Social Security and Retirement Risk

Planning strategies for this most reliable asset

By Dr. Frederick Saide, PhD

Dr. Saide is Founder and President of Foundation Insurance Services, LLC. Connect with him by e-mail at [email protected]

What asset insures against all three retirement risks?

  • Inflation
  • Market volatility
  • Longevity (running out of money)

It’s an asset that we all own… its Social Security. It’s adjusted annually for inflation. It is impervious to market and investment ups and downs. And it will pay out as long as you live (of course there are arguments about this, but for baby boomers, it will pay during their retirement). Will it pay for their children’s retirement? Well, that’s a whole different story.

This asset that you own is significant. The average Social Security Retirement benefit for 2011 was $14,100. To give you an idea of how significant this is… you would need $470,000 in an investment, paying you 3%, to give you the same kind of income. In fact, according to the Social Security Administration , Social Security makes up 64.8% of the total income, on average, for households with someone aged 65 or older.

But what do you actually know about Social Security? What do you need in order to apply? When should you apply? Is there a better way to do it than just applying when you become eligible? If you are wondering these things, you are not alone. In a recent Boston College study, 73% of the population is unaware of exactly how Social Security works and the best way to draw it. There are actually more than 300 ways a married couple can arrange to take their retirement Social Security benefits, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. That’s a lot of choices!
There are many factors that will determine the best way for you to draw your Social Security; whether you were married or not, your income history, how long you are going to work, how much you have saved in your personal retirement accounts… are just a few to name.

It can get a bit complicated, but it doesn’t have to be. You could just go down to the Social Security Office on your 62nd birthday and fill out the paperwork to have your benefits begin. There are some financial advisors that recommend just that.

Take the Money And Run?

“Take your money and run,” they say.
Are you willing to run away from $100,000 or more?
When it comes to making this important decision, and remember you only get one chance to make this decision… putting your head in the sand and just pulling the switch, can cause you to lose a lot of money. It’s estimated that Americans leave $10 Billion in Social Security benefits on the table by not using any of the available strategies.

The average Social Security Retirement benefit for 2011 was $14,100. To give you an idea of how significant this is... you would need $470,000 in an investment, paying you 3%, to give you the same kind of income

Many couples can see $10,000 (or more) a year increase above their normal Social Security retirement check by doing a bit of planning. Or, they can leave that money on the table.
So, who will help you with these strategies to get the highest payout from Social Security? In a recent poll, 77% of people think that the folks at the local Social Security Office can dole out this advice. They cannot. They are smart, hardworking people, but they are not trained for this. The Social Security Administration prohibits them from giving strategic advice because it does not want the liability of making financial recommendations. All your local office is going to help you with, is filling out the appropriate forms to file for your benefit and give you the different monthly benefit amounts at different election ages.

In order to see up to a 67% increase (above your normal Social Security benefit) you need to know the strategies. There are 5 basic strategies. These strategies can be used in up to 300 different combinations. It sounds complicated, but it’s really not due to the many resources that are available to you, which I’ll cover at the end of this article.

5 Social Security Enhancement Strategies

1    Double Trouble Prevention—Up to 85% of your Social Security benefits may be taxed. With a little planning, this can many times be reduced to 0%.
2    Finish the Race—This strategy uses the Social Security credits you earn during your working years to ensure you use them to qualify for the highest benefit.
3    Cart before the Horse—Planning that is done in conjunction with your other retirement accounts that may allow you to retire years earlier.
4    The Switch—The many switch strategies available to you by understanding the SSA codes and rules.
5    Strategic Withdrawal—The strategic use of a combination of the above strategies to guarantee you the highest possible Social Security benefit. As we talked about earlier, this can mean $10,000 a year (or more) in additional benefits.
If you want to cash in on the extra money, above and beyond your normal retirement benefit… you’re going to have to come up with a plan that utilizes the available strategies to your best benefit. But don’t worry; it’s not as difficult as you think. There are lots of resources available to help you make the best decision for your particular set of circumstances. There have been dozens of magazine articles that outline your choices. There are software packages that help you calculate all of the 300 possibilities. And there are financial professionals who specialize in helping people with getting the highest possible benefit from Social Security.

Now, that you know what’s possible, what’s you next step? Invest a few hours with one of the resources above, to get a lifetime of income you would not otherwise have received.