Like comedy, secret to Social Security is timing

Like comedy, secret to Social Security is timing
Knowing when to apply for benefits can greatly alter what you get
JAN 04, 2012
As boomers retire in droves, advisers need to do a little studying up on Social Security— before they start integrating the payouts into clients' financial planning. These days, just deciding when to start taking Social Security benefits is a strategy unto itself, according to James Robinson, regional director at the Principal Financial Group Inc. Though eligible individuals can start taking payments at 62, those who do so receive smaller lifetime payouts than those who hold off until the age when they are eligible for full benefits, which varies according to when the recipient was born. Those who delay receipt of their benefits could boost their income by 7% to 8%, Mr. Robinson explained. Tthe amount of income shouldn't be the sole determinant, however. While people who take Social Security early will get less in income overall if they live to 100, a client with a shorter life expectancy or a family history that suggests an earlier death may want to consider filing early. “It comes down to, ‘How are you feeling?'” Mr. Robinson told an audience at the 2011 SPARK Forum in West Palm Beach, Fla. Inevitably, collecting Social Security has its own planning hiccups, particularly for boomers who would like to keep working during their retirement. Those who wait to begin receiving payments until reaching full retirement age can continue earning money on the side without any adverse impact on their benefits. If a 62-year-old begins taking Social Security, however, that person can earn up to $14,160 annually. After that, $1.00 will be withheld from that person's benefits for every $2 earned. Meanwhile, if an individual begins taking his or her payments the year of reaching full retirement age, that person can earn up to $37,680. Under that scenario, $1.00 will be withheld from benefits for every $3.00 made — until the month in which the person reaches full retirement age. In short, “don't earn a lot of money if you're going to file early because they're going to reduce your benefit,” Mr. Robinson advised. Spousal benefits can also complicate Social Security planning. Individuals have to be married for at least one year before they can qualify for these benefits, while divorcees must have been wed for a minimum of 10 years. The spouse filing for the benefit must not have remarried. Mr. Robinson presented a pair of strategies for spousal benefits: The “Claim and Suspend” and the “Claim Now and Claim More Later.” “Claim and Suspend” allows one person to begin taking his or her share of spousal benefits and permits the other spouse to suspend payments he or she could otherwise receive to allow the income to grow. The strategy calls for both individuals to be at retirement age and works best if the goal is to only receive some of their Social Security payments. If the person collecting spousal benefits is under full retirement age, the spouse – who must be at eligible for full retirement benefits – will be required to take his or her payments. The “Claim Now and Claim More Later” strategy works if one spouse receives spousal benefits, holds off on his or her own Social Security payment and then reaches an age where that monthly payment is larger than the spousal benefit he or she is receiving. That individual can then claim the larger benefit, Mr. Robinson explained. Of course, benefits are still subject to taxes. Here again, things can get complicated. The sum of an investor's adjusted gross income, their tax-exempt interest, and 50% of their Social Security benefits are considered provisional income. If that provisional income is more than $25,000 for singles — or more than $32,000 for married couples — a portion of the Social Security check will be subject to taxes.

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