For many of my baby boomer client that are close to retirement, calculating their Social Security Benefits is an important part of the financial planning process.  It’s important to have a good understanding of the monthly benefit so that we know which other retirement buckets will be producing the short fall (if any) of their income needed for retirement.  In many of my client situations, the husband has been the primary bread winner, so there isn’t much question on their Social Security Benefit.What does arise some questions is the spouse’s social security benefit.   It can be confusing in situations where the spouse worked some years back, and is not totally sure to how much they paid into social security.

If you are married, you can claim social security benefits based on your history of earnings or you can collect social security spousal benefits which are equal to 50% of your spouse’s social security benefit.  There are several advantages for married couples and their social security benefits, and you have the ability to receive benefits for a longer period of time in some cases.  If you’re a widow, you can also claim social security spousal benefits.

How Social Security Spousal Benefits Work

You have the option of claiming your own social security benefits, calculated from your work record, or claiming up to 50% of what your husband or wife will receive as your spousal benefit, if your husband or wife has filed for social security.  You can’t collect both your own social security benefits and your spousal benefit at the same time.  If you are entitled to both, you’ll receive the larger of the two.

A widow who collects survivor benefits at the normal retirement age (or later) will receive 100% of the deceased spouse’s social security benefit.  If you file for social security spousal benefits between the age of 60 and your normal retirement age, the amount you receive will shrink 71 to 99%.  It’s always better to delay receiving social security benefits for as long as possible to increase the amount you’ll receive.

Early Retirement and the Social Security Spousal Benefit

If you begin collecting the spousal benefit before you reach full retirement age, the benefit is permanently reduced over your life time. Before electing this option, it’s important to understand the implications by having the reduced benefit so early on in your life.

Advantages for Married Couples and Social Security Benefits

If you’re a married couple and can’t afford to postpone receiving your social security benefits, you can use a strategy to help maximize the amount of social security benefits you receive over the long term.  The technique is called the “62/70 Strategy”, and it makes use of the social security spousal benefits.

The spouse who earned less over their lifetime will file for social security benefits at 62 while the higher earning spouse delays his or her benefits until the age of 70 when the maximum benefit will be received.  The higher earning spouse’s benefit will continue to grow.  If one of you should pass away, the smaller social security benefit will die off as well – leaving the survivor with the higher paying benefit.  When the higher-earning spouse reaches the age of 70, you drop the social security spousal benefits, and start collecting the larger benefit of the higher earning spouse.

Widows and Social Security Benefits

If your spouse passes away, you’re eligible for the spousal benefit from the age of 60.

If you begin receiving social security benefits before your spouse passes away, you will continue receiving whichever benefit is greater – your own social security benefit or the spousal benefit – but you can’t get both at the same time.

Need Social Security Assistance?

If you’re having a tough time trying to understand your Social Security benefits, your best resources are to visit www.ssa.gov or call your local Social Security office.  I had an instance where I had a question on Social Security benefits and wasn’t sure who to call.  Knowing no where else to turn, I called our local office and got to someone right away.  They were able to answer my question immediately – and it was a fairly complicated question.   Kudos to them!

photo credit: Leonard John Matthews

Now or Later? When to take Social Security.

Now or Later?  When it comes to when to take your social security, this is a common question that most retirees ask themselves.  And then they ask themselves again.  Then they ask the next door neighbor.  After they ask everybody the know, they are still confused on when the right time is.  Do you take it early?  Or do you wait until you can get the full benefit.   If you find yourself getting ready to ask the cashier at the local grocery store when the right time to take your social security is, don’t.  Let’s see if I can give you solid reasons to take your social security benefits now, not later.

What are Your CD’s Paying?

I know what you’re thinking.  What does your bank CD’s have to do with your social security benefit? I’ll get there in a second.   First, let’s look at 5 year CD rates.  Scouring the net, 5 year CD rates are currently paying approximately 3.5% (as of June 2009).  Now according to the Social Security Administration, the average retiree will be bringing home $1150 per month as their benefit check.  So based on current CD rates, a retiree would need approximately $395,000 to get them the same monthly benefit.  It’s hard to find a secure investment that will give you that same monthly benefit without that much in cash investments.

Obviously, there is concern on the overall strength of the social security program.  But for a recent retiree, they should expect to see those checks deposited for several more years to come.

What About Stocks

Many would argue that right now is an excellent buying opportunity in the stock market (I might be one of them).   But telling a soon to be retiree to look to the stock market for a “secure” investment is like telling Eskimo that he needs to stock up on air conditioners.   I think you get the point.  Value oriented dividend paying stocks have been beat down just as bad if not worse that tech stocks back in 2001-2002 leaving many investors skiddish of the market. A portion of the money would make sense having some stock exposure, but not nearly as secure as getting a social security check from the government each month.

Needing Some Security

Most retirees will look to bonds to be their primary income source in retirement.   But in a year that that saw the strength of corporate bonds in question, government agencies faltering, and many municipal bonds being questioned on how insured they really are, the only safe haven was treasuries.  There was a period that you could make more by picking up a pennies in the street, than could make off treasury yields.   Is that the answer for a retirees source of income?   Opting to take social security at an earlier age will give you a secure income without having to find a safe place for your other investments.

On Second Thought

We all know that the longer you wait to take Social Security the more you make- 8% per year as a matter of fact.  So if you don’t need it, why not just delay taking your social security benefits, right?  Here’s one reason why you might want to take it now.   If you elect to take your benefits at a reduced rate, you can always change your mind and reapply when you reach normal retirement age.  Here’s the catch…..you have to repay all benefits you have received up until that point.  All you have to repay is the principal, though.   There will be no interest accrued.  Not a bad strategy if you don’t need the money and you have no other ordinary income to worry about.  If so, that’s where you have to be careful.  Taking your social security early while your still employed will result in you being taxed on the social security checks you receive.

Social Security Benefit Calculators

Before you elect to take social security do some planning.   Head over to SSA.gov and use their calculators to help you find out what your expected benefit is. Be conscious of the tax circumstances if you are still employed.  After you’ve done all your homework and things appear on the up and up…..Get Ready, Set, Retire.