By Michael Egan, CFP®
Certified Financial Planner™
Partner, Egan, Berger & Weiner
Since Social Security is a complicated system, it requires a significant amount of planning before you file for benefits. I have spent years studying how it works so that I can best help my clients plan and prepare a proper strategy.
Below are some key points to remember when you are planning your own Social Security strategy. Keep in mind that you should always integrate your Social Security strategy into your overall financial plan. Do not assume that the Social Security office will have all the answers to your questions;, be sure to educate yourself.
1. Social Security is not going bankrupt.
Here’s why: Many people fear that if they do not take their Social Security benefit now, it may not be there in the future. Let’s examine the facts.
The Social Security Trust Fund is still growing. In 2011, total revenues were $805 billion and total expenditures were $736 billion. This means that the Social Security Trust Fund actually grew by $69 billion. The Trust Fund balance as of Dec. 31, 2011, is $2.677 trillion.
The Trust Fund is funded with special-issue Treasury bonds. These are real dollars. And these bonds are paying interest every year. So unless you believe that the US government is going to default on its debt, these bonds have real value. The current projection is that the Trust Fund will be depleted by 2033, if no reform takes place, but note that the estimated Social Security tax revenues after 2033 would pay for 75 percent of promised benefits until 2086.
There will be Social Security reform, but if you’re over 56, there will likely be little to no impact on your benefits.
2. You can actually be eligible for up to three different benefits during your lifetime.
- You can get your own benefit, and/or
- You could get a spousal or a divorced spousal benefit, and/or
- You could get a survivor benefit
While you can claim only one of these benefits at a time, you may actually be better off claiming all three of these during different periods of your retirement.
We do advanced Social Security planning for our clients. It is not uncommon for us to take advantage of all three strategies in order to maximize benefits for a client and his or her family. The proper strategy can mean the difference of several hundred thousand dollars of benefits over a couple’s lifetime.
3. The checks are significant.
Most people think Social Security checks really do not mean that much. They have two big benefits:
- They never run out (you cannot outlive your benefits)
- There is an annual cost-of-living adjustment built into the check
For example: If you were eligible for a $2,000 a month benefit when you retired:
- Over 10 years you would receive $304,000 in checks (not $240,000)
- Over 20 years you would receive $673,000 in checks (not $480,000)
- Over 30 years you would receive $1.16 million in checks (not $720,000)
- A married couple could potentially receive over $2 million in lifetime Social Security benefits if they live into their 90s.
The checks are bigger if you delay taking them and smaller if you take them early. For people born between 1943 and 1954, you receive 100 percent of your benefit if you start to take it at 66. You can take it as early as 62, but then you would only receive 75 percent of your benefit for the rest of your life.
On the other hand, if you choose to delay taking your benefit until age 70, you would instead receive 132 percent of your benefit for the rest of your life. The key point to remember is that though you may retire at 62, you can delay claiming your Social Security benefit until you turn 70.
About Michael P. Egan, CFP®
A founding partner of Egan, Berger & Weiner, LLC Michael Egan has 21 years of experience in the financial services industry. He has been a mutual fund analyst, and an accountant and financial planner.
A graduate of George Washington University with a degree in Finance, Egan hosted a weekly radio show on financial planning in the Washington market. He has also been a presenter on retirement planning for Fairfax County Public School’s Adult and Community Education. Egan is an active member of the Financial Planning Association.
The son of Irish immigrants, Egan and his wife Terri have been married for more than two decades. Originally a native of Connecticut, he and his wife moved to Northern Virginia in 1990. An avid New England sports fan, Egan roots passionately for the Red Sox, Patriots, Celtics, and UCONN Huskies.