New Tools for Navigating the Social Security Maze


This is the sixth time so far this year that Ive written about Social Security.(1) Heres the opening sentence from my April 4 column:

"One of the most significant financial decisions you will make pertaining to retirement is when and how you will file for Social Security benefits."

Its nice to know Im in good company: Both the AARP and the widely-respected Center for Retirement Research at Boston College recently released resources to help those approaching retirement make the right financial choices. Bad investment and spending choices can result in receiving significantly less income for the rest of your life.

Its no coincidence that an increasing amount of attention is being paid to this topic. Its certainly not because the rules for collecting Social Security have recently changed. (They havent.) Id also argue that its not because the financial status of the system continues to deteriorate-- that shouldn't be a surprise to anyone. Anyone who at any point in the past 15 years looked at the math and assumptions involved in this program would have seen this coming. In my opinion, the reason the spotlight is focusing on how retirees can maximize their Social Security benefits comes down to demographics. In other words, its personal.

As we saw with Gerber baby food, hula hoops, Levi's, minivans and the myriad of other examples, when something gets the attention of the huge and influential Baby Boomer generation (of which I am a member) that issue jumps to center stage.

This year, 75 million Americans--born between 1946 and 1964-- are between 47 and 65 years old; in other words, they are either beginning retirement or beginning to prepare for it. As a result, Social Security is no longer some theoretical government income program that their parents or grandparents rely on, its suddenly very, very real to boomers themselves.

If youve never been married, the decision as to when to begin receiving Social Security is straightforward and essentially based upon your individual financial situation: If you start when you reach your Full Retirement Age (FRA) in year No. 1 you will receive 100% of the amount youve earned. Each year thereafter your annual benefit will be adjusted for inflation.  If you file for benefits any time prior to your FRA (the earliest age being 62), youll receive less; for each year between your FRA and age 70 that you postpone the start of benefits, the amount goes up.

The decision to when to begin receiving Social Security essentially comes down to whether you need the money. If youre single, no longer working and dont have other sources of retirement income, you obviously need to start getting benefits right away.

However, when you throw marriage or divorce or widowhood into the equation the decision gets exponentially more complex. Are you better off claiming a benefit based on your own work record or should you opt for a spousal benefit thats based on your current/former/dead spouses employment history? If you start out with one option, under what circumstances can you switch to the other- if at all? Assuming youre married, is it better for one spouse to start collecting at age 62 and the other wait until age 70 when his/her benefit will be significantly larger? If so, who starts early and who waits? Or should you both file when you each hit your full retirement age?

Social Securitys web site is one of the best sources of information the federal government offers, but while it provides the rules, it wont direct you to the most advantageous collection strategy. In addition, the terminology isnt always as clear as youd hope.

AARPs new Social Security Benefits Calculator is a big step in the right direction. By answering a few basic questions, it will tell you the approach that will likely result in the biggest lifetime benefit--even if you are or were married. In addition, you can personalize it by entering your projected benefit amount from the letter Social Security sends each you each year just before your birthday.

AARPs agenda is straightforward: barring financial or serious health issues, the organization thinks its in your best interest to work as long as you can--the longer you wait to start collecting, the larger your check. It offers guidance, says Jean Setzfand, vice president of financial security for AARP. "It illustrates the benefit of waiting to claim.

The program takes you through a series of screens that illustrate how the age at which you begin receiving Social Security affects the size of your check. If you are or were married, based upon the income that you and your spouse each earn, it tells you at what age you should each file, and whether one of you should file based on your own or your spouses work history.

If you start benefits before reaching your fill retirement age and continue to work, theres also a screen that shows you how much your Social Security benefit will be reduced. However, since you dont really lose this money, it also illustrates how much more you will receive once you hit your FRA and the benefits that were withheld are returned.

In the case of me and my husband, we were advised to have him start Social Security and immediately suspend his benefit when he reaches age 67. Since I would be age 66 (my FRA) at that point, that would enable me to claim a full spousal benefit. Then wed both wait until age 70 to file/re-file for benefits based on our own individual work records. Thanks to the delayed retirement credit wed both receive significantly more income.

The calculator isnt perfect. It doesnt let you try out all of the potential scenarios you might want to consider as a married couple. But hopefully, these will be added at some point in the future. But its a start. And for now its the best free Social Security claiming calculator available. Anywhere. Hands down.

I say Bravo!

Before you tackle it, I strongly suggest reading The Social Security Claiming Guide written by the folks at the Center for Retirement Research. Not only does it cover a few more issues than the calculator, together these two resources reinforce the importance of carefully choosing when and how to begin your Social Security benefits and will help you make a more informed decision.

Past Social Security articles:

Not All Retirement Dollars Are Created Equal- Feb. 21, 2011Social Security: Its All in the Details, Boomers- Feb. 28, 2011Cashing in on Your Successful (Ex)Spouse- March 14, 2011Getting [Seriously] Creative About Creating Retirement Income- March 21, 2011

Thinking of Filing for Social Security as a Spouse? Read This First- April 04, 2011

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

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