Have you noticed what seems like a 10-fold increase in the number of articles on when to claim one’s Social Security retirement benefits? It’s as though we’re witnessing a 2012 phenomenon. The Wall Street Journal, New York Times, Forbes, several financial industry publications, and various consumer-facing magazines and newspapers all have opinions on when individuals or couples should claim their Social Security Income and why. A few companies have even been marketing their Social Security “claiming” guides, calculators and client seminars to address the issue. The goal of all these tools and articles is to help users and readers learn how to maximize the income benefit.
So what’s going on that brings this question to us now? Did we miss something new? Did we forget something old? Did somebody change the rules? The Social Security benefit-claiming question is important, and selecting the optimum age to begin can be very valuable. The much-increased attention to the “claiming question” must be a reflection of client interest in the decision and professional interest in attracting and/or serving clients.
VIEW THE NUMBERS AND WAGE YOUR BETS
The Social Security arithmetic is fairly simple. If you claim Social Security when first eligible at age 62, you receive 75% of the benefit at your Full Retirement Age (age 66 for example). If you defer claiming until age 70, your maximum benefit age, you receive 132% of your Full Benefit. An age 70-claimed benefit is 76% greater than an age 62 early benefit, as seen in the chart below. The decision becomes even more potentially valuable when you consider that the annual retirement income amount is indexed for inflation. The Surviving Spouse’s benefit is also based on the beginning benefit claimed. With this in mind, the decision seems quite simple – everyone should wait until age 70 to claim.
Source: “When to Start Receiving Retirement Benefits,” Social Security Administration, 2012.
We love the idea of higher Social Security checks, but we skipped those first years letting our eventual benefit amount grow. How many years do you need to live to break even and then “beat” Social Security? That answer oversimplified is your Social Security life expectancy. If you (or you and your spouse) can live to life expectancy, you will very probably maximize your benefits. If you then live beyond life expectancy, defined as half die before that age and half live beyond that age, you profit by a higher benefit amount with each passing month.
In the event you are reasonably sure that the primary wage-earner will live to less than normal life expectancy, you want to claim Social Security as early as you can after you retire. Again, that’s the claiming decision oversimplified. Unfortunately, if you have to claim Social Security because you have little or no other income, then this decision doesn’t matter – you do what you have to do. For the majority of our clients, most should wait until the primary wage-earner’s age 70 to claim. If possible, they should rely on other sources of income or other assets until then. The claiming decision is a wager with Social Security, whether you know it or not. Whenever you begin your benefit, you are betting either the “under” or the “over” on life expectancy.
GO ONLINE AND ACCESS VALUABLE RESOURCES
You might purchase a license to use a more detailed Social Security benefit claiming calculator, and some we have seen are pretty good. Some marketing companies or product vendors will let you use theirs if you promise them business. We are looking for such a thing for Creative producers, something accurate, full-featured and reasonably priced. Or, you may want to consider using the Social Security website (http://www.ssa.gov/pgm/retirement.htm). Available at no cost, you can help your clients access their actual Social Security benefit amounts. The site also features a Retirement Benefit Estimate based on each individual client and his or her last year’s income. Open that website and try it out on yourself. It’s the most credible resource for Social Security retirement benefits and can help you frame the client decision accurately. It does not compute the life expectancy calculation, but it does show the history of cost-of-living adjustments year by year since 1975. That might be of interest, too.
Many of you are current users of our Income Maximizer (IMAX) retirement income calculator. As you know, it helps you show clients whether they have enough income to live all the years of their lives. You see the red line if and when they run out of income. You can incorporate the Social Security benefit-claiming information from clients into their IMAX analysis and report. This will help you see the difference between claiming at age 62 or 66 compared to waiting to claim at age 70. Waiting helps some and IMAX shows this now. The longer the clients assume they live, the better the wait-to-claim strategy becomes. If you assume a higher inflation rate for the future, the wait-to-claim strategy also works better.
AN ANNUITY BY ANOTHER NAME
The Social Security benefit-claiming decision is of greater interest today for a number of reasons. Baby boomers are filing for Social Security and, as a result of the last five years, there is great concern about whether they have enough to last. Agents and financial advisors are finding this discussion to be helpful with prospects and clients in opening up the larger income planning conversation. At its heart, the Social Security retirement benefit is a lifetime annuity, single life or joint life. We market lifetime annuity benefits, and this is a direct connection to the bigger lifetime annuity question: “How much more do you need?” Contact your Annuity Sales Consultant for access to your IMAX kit if you haven’t already, and get started helping your clients answer life’s most important questions.