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May 26, 2009

Post Retirement Social Security Options

ATT00261In a previous article, we covered many of the pre-retirement planning options available under Social Security’s Retirement Income Program.  Inthis article, we will cover three options that are available to those at retirement, or who are already retired and receiving Social Security benefits.

The first option is a “reset”.  Essentially, this is a do over.  Many Americans decide to take early retirement benefits from Social Security. Benefits can begin as early as age 62, but they are substantially reduced. These reduced benefits are then set for life.  Yes, they will still receive annual cost-of-living increases, but these are based on a lower benefit
amount.  For those who regret taking the reduced benefit, they can repay all Social Security benefits received (with no interest) and then reapply at their current age.  To accomplish this, you need Social Security Form 521, “Request for Withdrawal of Application”, and you must repay all benefits received.  Approval is almost always granted.  Once completed, you are entitled to receive the stepped-up monthly benefits for life.  Another plus is your spouse will be entitled to collect the higher spousal benefit and/or survivor benefit for his or her lifetime.

The second option is to “file and suspend” Social Security retirement benefits.  This option allows married taxpayers who retire at different ages to maximize their benefits.  Let’s suppose we have a married couple, Jim and Mary.  Jim is at the full Social Security retirement age (currently age 66). Mary is age 62.  Jim is still working and plans to continue working until age 70.  Jim is entitled, by law, to file for full Social Security benefits and immediately suspend his benefits, thus earning Social Security credits worth 8% per year for a total of 32% more in monthly benefits at age 70. Meanwhile, Mary can file for spousal benefits equal to one-half (1/2) of Jim’s benefits right now.  Since Jim suspended benefits until age 70, he would not only earn 32% more each month, but also Mary could reset her spousal benefit and survival benefit as well.  This technique could generate far more income over their life expectancy.

A third option is the Restricted Application.  This option is for couples where both spouses work and are entitled to their own Social Security retirement benefits.  Let’s look at another couple, Tom and Sue.  They are both age 66 and Tom plans on working until age 70, but decides not to file for Social Security benefits on his own account, but instead, files what is called “restricting an application” to Sue’s Social Security benefit.  Tom would be entitled to receive spousal benefits equal to one-half (1/2) of Sue’s benefit while he continues to earn Social Security credits.  Sue, of course, would be entitled to 100% of her benefit since she has reached her full retirement age.  When Tom retires at age 70, he will be entitled to receive Social Security benefits on his own account, which would include the extra credit equal to a 32% increase in monthly income for waiting until age 70.  This would also mean larger survivor benefits for Sue should she outlive Tom.

Whether or not any of these techniques are right for you will depend on a number of factors.  The most important of which is… you and your spouse’s life expectancy.  All three options are about maximizing Social Security benefits over the long term.  The longer you live, the more these options make good financial sense.  Also, careful consideration of current and future income needs must be taken into account.  Your current assets and risk attitude also play an important role in every financial decision.
Contact your Money Concepts’ financial advisor and review your options.  Get the information you need to know to make an informed, thoughtful decision.

P.S.  Please feel free to forward this article to anyone you think might benefit from it.  Again, we are always interested in visiting with your referrals.  We appreciate our relationship.