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Social Security 101

Social Security 101

| November 06, 2020
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Social Security plays an important role in your retirement strategy. But, don’t forget,  the amount you’ll receive depends on the age at which you file and your (or your spouse's) highest 35 years of earnings. You can start claiming benefits as early as 62, but for each month you delay past your full retirement age you’ll receive a bonus.  Currently, the maximum you can delay and earn credits is age 70.  My guess is the government will eventually allow further delay because people are living longer and they recently changed the RMD age to 72 (for people not required to collect under the old law which was 70.5).  

Why should Social Security matter to you?   If you are in the tristate area (especially in counties like Westchester County, Putnam County, Rockland County, Nassau County, Suffolk County, New York County, Fairfield County and Bergen County), costs are constantly rising.  The COVID-19 related exodus from Manhattan has put further upward pressure on housing prices (combined with low interest rates) in places as far north as Woodstock!  I grew up in Somers, NY, a small town one hour north of Manhattan.  Prices in Somers, Katonah, and Yorktown have skyrocketed due to all the demand from Manhattan and work from home being implemented.  So how does this tie into Social Security?   Life in the suburbs is not getting cheaper, and every dollar extra that you will receive will potentially help cushion your retirement income.

Common mistakes people make when filing Social Security - 

Spousal Benefits - You can claim half or your spouse's benefit if your spouse's benefit is more.  If your spouse delays his or her benefit, you will earn half of the higher benefit upon the spouse's filing.

Divorce Benefits - If you were married or at least ten years and you are divorced for two continuous years, you can claim half of your ex's benefit.

Methods and Benefits of delaying social security income - Many people I speak with say, "Why would I wait until after full retirement age to collect?  What if I get sick?"   If you want to delay filing until after full retirement age and earn credits (up to age 70), you can file and suspend.  File and suspend means that you filed for Social Security, but you are not taking the income, and therefore earning the credits.  If you do become ill or need the money, you can call Social Security and they will send you a check for the lump sum starting from Full Retirement Age.  In addition, if you do wait until 70 to collect and you pass away, your spouse will receive the higher income for the rest of your spouse's lifetime.  This becomes even richer because Social Security makes COLA or cost of living adjustments, so the percentage increase in benefit will be increasing on a much larger amount.

Do some research, work with a financial planner you trust, or give me a call, 914-767-0974.  Most planners, including myself, have technologies that will calculate various filing scenarios, life expectancy scenarios, and the extra income you could earn if you do live long.   Find out the breakeven, the age at which filing later pays off.   One age that I find often with my client is 78.  If you have longevity in your family, or do not need the funds (still working, other sources of income), it may make sense to wait.  Think of Delaying as a deferred income annuity, but instead of earning the paltry 1-2% per year offered by the insurance companies, your federal government is crediting you 8%!   And lastly, don't fall into the annuity trap.  A slick salesman will tell you that the annuity guarantees 6% and you can make much more from the growth of the investment than you will with Social Security.  They will tell you to take Social Security early and buy and annuity and it grow instead.  Annuities with Guaranteed Income riders tend to have higher fees, restrictions about how and when you can take the funds, high  early termination fees, and limited investment options.  Annuities can be a great part of a financial plan when used properly, especially for people with little or no pension or social security, but annuities are often sold as THE FINANCIAL PLAN rather than a part of the plan.

Do your homework, or have a trusted advisor or planner do the homework for you. Ask lots of questions, and the ssa.gov website is also a great resource.  Your local Social Security office is another great resource.

Have a great weekend.



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