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Electing Delayed Social Security Retirement Benefits

July 23, 2011

John Jastremski Presents:

 

Electing Delayed Social Security Retirement Benefits

 

Definition

You can elect to delay receiving Social Security retirement benefits past normal retirement age.

Prerequisites

You want to optimize your Social Security retirement income and:

  • You are at least normal retirement age
  • You are fully insured for retirement benefits
  • You have applied for delayed retirement benefits by contacting the Social Security Administration

Key Strengths

  • Your retirement benefit will increase
  • Your surviving spouse’s benefit will increase
  • Unique Strategy: Your delayed retirement credit isn’t counted toward your family maximum

Key Tradeoffs

  • Even though your monthly benefit will be higher, your lifetime benefit may be lower
  • The delayed retirement credit won’t increase benefits paid to most family members

Variations from State to State

  • None

How Difficult Is It to Implement?

  • For information on how electing delayed retirement benefits will affect you, you can order aSocial Security Statement from the Social Security Administration.
  • To apply for delayed retirement benefits, contact the Social Security Administration two or three months before the date you wish to begin receiving benefits. Visit a local office or call (800) 772-1213.
  • For investment options or retirement planning advice, contact a financial professional.

What is it?
You can elect to delay receiving Social Security retirement benefits

You can choose to delay receiving Social Security retirement benefits until you are past normal (full) retirement age. Perhaps you want to work longer because you enjoy it, or maybe you want your retirement benefit to be higher when you finally do retire.
Your benefit will be increased by the delayed retirement credit

If you are eligible to receive Social Security retirement benefits but you delay receiving benefits until after normal retirement age, you will be eligible to receive the delayed retirement credit. The delayed retirement credit increases your retirement benefit by a predetermined percentage of your primary insurance amount (PIA) for each month you delay receiving retirement benefits up to the maximum age of 70. The amount of the credit you receive depends upon two factors:

  • What year you were born
  • How many months you delayed receiving retirement benefits past normal retirement age

If you were born in 1943 or later, you will receive 2/3 of 1 percent more per month or 8 percent more per year if you delay receiving retirement benefits. So, for example, if your normal retirement age is 66, and you delay retirement until age 70, your benefit at age 70 will be 32 percent more than it would be at age 66. If your normal retirement age is 67, and you delay retirement until age 70, your benefit at age 70 will be 24 percent more than it would be at age 66.

Tip: Although the delayed retirement credit increases your Social Security retirement benefit, it does not increase your PIA.

Tip: If you have reached full retirement age but are not yet receiving benefits, you can apply for benefits, then immediately request to have those payments suspended so that you can continue to earn delayed retirement credits. This may enable an eligible spouse to collect benefits on your earnings record.
When can it be used?
You must be eligible to receive delayed retirement benefits

In order to receive delayed retirement benefits, you must meet the following criteria:

  • You must be at least one month older than normal retirement age, and
  • You must be fully insured for retirement benefits (in most cases have 40 quarters of coverage).

You must apply for benefits

Receiving delayed retirement benefits is not automatic. You must apply for benefits when you want to begin receiving them. The Social Security Administration (SSA) recommends that you contact an SSA representative two or three months before you want to begin receiving benefits. You can call the SSA at 1-800-772-1213 for more information.
Strengths
Your retirement benefit will increase

If you continue to work past normal retirement age and delay receiving Social Security retirement benefits, you may increase your retirement benefit in two ways. Not only will you receive a delayed retirement credit, but your earnings after normal retirement age may be substantial enough to increase your average indexed monthly earnings (AIME), upon which your benefit is based.
Your surviving spouse’s benefit will increase

If you elect to receive delayed retirement benefits, then die, your surviving spouse (at normal retirement age) may receive 100 percent of the benefit you were receiving. Therefore, if your spouse has a life expectancy substantially greater than your own, you might consider delaying retirement so that your spouse may receive a higher benefit after you die.

