions deliberately instead of in haste.

Pre-planning is an act of love …

If you’re reading this piece during happier times, we can’t emphasize enough how important it is to pre-plan for when one or both of you pass away. Pre-planning can simplify or even eliminate some of the most agonizing decisions surviving family members must face during one of the worst times in their lives. As such, your wills, trusts, powers of attorney, living wills (advance directives) and pre-planned funeral arrangements may be among the most loving gifts you can give one another as a couple, especially if you have dependent children. If these key estate planning materials are not yet in place, there’s no better day than today to give each other the gift

How else can we help? When you’re ready to talk, please know we will be here to listen.

October 27, 2016

Wealth Management for Women: What Makes a Great Advisor? Part 2: Goal Focused Planning

Written by Jason Hiley

How often have you heard that “a penny saved is a penny earned”?

While I can’t claim credit for originating this succinct wisdom, it has served me well over the years — both personally and professionally — in helping my clients make smarter decisions about their money.

But at what point does a “penny saved” become an “experience missed”? When I was a child, my mother took us on wonderful vacations. We traveled to California; Hawaii; Florida; Washington, D.C.; and even Europe. Those were ever-lasting, life-altering experiences that I’m eternally grateful to my mother for. And now, as a parent of two children, I know all too well how expensive family travel can be!

But I often ask myself how much more money could my mom have set aside for her own retirement had we not taken those big trips? Could she have retired a couple of years earlier if that money had been invested instead of spent? The answers to those questions are probably “a lot” and “yes”; yet, I know my mom doesn’t regret a single dollar that she spent on those adventures with us.

The challenge for us all is to find a good balance between living life for today while also planning for tomorrow. That’s why Hiley Hunt Wealth Management advocates goals-based planning for our clients.

Goals-based planning puts the emphasis on what we think matters most: the achievement of your goals. How and where to invest are determined only after defining and then prioritizing your goals. Our goal-setting process is the foundation on which our clients’ financial plans are built.

This process affords a framework from which to make appropriate planning and investment decisions. During this exercise, you might find, as my own mother did, that spending money on creating memories is something that is very important to you. Although choosing to do something like this means that you are saving less money “in the present” for longer-term goals such as the creation of a retirement fund, it does not mean that you can’t successfully accomplish your short- and long-term goals. It simply means adjustments need to be made — you may need to plan to work a few years longer than you originally envisioned, commit to saving more after your children are on their own, or decrease the amount of money you plan to have available in retirement. Goals-based planning makes identifying these kinds of trade-offs possible.

Our financial planning and wealth management process is designed to lead our clients through a series of steps to help them identify goals and values, take stock of where they currently are, and develop a plan to get them where they want to go. The life path that each client travels is unique, so we map out personalized routes to enable each individual to reach his or her financial destination. If you are interested in working with a financial partner who is committed to helping you achieve your goals, contact us today for a complimentary consultation.

 

September 20, 2016

Wealth Management for Women: What Makes a Great Advisor? Part 1: Avoiding Confirmation Bias

Written by Andrew Hunt

Twice a week. Always twice a week.

Neither the oppressive heat nor the insufferable humidity hindered my mom from insisting that the lawn be mowed twice a week.

I had always assumed my mom had a good reason for wanting the lawn to be mowed that often. Perhaps it had something to do with the health of the grass. Maybe it was a strategy to ward off insects. Did it have something to do with water conservation? I was never brave enough to ask, but as I grew older, I figured that twice-weekly mowing made the grass healthy. After all, our yard always looked great!

Fast-forward to my mid 20’s, when I became a homeowner. I was so excited to begin my own twice-weekly mowing ritual for optimal lawn maintenance.

By this time, my parents lived in a villa-type neighborhood where lawn care was included in the monthly association fee. Apparently, the lawn wasn’t mowed twice a week there, because my father revealed to me that he still mowed. “You know how much Mom loves the lines in the grass,” he said.

All this time – all this time! – I had assumed that twice-weekly mowing was part of some larger program with some greater purpose, not something my father did just because my mom liked the lines in the grass! Indeed, I had been the victim of my own confirmation bias.

Confirmation bias is the natural tendency to use new information as confirmation of existing beliefs or theories. For more than 20 years, I thought I knew why lawns should be mowed twice a week. In fact, I had that idea only because I hadn’t asked the right questions and had never looked for information to the contrary.

Confirmation bias is at work in all our lives, and very often it colors the way we invest. We have a tendency to create a theory about an investment opportunity, and then we are drawn to content that confirms our theory.

In an article titled “A Behavioral View of How People Make Financial Decisions,” Keith Redhead explains that investors make financial decisions through a series of biases that shape our perceptions and motivations. Once we have a frame of reference for a decision – especially a decision that involves costs – we engage a part of our brain that encourages us to stay with the status quo. According to Redhead, even after we make a decision to move in a different direction – for example, to buy or sell an investment – we might not follow through with that decision because confirmation bias can lead our brains to overemphasize the case against change. This can be very costly for investors!

A great investment advisor will challenge your natural biases and present information that convinces you to consider the alternatives. But simply shedding light on a conflicting point of view is not enough. Once you have decided to make a change, the natural bias toward the status quo will fight against your motivation to implement the change. Your advisor should keep you accountable, ensuring that you carry out the change you decide to make. After all, a plan is only as good as its execution.

Hiley Hunt Wealth Management is a Registered Investment Advisor dedicated to serving women who are responsible for their household investment portfolio. We would love to connect with you to discuss how we can help you meet your financial goals. To learn more about how we work with our clients, please visit hileyhunt.com/what-to-expect.

