Social Security for Two: CPA Personal Financial Advisers Should Run the Numbers on Social Security, and for Their Married Clients, That Goes Double

Article excerpt

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EXECUTIVE SUMMARY

* Part of the consideration of whether to claim early Social Security retirement benefits, for married couples, should be the effect on a lower-income surviving spouse later, after the primary wage earner's death.

* Early benefits also are smaller than at full retirement age (FRA), and significantly lower than delayed retirement at 70, when maximum benefits are reached, to compensate for the likely longer benefit period.

* Spouses can collect the greater of the amount credited for their own earnings or that of their spouse. The "file and suspend" strategy permits a lower-income spouse to collect spousal benefits when the higher-income spouse is postponing benefit collection. The postponement permits the higher-income spouse's benefits to grow while accruing delayed retirement credits and cost-of-living adjustments.

* An effective strategy for many couples is for the higher-income spouse to delay benefits until age 70, and for the lower-income spouse to file early for his or her reduced benefits, of which the higher-income spouse can also collect 50% beginning at FRA.

* A little-known strategy permits a worker who commenced collecting benefits early to re-evaluate and file a new application to collect higher benefits based on his or her older age. Benefits collected are repaid without interest. A tax benefit can be realized for any income taxes paid on the previously collected benefits.

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CPA financial planners are often confronted with the question, "When should I start collecting Social Security benefits?" For married couples, the question should be asked in the plural.

Current financial needs and expected life span may be paramount considerations for a single person. However, the implications of when to begin receiving benefits (and on which spouse's work record) for spousal and survivor's benefits not only introduce key points for every married couple to ponder but also create additional strategic opportunities for financial security in their golden years together.

Many couples don't seem to be approaching the question in the most prudent way It has been noted, for example, that many married individuals who earned higher wages than their spouses begin claiming Social Security benefits at age 62 or 63, prior to full retirement age (FRA). The Senior Citizens' Freedom to Work Act of 2000 has made it more advantageous than under prior law for married individuals who earn more than their spouses to postpone claiming benefits. A significant provision of the Act is "file and suspend," which permits spouses to collect spousal benefits when the primary worker is postponing the collection of benefits. Married retirees are often unfamiliar with this provision, and the strategy is underutilized by financial planners.

Furthermore, higher-income spouses often claim Social Security at an age that significantly decreases the couple's combined benefits, as well as their spouse's prospective survivor benefits. A 2007 study, "Why Do Married Men Claim Social Security Benefits So Early? Ignorance or Caddishness?" by Steven A. Sass, Wei Sun and Anthony Webb for the Center for Retirement Research at Boston College, concluded the reason was a lack of financial awareness. By educating clients about the full range of Social Security benefits considerations, including marital ones, financial planners can help them make the wisest use of this valuable retirement resource.

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EARLY OR LATE?

Individuals may start collecting Social Security retirement benefits at age 62, but their benefits are reduced by a fraction of a percent for each month remaining before their FRA. Individuals can collect 100% at their FRA (age 66 for those born between 1943 and 1954). If benefits are delayed beyond FRA, the benefits increase until age 70. The Social Security Administration (SSA) Web site, www. …

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