Articles | The Weekly Acorn
These helpful articles are provided weekly to the clients we serve.
Retirement Readiness: Part 4
Social Security
PAs requested, the client (we'll call him Jim) had brought all of his 1099s, W-2 forms, and other miscellaneous tax information to his annual income tax appointment. The CPA went through the various items without comment until he came across a form 1099-SSA indicating that the client had received social security benefits during the year. Surprised, he asked Jim why he had elected to start taking benefits this year. Equally surprised at the question, Jim said, "All my friends took their benefits at age 62, so I thought that it was the thing to do. Wasn't it a good idea?"
"Actually, Jim it wasn't a good idea. In fact, it was a terrible idea, and it's a little late to ask me now, don't you think?" mused the accountant to himself.
The problem here was that Jim was still working full time, and under the rules then in effect, he had to pay back every penny he had received! Worse, he was now permanently stuck with a benefit that was lower than it could have been if he had held off collecting until he stopped working.
So, what went wrong here? That's easy. Jim failed to get professional advice concerning his UNIQUE financial situation. Had he asked, his CPA or other competent financial professional could have explained the rules to him and helped him craft a plan that was more suited to his situation, thereby putting a lot more dollars into his pockets in the future. His well-meaning friends had actually done him substantial financial harm.
Generally speaking, here are a few of the issues concerning Social Security that you should be aware of before deciding when to apply for benefits.
- Benefits received before your "full retirement age" (age 66 if you were born between 1/2/1943 and 1/1/1955) may have to be repaid if you are still working. For 2010, you must repay $1 for every $2 that you earn (that is by the sweat of your brow, not including investment income) over $14,160.
- Anyone eligible for benefits may begin receiving them at age 62, BUT the amount is permanently reduced. If your full retirement age is 66, the reduction at age 62 is 25%. For example, if your monthly benefit at age 66 would be $1,000, you will only receive $750 if you start at age 62.
- For every year beyond age 62 until age 70 that you delay beginning your benefits, your monthly check will increase by approximately 8%.
There is no one strategy for when to begin social security benefits that is going to be right for everybody. Every person's or couple's situation is unique. There are just too many variables. What might be right for your friend may be totally wrong for you.
A complete discussion of the things to consider in making this all-important decision is outside the scope of this Acorn, but some factors are:
Marital status - If married, how do you maximize your joint benefits over both of your lifetimes?
Health status - What is your realistic life expectancy? If you delay taking benefits, will you live long enough to profit from waiting? Conversely, if you take benefits early, will you later come to regret being stuck with that smaller check?
The decision on when to begin taking social security benefits is one of the most significant financial decisions that you will make in your lifetime. Therefore it should only be made after thoroughly considering all of your personal circumstances.
At Charter Oak Capital Management we have the expertise, the experience, and the tools available to help you make the decision that is right for you. Please give us the opportunity to help. It could make a significant difference in your retirement lifestyle.
Sincerely,
The Charter Oak Team