October 12, 2015

Our Client Bill of Rights: The Four C’s

Written by Andrew Hunt

We believe every client deserves the “Four Cs”when working with a financial advisor:

CONFLICT-FREE
Advisors should always put their clients first – period. As a Fee-Only firm, we never take commissions or sell financial products. Our compensation is not product based and is transparent and easy to understand. As a result, our clients can trust that we have their best interests in mind.

COMPETENT
Clients need to have an advisor who is highly educated on a variety of complex financial scenarios. Jason has a degree in accounting from the University of Iowa and passed the Uniform CPA examination in the state of Iowa. Jason is also a Certified Financial Planner™ and is a member of the National Association of Personal Financial Advisors (NAPFA). What’s more, he completes a minimum of 60 hours of continuing education every two years.

Andrew has earned an accounting degree and a masters in business degree from the University of Nebraska at Omaha. He also earned a certificate in financial planning from the Boston University Institute of Finance. Andrew is a Certified Financial Planner™ and a member of the Financial Planning Association (FPA) & the National Association of Personal Financial Advisors (NAPFA).

COORDINATED
Today’s financial world is complex, and each client presents unique planning requirements. Therefore, we provide coordinated wealth management advice to our clients by analyzing their investments, taxes, estate planning, insurance, education planning, and charitable giving. We also have an extensive network of “related” professionals (accountants, lawyers, etc.) who we leverage when appropriate.

CLIENT-ORIENTED
Although the financial industry is full of numbers, we pride ourselves on developing deep and meaningful relationships with each of our clients. Through these relationships, we are better able to help our clients identify and achieve their goals.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

August 19, 2015

Why do we choose to work with women in transition and women business leaders?

Written by Andrew Hunt

Why do we choose to work with women in transition and women business leaders?

Nearly every day we get some iteration of the question: “I saw on the internet that your firm focuses on working with women – why?”

It’s been our experience that:

  • There is a real need for sound financial advice when experiencing a transition such as the loss of a spouse.
  • We value partnership and collaboration and we have found that many women feel the same way.
  • Women can often be overlooked and underserved in the planning and investment process – our mission is to change that.

HHWM focuses on fostering meaningful relationships and we intentionally limit the size of our practice. We do this because is gives us the ability to be available for each client and to be able to promptly respond to needs. We can actually have a meaningful understanding of the unique situation each client faces.  An added bonus is that we are also more successful in the implementation and execution of our recommendations.

Our role is really to be three things: a coach, a cheerleader, and an accountability partner.

Most people intuitively know how to build wealth – spend less than you earn. It’s pretty straight forward, but where to save and what to invest in can be an enigma. This is where coaching comes in to play. We have to write up the game plan to be able to know which play to run at any given time. That’s our starting role – to coach up our clients to a place where they can articulate the game plan and execute.

If you lost 30 pounds and I ran into you at the grocery store, I would probably say Wow! You look great, keep up the awesome work! That little bit of encouragement might be enough motivation to get you to the gym after a hard day at the office or a night with no sleep.

If you saved $30,000 there is no way I could tell just by looking at you – but that doesn’t mean you don’t need encouragement to keep it up! Our role as a cheerleader is to celebrate those successes with you and give you the extra boost you need to keep up the progress even when it is a grind.

There is nothing like volatile capital markets to make you start questioning your investment game plan. A great accountability partner is the driving voice of reason that reminds you of the goals you set out to accomplish. That partner will also remind you that markets move through cycles – they move up, and move down. Our third role is to be a proactive accountability partner to help our clients navigate the uncertain times.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management . If you have a friend or family member who you think would benefit from working with an advisor who is a coach, a cheerleader, and an accountability partner please don’t hesitate to introduce us!

July 7, 2015

I’m a Single Parent. How Can I Get Ahead Financially?

Written by Andrew Hunt

As a single parent, you need to understand the financial strategies that can stretch your income and help you lay the groundwork for a secure future. Consider the following lessons to help improve your family’s bottom line:

Identify Your Goals

You can’t have a financial plan without first defining your financial goals. Start by recording all of your short-, medium-, and long-term financial goals.

For example, a child’s education could be one of the biggest expenses in your future. Setting aside money for emergencies and planning for retirement are other important goals you’ll need to keep in mind while raising a family. Don’t let day-to-day concerns distract you from such important goals. Plan for today and tomorrow.

Be a Better Budgeter

To pursue your family’s goals, it’s necessary to manage your household’s cash flow. That involves tracking income and spending, eliminating unnecessary costs, and living within the confines of a realistic budget.

For example, if you spend $2 each work day on a take-out coffee, that amounts to about $40 each month. By eliminating that minor expense from your budget, you could easily save almost $500 per year.

Say No to Debt

High-interest credit card debt can make it extremely difficult to get your budget in order. If you have an outstanding balance, consider paying it off as aggressively as possible. The savings in interest alone could allow you to address other important financial goals.

It’s also a good idea to review your credit history, commonly referred to as your credit report, to make sure that the information it contains about your past use of credit is accurate.

Capitalize on Tax-Advantaged Accounts

Once you free up some cash, apply it toward your goals. But first, learn about the savings and investment opportunities available to you. Keep in mind that tax-deferred investment accounts may enable you to grow the value of your assets more significantly than taxable accounts. Examples of such accounts include 401(k) plans and IRAs for retirement planning.

For college goals, Section 529 college savings plans. These plans are state-sponsored investment programs that allow tax-free withdrawals for college expenses. College savers who contribute to their home state’s 529 plan may be eligible for state tax breaks.

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

June 8, 2015

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