The Most Useful and Neglected Social Security Planning Strategies
March 22, 2016 2:32 PM
The Most Useful — and Neglected — Social Security Planning Strategies
Navigating the intricacies of Social Security is no easy task, and there are some nuances that advisors commonly overlook. These oversights can come at a hefty cost to clients.
Click through this handy cheat sheet to see some of the most useful and neglected Social Security planning strategies.
Click through this handy cheat sheet to see some of the most useful and neglected Social Security planning strategies.
The Earnings Test Limit
Don’t forget the earnings test limit.
There are several drawbacks to claiming Social Security benefits before full retirement age. For one, clients may receive a significantly reduced benefit for the rest of their lives. A lesser-known downside: Clients might also be subject to an earnings test if they claim early. That means that half of anything they earn above the earnings test limit of $15,720 could be withheld until they turned 66.
There are several drawbacks to claiming Social Security benefits before full retirement age. For one, clients may receive a significantly reduced benefit for the rest of their lives. A lesser-known downside: Clients might also be subject to an earnings test if they claim early. That means that half of anything they earn above the earnings test limit of $15,720 could be withheld until they turned 66.
Social Security: The Youngest Beneficiary
Grandchildren may also qualify for benefits under certain circumstances. If both parents of the children have died and the children become dependent on their grandparents, they can receive benefits based on the grandparents’ Social Security work history. Great-grandchildren, however, do not qualify.
Social Security: Parents as Beneficiaries
Parents of working children, too, can qualify for Social Security benefits based on a son’s or daughter’s work history. One parent may receive 82.5% of the deceased person’s benefit and two parents can receive 75%. To qualify, parents must be 62 or older, not collect benefits based on their own work history, and have been dependent on the worker when he or she died.
Dont Forget the Kids
Children could receive benefits if their parents are retired, disabled or deceased. Benefits are available to dependent children until they turn 18, but can continue until they are 20 if they are still attending high school.
Clients Should Delay Filing for Benefits
Some clients insist on filing for benefits as soon as they are able, but advisors must illustrate the importance of the annuity-like, guaranteed income of Social Security. There is now a 50% probability than one spouse of a couple who are both 65 will live until at least 92.
Investment Return
Most people will be better off delaying filing for Social Security until as late as 70. For each year between the ages of 62 and 70 that clients delay filing, their benefits grow approximately 8%.
The investment returns clients might forgo by spending down some savings would be very hard pressed to match.
The investment returns clients might forgo by spending down some savings would be very hard pressed to match.
Tune Into the Survivors Program
Social Security's survivors program is closely related to its retirement program. They share funding, the same qualifications and the same Trust Account -- but similarities end there. The survivors program has different age cutoffs and helps a wider range of potential beneficiaries.
Beneficiaries may include children under 19, or even dependent parents 62 or older. In 2013, roughly 6 million people relied upon the survivor program.
Beneficiaries may include children under 19, or even dependent parents 62 or older. In 2013, roughly 6 million people relied upon the survivor program.
Benefits of the Disability Program
Advisors should know the ins and outs of Social Security’s disability benefits program.
There is no minimum age to receive disability benefits. But a client must have worked a minimum number of years in order to be eligible. The minimum number of years worked increases with age from at least 2 years of work at age 30 to at least 9.5 years of work at age 60.
There is no minimum age to receive disability benefits. But a client must have worked a minimum number of years in order to be eligible. The minimum number of years worked increases with age from at least 2 years of work at age 30 to at least 9.5 years of work at age 60.
Clients Emotional Factors
Be ready for clients to take a "bird in the hand" approach when it comes to filing for benefits as soon as they’re able, as opposed to "two in the bush." It's hard to deny the allure and immediate gratification of collecting the earliest possible benefits.
Listen patiently to (and respect) these types of responses from clients. Consciously try not to judge, counter these concerns or respond in any way. Doing so can help a client relax, feel respected and finally, be more receptive to the rational facts you want to present.
Listen patiently to (and respect) these types of responses from clients. Consciously try not to judge, counter these concerns or respond in any way. Doing so can help a client relax, feel respected and finally, be more receptive to the rational facts you want to present.
