Your long-term financial health may depend upon knowing what to do to increase your eventual benefits. Check out five tips to do just that.
1. Verify that your annual earnings have been correctly posted to your account
Remember the four-page statement you get from the Social Security Administration each year?
As of last March, budget cuts ended this program and many people won’t even realize it unless their financial advisor asks for it.
You can still get estimated benefits online but not your earnings history. If you were employed during the year, it is important that you check your record — incorrect wages are posted all the time.
To get your earnings history, you must now download and fill out form SSA7050 and submit it by mail.
When you have your earnings history, SSA has a calculator you can download to track your earnings and compute estimated benefits.
2. Wait to begin drawing benefits
For each year you delay taking Social Security, your benefits will increase approximately 8 percent. That means that a person who would get $1,500 per month at age 62 will receive $2,640 by waiting until age 70.
The math is fairly simple. The average age for the two-person baby boomer retirement is 30 years. If you are non-smokers, chances are you or your spouse will live to age 92.
When the first spouse dies, the survivor can step in the shoes of that spouse and opt to receive the higher benefit. If you retire at age 62, your benefits will total $540,000 over your lifetime. If you wait until age 70, benefits to one of you will total $696,960 for the lifetime of the longest-surviving spouse.
As you know, the typical surviving spouse is a woman and widows are the most vulnerable to poverty. You’ll do yourselves a favor by delaying Social Security as long as possible but, if you’re still not sure, financial planners are uniquely equipped to help you decide the optimal starting age.
3. Maximize your 35 highest years
Another reason you should keep track of your annual earnings is that SSA uses your 35 highest earning years when calculating your benefit and uses a zero for each year not worked. Even if you have worked 35 years, you can replace a low-earning year with your current higher income for each additional year you work.
4. Be sure you will qualify to receive benefits
Do you know people who think they’re smart by arranging their finances so they can avoid Social Security? Let’s look at what they are passing up:
- A monthly benefit, indexed for inflation, payable for life no matter what.
- Medicare insurance coverage. On average, a 2010 retiree will receive $161,000 lifetime Medicare benefits for a cost of $55,000 in Medicare taxes paid over a work history.
- Those who don’t qualify will have to pay costly Medicare Part A premiums.
You (or your spouse) have to pay FICA taxes for a minimum of 10 years (40 quarters) to qualify for minimum Social Security and Medicare benefits. Those taxes are a good investment.
5. Coordinate filing between spouses
It is critical that both spouses coordinate how and when to take benefits. Not doing so could cost thousands of dollars in benefits over your lives. It can be complicated to take all scenarios, such as death and divorce, into effect and this is one area where a good financial planner can really earn their fees.
For example, one technique is called “file and suspend.”
This maneuver works when the older spouse is also the one with the higher estimated benefits and there are about two to four years difference in the couple’s ages.
The older spouse waits until he or she is as close to age 70 as possible (for higher benefits), files for SS and then suspends his benefits.
This allows the younger spouse to file for spousal benefits of half the older spouse’s benefits, and delay taking his or her own benefits until age 70 when the maximum benefit is available for their own filing.
Finally, you may have noticed the importance of estimating both your life expectancy and, if applicable, your spouse’s.
Two excellent websites to get you started are livingto100.com and bluezones.com.
Johanna Fox Turner, CPA, CFP, RLP, is CEO of Milestones Financial Planning, LLC in Mayfield. She is president of Johanna Fox, CPA and publishes a free monthly financial newsletter (email advisor@milestonesfp.com to subscribe). Contact Turner at jft@milestonesfp.com, 270-247-0555, 800-991-2721, or at www.milestonesfp.com.
