Maximize the Social Security Income Election for your Clients

The clients of Accountants, Tax Professionals, and Financial Advisors increasingly continue to ask for guidance on how to best take their Social Security income election. This issue has become very important to baby boomers for many reasons. Pre-retirees and early retirees are now living longer than previous generations. Also, there has been a shift away from defined benefit plans (i.e. pension plans) to self-retirement funding. Financial market forces, such as low interest bearing accounts, real estate devaluation, and a flat stock market for the past 10 years, also make the Social Security income election much more important.

The Social Security income election decision may be one of the most important financial decisions your clients make in their lifetime. Singles, and especially couples, can miss opportunities to collect hundreds of thousands of dollars of additional income over their lifetimes when they make poor Social Security income election decisions. By applying little-known, yet creative claiming strategies, your clients may be rewarded with significant additional lifetime retirement income.

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In this snapshot report, we highlight three important strategies:

#1: when you claim social security, get it right the first time

The Social Security Administration implemented a very important rule change, effective December 8, 2010, that places a limited timeframe constraint for when you can fix and re-do your Social Security Income election. You now have only 12 months from the date you file your claim to choose a more favorable election method.

Prior to December 8, 2010, anyone who had been receiving Social Security income—regardless of when they filed—could pay back the income they had received and re-elect their Social Security income choice. Effectively, these folks were receiving an “interest-free” loan from Social Security, and the government decided to put an end to this loophole.

What does this important ruling mean? You should now be more diligent than ever when choosing how and when to take your Social Security income.

#2: Understand the Impact of Claiming Social Security too Early

Research studies indicate about half of all Americans file during their first year of eligibility—typically age 62. Unfortunately, for a good portion of these folks, this could be a costly mistake. Filing early could mean forgoing thousands of dollars, and in some instances (especially with couples), over a hundred thousand dollars of their total lifetime income stream.

If you decide to claim your benefit early at age 62, you will receive a smaller check for a longer period of time. If, however, you claim later at 66 or 70, you will receive a larger check for a shorter time period. Ages 78 to 80 are often called the break-even age.

#3: If Married, Harness Your Living Spousal Income Benefit

Married couples, in particular, can employ creative strategies to maximize their lifetime Social Security income. To do this, you must pay close attention and learn the rules. For example, you should consider the often overlooked, yet powerful benefit, called the “spousal income benefit.” Understanding how this benefit works and correctly applying it in Social Security income planning can be a significant generator of additional income for a couple.

For example, a spouse with a low earnings history, or a spouse who never worked, can collect up to one-half of the primary earner’s (i.e. spouse with the highest benefit) Social Security income. Had this lower-earning spouse filed on his/her own record, he/she might receive very little, and in some cases, no Social Security income.

Also, very few Social Security claimants—as well as many financial counselors—are aware you can switch from the spousal benefit to your own benefit or vice-versa. Properly activating and timing the spousal income benefit is an important part of maximizing Social Security income.

Your client’s Social Security income election might be one of the most important money decisions made in his/her lifetime, so you will want to do everything possible to help your client get it right!

Register for your complimentary Social Security Income self-study course (2 CPE hrs)



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