Marty DeRouen, The Daily Record Newswire
Social Security benefits are an essential part of most people’s comprehensive financial plan to fund retirement.
One common misconception is a belief that the staff at the Social Security Administration will help you determine the best possible financial strategy for you and your family. Unfortunately, these folks cannot tell you what to do. Their role is to process your paperwork.
I cannot stress enough the importance of doing your homework — and visiting with a financial expert — before you sign on the dotted line at the Social Security Administration office.
Most of my clients have a predisposition to take Social Security as soon as possible. But as I tell anyone who is considering this move, there may be financial advantages to waiting.
Every year you defer your benefits past your full retirement age, your benefit increases by 8 percent each year until age 70. This so-called “delayed credit” can help boost your retirement income over time.
Consider this story about my clients Jerry and Diana. Jerry, 68, retired and immediately took Social Security benefits at age 62. Diana, 62, wanted to “start getting back what she put into the system as early as possible.”
If Diana filed at age 62, she would receive $1,700 per month. If she waited until her full retirement age of 66, she would receive $2,325 per month. Assuming that she would live to age 90, she would receive $159,000 more lifetime benefit if she waited to file at age 66.
How many of us wish we had an extra $159,000 in our retirement years? Think of the family vacations, bucket list wishes and charitable gifts — and health care costs — that could be funded with that kind of income.
When she paused to think about it, waiting to file made a lot of sense for her situation. Diana was in excellent health. Her parents lived long lives. Jerry and Diana had other retirement assets to depend on in the interim. And her husband’s higher age and health history made it less likely that she could depend on his Social Security benefits for decades to come. She decided to defer.
Another common strategy that couples often consider is called “file and suspend.”
One spouse can apply for Social Security benefits, but suspend them. Why, you ask, would you do that? Because the “file and suspend” strategy enables one spouse to take the other spouse’s “spousal benefits” (Social Security benefits that a
spouse is entitled to) instead of applying to receive his or her own benefits. In doing so, some Social Security benefits start flowing in the door – even while they’re both still deferring, and growing their own benefits 8 percent per year until age 70.
The Bipartisan Budget Act of 2015 passed by Congress essentially eliminates the ‘file and suspend’ provisions. The good news is that the change doesn’t go into effect immediately. You can still take advantage of file and suspend through April 30. So, if you’re eligible and are considering doing so, now is the time to take action.
Everyone can benefit from Social Security counseling. The decisions we make are irrevocable, and can have a big impact on our retirement. The goal is to maximize retirement income as much as possible.
To build confidence, consider working with a financial advisor who can help you evaluate your whole financial picture and work with you to develop a plan designed to create steady income that lasts throughout your retirement.
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Marty DeRouen, LUTCF is a Northwestern Mutual Wealth Management advisor in Lake Charles who primarily serves clients throughout Louisiana and Texas. He can be reached at marty.derouen@nm.com.
