Since President Roosevelt signed the Social Security Act into law in 1935, millions of Americans have depended upon it as a major source of retirement income. Today, retirees are living longer lives and withdrawing more from the system, yet fewer people are contributing to it. That means retirees must find ways to maximize their Social Security income. Author Andy Landis’ book, Social Security – The Inside Story, describes strategies for doing just that.
The first strategy, “The Reset,” offers a way to draw Social Security without a permanent reduction. Here’s how: At age 66, George will be entitled to a 100 percent benefit, which is $1,000 per month. However, he starts drawing Social Security at age 62, getting $750 monthly payments. Then, at age 63, after receiving $9,000, George withdraws his application. He takes $9,000 from his retirement savings and repays it to the Social Security Administration, without interest. Then, he re-files for Social Security and gets the payment due a 63-year old, or $800, for the rest of his life.
George calculates that his $9,000 “investment” in Social Security results in a raise of $50 a month, or $600 per year. He sees this as a government-guaranteed 6.7 percent return on investment, with a pay-back period of only 15 years. He also discovers that he gets a tax credit for the year since he received “negative” Social Security. In addition, he has secured a higher payment for his wife if he dies before her.
This can be a powerful strategy for those who want the early payments from Social Security, but also want the higher payments of a later filing – a way to have your cake and eat it, too. The only catch: under a new rule you can exercise the “Reset” only once in your life, and it has to be in the first 12 months of your Social Security eligibility.
Another strategy offered by Landis is called “File and Suspend.” According to Landis, the general idea is that, “We are going to get some money now, but we have to go for the bigger bucks later.” It works like this: At age 66, you file for your benefits, but suspend the payments. Since you filed, the spouse draws up to 50 percent; meanwhile behind the scenes, your own checks are getting larger, because of delayed retirement credits. If you follow this plan, you will receive lower payments from age 66 to 70, but you will have some money coming in from your spouse. Then, when you reach age 70, “un-suspend” your payments and your checks will have grown substantially. As long as you have some income for the age 66-70 lower income period, this strategy could be very beneficial to you.
As always, fully understanding the different strategies and all their implications before acting is important. The right choices will significantly help in your overall retirement planning.
The Financial Consultants of Upton, Draughon & Bollinger are registered representatives with, and Securities offered through LPL Financial, Member FINRA/SIPC 207 Ansley Blvd., Suite A, Alexandria, LA 71303, (318) 442-4944. LPL Financial and its advisors are not affiliated with the Social Security Administration. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be appropriate for you, consult your financial, tax, and/or legal advisors prior to taking action.