Social Security Election and Retirement Planning
Before filing, know your options
REDDING, Ca. - Social Security benefits can represent a big stack of cash. A typical monthly benefit of $2,200 has a present value of well over $500,000.00. So, despite the fact that it seems like an easy decision, consider all Social Security options carefully to avoid making a costly mistake. Local CPA and tax expert, Dennis Fritz CPA, offers some suggestions.
“Like all government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been piled onto it, and have thereby added to the complexity. So to make the best decision about how to file for it, you’ll need to consider four things: 1) health, 2) income before retirement and 3) income during retirement, and 4) taxes,” Fritz recommended.
Retirees cannot rely on conventional wisdom. Simplistic “rules” such as “Always file for early benefits” or “stop working to receive benefits” are not always true. There are specific cases that break every rule of thumb. And these one-size-fits-all answers leave many retirees failing to maximize the benefits they have earned.
“At least four methods are used when electing how to take Social Security,” Fritz said. “And if you’re married, the two of you can mix and match these in more than 16 different ways. Each choice results in a different cash flow. By using the cash flows and the time value of money, you can determine which method will offer you the best maximum value.”
So these methods differ significantly... they depend on a taxpayer’s historical earnings, marital or divorce status, continued work in retirement, life-longevity and rates of return. The choice alone could be worth $250,000 of income or more. Filing options include “early filing,” “standard filing,” “delayed filing,” “file and suspend,” and many combinations of these options for married couples. It is definitely worth careful study and analysis of each option... yet a majority of Americans make their choice impulsively and emotionally.
The decision is even more crucial for women. For 42% of single women older than 62, Social Security is their sole source of income. Women on average outlive men. Thus, planning for retirement is usually much easier for men (who statistically tend to have more assets and die younger). Widows are twice as likely to live under the poverty line as men who have lost their wives. And the poverty rate for elderly single women is 23% compared with just 5% for retired couples.
“Couples must take their joint longevity into account before either one files for benefits. The person with the longer life expectancy will inherit either a wise or a foolish decision that will last a lifetime,” Fritz warned. “Given that a husband’s benefits are often higher and the wife’s life expectancy longer, each case needs to be analyzed carefully. Unfortunately, many people file after considering only one or two options in isolation. Even worse--the Social Security Administration’s new online filing system enables quick decision-making. People can easily submit their request without any professional advice or planning.”
Before filing, then, be informed about all the options. To begin, taxpayers should understand their own personal Social Security earnings and the projected benefits for both themselves and their spouse. Anyone can request an estimate at www.ssa.gov/estimator and then print the results. Or call the Social Security Administration at 800-772-1213. A copy of “Retirement Benefits” can be found (Publication No. 05-10035) online.
“Social Security planning is crucial for everyone,” Fritz concluded. “People with significant assets should carefully consider both the lifetime benefits and tax consequences of Social Security in light of their overall portfolio strategy. For the less well-off, Social Security benefits will dictate their retirement lifestyle. Proper planning could well determine what they can afford to eat.”
Dennis L Fritz, CPA offers income tax and write-up services to individuals and businesses. He also helps individuals and families save money on taxes. Give him a call 530-223-2277, email firstname.lastname@example.org or visit his website http://cpareddingca.com
- Contact Information
- Dennis Fritz
- Business Owner
- Dennis L Fritz CPA
- (1) 530-223-2277
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