Social Security Benefits: When and How to Take Benefits

by: Smith and Howard

April 24, 2014

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Retirees and those working hard to get there all face three major threats to a financial well-being in their golden years: inflation, investment risk and outliving their money. Luckily, most working Americans will be covered by an excellent tool for combatting all three threats: Social Security. Retirement benefits from Social Security provide guaranteed income that continues for life and increases each year as the costs of living increase. This protection makes it one of the most valuable sources of income in retirement, but still requires careful planning to properly implement and realize to its fullest potential. With 2,728 rules governing benefits in the Social Security Handbook, there is significant complexity involved with when and how to take retirement benefits, but also significant opportunity for creative careful planning.

At the most basic level, proper planning hinges on whether to begin receiving benefits as early as age 62 at your “Full Retirement Age” (typically around age 66 or 67), or as late as age 70. Taking benefits at your full retirement age provides your Primary Insurance Amount, or normal retirement benefit. Starting early at age 62 gets you a reduced benefit of typically 70% – 75% of your normal benefit, while waiting to age 70 earns you a permanently increased benefit of 132% of your normal retirement benefit.

The decision seems fairly straightforward – consider factors such as health, financial need, marital status, and other retirement savings and either commence receiving benefits or wait until later.

However, if you are married or have been married, there is a much more sophisticated puzzle to work through with thousands of different benefit receipt options. The primary objective is to maximize the total income received over both your lifetime and your spouse’s lifetime. Social Security rules allow for various methods receiving benefits not only on your own work history record, but potentially on your spouse’s or ex-spouse’s record as well. There are several methods of structuring benefits to maximize total lifetime payouts, but they are not well-known or understood. Moreover, guidance from the Social Security administration on optimal ways to take benefits is slim to none.

Smith and Howard Wealth Management’s financial planners have guided numerous clients through the maze of options available in taking Social Security retirement benefits. Using sophisticated tools and analysis, we work with individuals and couples to develop a strategy that achieves the maximum lifetime benefit and complements your overall financial plan and retirement goals.

Each day over 10,000 people reach retirement age and many will use little more than a gut feeling to decide when and how to take Social Security retirement benefits. Like most Americans, you have probably spent the majority, if not all, of your career paying into the Social Security system. In fact, it may end up being one of your largest financial assets in retirement. Therefore, you owe it to your spouse and yourself to maximize the benefit that you will receive from the system. When and how to receive Social Security benefits is one of the biggest financial decisions you will make, so we urge you to seek guidance in making this important decision.

Please contact either a Smith and Howard Wealth Management professional at 404-874-6244 or your tax/financial planning advisor prior to taking any action. We will be happy to meet with you to review your situation.

Copyright 2013 Smith and Howard Wealth Management, LLC (“SHWM”). All references in this publication referring to our average allocation or “typical portfolios” reflect those of the fully discretionary accounts of clients with moderate risk profiles. Actual client portfolios are tailored to individual client circumstances and asset allocations may vary. Any reference to returns reflect the performance of asset classes, are for illustration purposes only, and do not reflect the returns of any specific investment of Smith and Howard Wealth Management. No representation is made that any investment decisions discussed herein have been profitable in the past or will be in the future. Past performance is no guarantee of future results. A list of all recommended investments is available upon request.

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