Which Social Security Payout Option Should You Choose?

Introduction

When people are considering their options for taking Social Security they often overlook some strategies available to them. In fact, there are actually 20 different possible benefit choices, and an individual should consider each strategy in full before making their final decision. Sometimes utilizing the correct approach can amount to over a million dollars in additional lifetime benefits. Three strategies are often overlooked or never considered; claiming and suspending, restricting Social Security, and investing the benefit amount. Let’s review the three scenarios:

Claim and Suspend

Consider the example of Sam and Sally Sample, ages (66) and (62). To maximize their Social Security benefits it makes the most sense for Sam to utilize the claim and suspend strategy. Once he reaches his full retirement age (66), he can file for his benefits and immediately suspend them. By suspending his benefit he will receive an 8% annual benefit increase until he reaches age (70). However, because Sam filed for benefits at (66), Sally (62) has the ability to collect a spousal benefits based on Sam’s full retirement age benefit. At age (70) Sam will receive the maximum payout for his Social Security. See the table below.

Total Lifetime Benefit

Both Received Benefits 62

Both Receive Benefits 66

Utilize Suspension Strategy

$613,765

$664,822

$723,912

Restricting Social Security

Let’s now consider the restricted application strategy. In this case, Sally takes her Social Security now at the earliest age of eligibility (62) to start her own benefit based on her work history. When Sam reaches full retirement age (66) he will elect to restrict his application with the Social Security Administration, which enables him to receive a 100% spousal benefit (50% of Sally’s benefit). Once Sam reaches age (70) he files for his own personal worker benefit at the higher amount which has been earning delayed retirement credits increasing 8% per year. See the table below.

Total Lifetime Benefit

Both Received Benefits 62

Both Receive Benefits 66

Utilize Restriction Strategy

$613,765

$664,822

$697,656

Reinvestment the Benefits

Sam and Sally are in a great position; they have a pension which will cover their immediate monthly expense during retirement. Even though they do not need Social Security to cover their living expenses, they should still consider the option of taking their benefits early.

In this situation it makes the most sense for them to take Social Security as early as possible and invest their benefit. Even though they will be receiving a reduced benefit, by investing early it will be able to compound for a longer period of time. See the table below representing a 6% return.

Total Lifetime Benefit

Both Received Benefits 62

Both Receive Benefits 66

Utilize Reinvestment Strategy

$613,765

$664,822

$1,306,214

Table Comparison

The table below displays a side-by-side comparison of each option and its total lifetime benefit amount. Be sure to receive an in-depth assessment of your Social Security options when you are selecting your benefit method.

Client Information

Client Name

Sam Sample

Sally Sample

Client Age

66

62

Monthly Worker Benefit

$1,500

$900

Total Lifetime Benefit

Both Received Benefits at 62

$613,765

Both Receive Benefits at 66

$664,822

Utilize Restriction Strategy

$697,656

Utilize Suspension Strategy

$723,912

Utilize Reinvestment Strategy

$1,306,214

Conclusion

Getting the most out of your Social Security should be at the forefront of your mind as you get ready to transition from the workplace to retirement. You have been paying into Social Security all your life; make sure you receive the benefit that you deserve. While we only considered three possible strategies, be sure you consider each of your 20 options before making a million dollar decision. The ages of each spouse and their benefit amounts have a tremendous impact on which Social Security strategy is most profitable. Net Worth Advisory Group’s Social Security Maximizer considers each of these factors, along with your financial plan, to determine which Social Security option is best for you.

About the author

Lon Jefferies, CFP®, MBA
Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is an expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or lon@networthadvice.com. Learn more about Net Worth Advisory Group at http://networthadvice.com and visit Lon's blog at http://www.utahfinancialadvisor.blogspot.com.

2 Comments

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  • I read somewhere that a divorcee can collect on a living ex-spouse’ social security and also the present spouse also collect an equal amount.

    What is the criteria for collecting spousal social security………Can a person who has their own social security also collect on the ex-husband whether dead or alive. All parties are over 70 years old and are retired.

    • Not to sound rude or obnoxious in any way , but if ya know how to work the system, I’ve found that a woman can do anything . I’m a disabled American Veteran and my ex gets almost my whole as check on lies that weren’t checked at all . with 50/50 Custody she gets $ 900 a month because she lied and said that I disappear for months at a time and didn’t pay my support . All they had to do was check ether bank account to see I never missed and I live 200 Yrds from her. Neither one checked and no one tried to contact me based on her lies. They won’t do anything to her for lowing to the fed govt and now she’s trying to get $ 600 more a month from my VA check she told them that she’s had full custody since last year another lie but they’re holding the money out of my check. She’s married and gets half my income all on lies. So this is what I say to you if you can bat an eyebrow and have feminine qualities, You can get anything you want from the govt. unchecked and if he complains . They let itin one ear and out the other. Believe me , I’m living it, and a DAV barely living cause I’m not a woman

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