During a recent trip to New York City, I met with the Executive Vice President of a Fortune 500 company. As we talked about business and finances, she mentioned that she was taking the spousal benefit for Social Security. Curious, I asked how she knew about this benefit. She shared that she had read about the strategy, but when she approached two separate financial advisors about it during the past year, neither knew what she was taking about.
How is it that a 65-year-old women, working the last 45 years in a line operating role, knows to take the Social Security benefit, while two financial advisors did not?
Baffled by the lack of initiative the two financial advisors showed, I believe that if you take the time to understand Social Security benefits, not only will your clients benefit, but so will your business. Let’s face it, financial advisors (YOU!) provide vast insight for your clients about everything from taxes to college funding to mortgage plans. Why not incorporate one of the biggest factors in retirement planning?
Here’s the quick and easy with Social Security spousal benefits. Specifically, married couples can get more in Social Security payments by coordinating how and when they each begin collecting benefits. As a financial advisor, you are in the position to teach your clients how to optimize their Social Security benefits, when they should apply, and what the best strategies are to maximize the annual income and/or max out the cumulative benefit. There are hundreds of combinations, and every individual or couple must be analyzed separately. For the purposes of simplicity, let’s look at the “Claim Now, Claim More Later” approach, a strategy devised by the The Center for Retirement Research at Boston College.
To understand this strategy, let’s use the following example. A husband is currently 70 years old and retired, and his wife is currently 65 and working. They both maxed out their Social Security contributions during their working careers. Please note: in general, both spouses have to be at least 62 to use “Claim Now, Claim More Later” strategy.
If the husband is already registered and of full retirement age (FRA), his wife can begin claiming half of her husband’s benefit. By taking her spousal benefit now, the wife can allow her own Social Security worker’s retirement benefits to continue to grow (by roughly 8% each year) until she reaches the age of 70, at which time she can begin taking her maximum benefit.
Do you understand what’s happening here? Instead of claiming benefits based on her own earnings, the wife can claim half of her spouse’s benefit; her maximum amount would be half of what’s called the spouse’s primary insurance amount (PIA), which is the benefit when full retirement age is reached (age 67 for individual born in 1960 or later; go to the Social Security Administrations Retirement Calculator to determine full retirement age as well as run scenarios to maximize Social Security benefits).
If done correctly and at the proper ages, the person receiving the spousal benefit can still be entitled to her full benefit at a later date. And claiming the spousal benefit does not reduce any benefit being claimed by the other spouse. Married individuals are allowed to begin claiming Social Security spousal benefits as early as age 62. However, if the benefits are taken before the initial spouse reaches full retirement age (i.e. the spouse receiving standard Social Security worker retirement benefits, not spousal benefits), the amount will be reduced.
The plan achieves maximum benefit if the husband is age 70 and the wife in our example waits until age 66 to claim Social Security spousal benefits. Under this approach, the wife could collect half of her husband’s PIA and still continue working if she chooses. At age 70, she can then stop receiving spousal benefits and begin claiming her own maximum Social Security worker’s retirement benefit based on her earnings record.
As you can see, establishing yourself as a Social Security expert allows you to create value for your clients. You are helping them, teaching them and guiding them, while building value for your own practice.
Homework: Learn more about Social Security spousal benefits on the following websites and be prepared to advise your clients more effectively: