One of the most important factors of retirement planning is how to maximize your largest retirement “asset” – your Social Security benefit. Making the wrong choices at the wrong time can cost you tens, perhaps hundreds of thousands of dollars over your retirement lifespan.Despite – or perhaps because of – a huge amount of information available, most people are confused about how all the variables and calculators affect how much money they will be able to draw and when they can draw it. Some of those variables include your health, other investments, income, taxes and how your spousal benefits (if any) are coordinated.Of course, the biggest variable in people’s minds is the question of whether Social Security will continue to exist in the first place. For current retirees or those very close to retiring, this is not as much of a concern. There will be plenty of assets and inflows available in the near term to meet existing beneficiaries’ payments. Cutting current retirees’ benefits is politically improbable. However, if you are now about age 50 or younger, this becomes a serious question. House Minority Leader John Boehner is working on raising the retirement age to 70 for those 20 or more years from retirement. Other proposals include indexing the retirement age to life expectancy. Congress may also choose to take a page from Colorado PERA’s playbook and limit future inflation-based cost of living adjustments.Regardless of your political views, effective retirement planning focuses on factors YOU can control. The first of those factors is at what age to start receiving benefits.The earliest age benefits may be claimed is 62. If benefits are begun immediately, you receive a lower amount of money per month – but for a longer period of time. The longer you delay taking benefits, the more you will earn each month once you do start.Let’s assume Dan is 62, and is considering whether to start taking his early retirement age benefits. If he starts claiming immediately, he will receive $1,800 a month. If he chooses to delay until age 70 and live on other assets or income resources in the meantime, he will pull $3,850 per month. If Dan lives until exactly age 78, it will not matter whether he started early or later. That is his “break-even age.” If he lives to his life expectancy of 83, he will have lost $125,000 by starting benefits early. While many people are strongly tempted to start taking Social Security benefits early, your risk is living “too long.” If you have any family history of longevity, or are rather healthy yourself at 62, taking benefits early is a losing bet.The other factor you can control is making informed decisions between spouses or former spouses. In the case of widows or widowers, if the deceased spouse had a significantly higher benefit amount, the surviving spouse may be better off starting his or her early retirement benefit at age 62 and waiting to take the spousal benefit of the deceased spouse at full retirement age. If the survivor takes the deceased spouse’s benefit at 62, they lose out on receiving the much higher full retirement age benefit. Over time, that could add up to a huge amount of lost income.In the case of living married couples: If the older spouse has a higher lifetime average income, there is a huge incentive for the older spouse to continue working until the younger spouse is at full retirement age. For divorced spouses of marriages lasting 10 years or longer, the ex-spouse with the lower Social Security benefit should avoid getting remarried if close to retirement age and their new significant other has a lesser Social Security benefit. Similarly, if you have been unhappily married 9.5 years to a spouse with a much higher expected benefit, you might suggest your attorneys drag their feet a bit on the divorce paper work until your 10th anniversary. Callous? Perhaps, but maybe that’s why I’m a financial planner and not Dr. Phil.As you can see, there is much more to Social Security benefits than proudly marching down to the North Academy office on your 62nd birthday. Misinformed or ill-timed choices at retirement and even earlier during your working years can cost you. To evaluate your individual situation, contact your trusted advisor or CPA.Jason Gray owns GoalView Advisors, a Registered Investment Advisory firm in Falcon. He is a Falcon resident and serves as chairman of the board for the Eastern Plains Chamber of Commerce. He can be reached at 719-439-2054 or jason.gray@goalviewadvisors.com.