Example(s): Mrs. Sprat died of a heart attack at age 71. She had been receiving a monthly delayed retirement benefit of $1,320, which was composed of 100 percent of her primary insurance amount (PIA) ($1,000) plus a 32 percent delayed retirement credit ($320). Therefore, her 66-year-old surviving husband received a monthly retirement benefit equal to 100 percent of the benefit she was receiving at the time of her death. Had Mrs. Sprat retired at her normal retirement age of 66, however, her husband’s survivor’s benefit would have been only $1,000.
Your delayed retirement credit isn’t counted toward your family maximum

When you retire, your family may be eligible to receive benefits based on your PIA. These benefits may be limited by the family maximum, which generally ranges from 150 to 180 percent of your PIA. However, if you delay receiving retirement benefits, your delayed retirement credit won’t count toward your family maximum and can be paid whether or not your family’s benefits are limited by the family maximum.
Tradeoffs
Delaying retirement won’t necessarily increase your lifetime retirement benefit

Just because you receive a higher monthly benefit when you delay retirement doesn’t necessarily mean you’ll receive a higher overall lifetime benefit. If you delay receiving retirement benefits, the amount of each benefit check will be higher, but you’ll receive fewer benefit checks than you would have if you begin receiving retirement benefits at normal retirement age. How many fewer checks you receive will depend upon how many years you delay receiving retirement benefits.

For example, assume the following facts apply to you:

  1. You delay retirement by 4 years, and retire at age 70 instead of at age 66, making you eligible for an 8 percent delayed retirement credit for each year you delay retirement. You will receive 48 fewer benefit checks.
  2. Your PIA is $1,000, so if you retire at age 66, your annual benefit will be $12,000. If you retire at age 70, your monthly benefit will be increased by $320, so your annual benefit will be $15,840.
  3. Assume that even if you’ve saved or invested all or part of your benefits, your real rate of return is 0 percent.

Using these factors, it would take you more than 12 years from the time you retire at age 70 to reach the point at which your benefits would crossover with the amount you would have accumulated if you began receiving benefits at age 66 (does not take into account annual cost of living increases):

By this Age Accumulated Benefit if Retirement Age is 66 Accumulated Benefit if Retirement Age is 70 (32% credit has been earned)
70 $ 48,000 $0
76 $120,000 $95,040
82 $192,000 $190,080
83 $204,000 $205,920

If you were to die before reaching this crossover point, your lifetime benefits would be lower than if you had retired at your normal retirement age. Conversely, if you were to die after reaching this crossover point, then your lifetime benefits would be higher. That’s why life expectancy is one of the factors to consider when deciding whether to delay receiving Social Security retirement benefits.
The delayed retirement credit won’t increase benefits paid to most family members

When you earn the delayed retirement credit, your retirement benefit will increase. However, because the delayed retirement credit doesn’t affect your PIA, benefits that are paid to family members won’t increase (unless you die, at which time your surviving spouse may receive the same benefit you were receiving).

Example(s): Adam’s PIA is $800, and he is eligible to receive a delayed retirement credit of $24 when he retires at age 68, so his total retirement benefit will be $824. When his wife, Eve, retires at normal retirement age, she will receive a monthly benefit equal to 50 percent of his PIA, or $400. However, she will receive no extra benefit because Adam delayed his retirement.
How to do it
Decide whether you want to delay receiving retirement benefits by comparing your options

Order a Social Security Statement from the Social Security Administration (SSA) that will estimate your benefit if you retire at your normal retirement age or at a later age. You can also estimate your benefit at any time by using the Retirement Estimator available on the SSA’s website (www.ssa.gov).
Consider the following questions before making your decision

  • Why do you want to delay receiving retirement benefits?
  • Can you afford to delay receiving retirement benefits, or do you need Social Security retirement income as soon as possible?
  • Do you expect to live long enough to benefit from delaying your retirement benefits?
  • How important is it to increase the amount of survivor income available to your spouse?

Apply for delayed Social Security retirement benefits

Two or three months before you’re ready to retire, fill out an application for benefits with the SSA.

Tip: Don’t forget to apply for Medicare benefits at age 65. See Questions & Answers.
Tax considerations

If you continue to work past normal retirement age, you will continue to pay Social Security or self-employment tax on your covered earnings. Even though your earnings may increase your AIME (and thus your retirement benefit), you may not be able to recoup those payroll taxes.

Questions & Answers
If you delay receiving Social Security retirement benefits, can you still receive Medicare at age 65?

Yes. Anyone age 65 or older who is entitled to receive Social Security benefits is eligible to receive Medicare, even if he or she has not yet filed an application for Social Security benefits. However, enrollment in Medicare is automatic only for individuals who apply for Social Security retirement benefits at age 65. If you elect to delay receiving retirement benefits, remember to apply for Medicare benefits when you turn 65.
Can you delay receiving Social Security retirement benefits until you’re 71 or older?

Yes, but there’s no advantage to waiting longer than age 70 to begin receiving Social Security retirement benefits. You can earn the delayed retirement credit only up until age 70. In addition, if you want to work, any money you earn from working after age 70 won’t decrease your Social Security retirement benefit. So why wait?

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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