It’s not so simple anymore
by Herb DaroffMr. Daroff is affiliated with Baystate Financial Planning, Boston, and is a contributing editior to this magazine. Connect with him by email at [email protected] or visit his site at www.baystatefinancialplanning.com
- Do you want to maximize your annual income? OR
- Do you want to maximize your total lifetime income?
First, let’s examine these questions if you are single (not married and no current dependents). The highest annual income is achieved by delaying your start date as long as possible (until you need the income). However, the highest total lifetime income depends on how long you will live after starting to receive Social Security benefits. In 2013, the maximum Social Security benefit is $2,533/month at full retirement age 66 for someone who was born between 1943 and 1954.
Age at Start Date Percentage of Full Benefit Monthly Benefit Annual Benefit
62 75.00% $1,900 $22,797
63 80.00% $2,026 $24,317
64 86.67% $2,195 $26,343
65 93.33% $2,364 $28,370
66 100.00% $2,533 $30,396
67 108.00% $2,736 $32,828
68 116.00% $2,938 $35,259
69 124.00% $3,141 $37,691
70 132.00% $3,344 $40,123
However, if you die too soon, you may have been better off starting earlier or later. For example, if you died at age 80, the optimal starting age would be 67.
Age at Start Date Percentage of Full Benefit Annual Benefit Dying at Age 80
62 75.00% $22,797.00 $410,346
63 80.00% $24,316.80 $413,386
64 86.67% $26,343.18 $421,491
65 93.33% $28,369.60 $425,544
66 100.00% $30,396.00 $425,544
67 108.00% $32,827.68 $426,760
68 116.00% $35,259.36 $423,112
69 124.00% $37,691.04 $414,601
70 132.00% $40,122.72 $401,227
But, of course, we don’t know when we will die. If you died at 75, then you should have started receiving Social Security benefits at age 62.
Age at Start Date Percentage of Full Benefit Annual Benefit Dying at Age 75
62 75.00% $22,797.00 $296,361
63 80.00% $24,316.80 $291,802
64 86.67% $26,343.18 $289,775
65 93.33% $28,369.60 $283,696
66 100.00% $30,396.00 $273,564
67 108.00% $32,827.68 $262,621
68 116.00% $35,259.36 $246,816
69 124.00% $37,691.04 $226,146
70 132.00% $40,122.72 $200,614
If you knew that you would live to age 85, you maximize your total lifetime benefits by starting at age 69 (not 70).
Age at Start Date Percentage of Full Benefit Annual Benefit Dying at Age 85
62 75.00% $22,797.00 $524,331
63 80.00% $24,316.80 $534,970
64 86.67% $26,343.18 $553,207
65 93.33% $28,369.60 $567,392
66 100.00% $30,396.00 $577,524
67 108.00% $32,827.68 $590,898
68 116.00% $35,259.36 $599,409
69 124.00% $37,691.04 $603,057
70 132.00% $40,122.72 $601,841
Then, of course, there is the “use of money” calculation which will vary every year based on interest rates and investment yields (i.e., opportunity cost). Second, let’s examine if you are married. Then, your spouse’s Social Security is the greater of 50% of yours or the spouse’s own Social Security benefit. Delaying your benefit start date could increase the total lifetime benefit payable to both you and your spouse.
As you can readily see, the answer to “When should I start taking Social Security” depends on many variables with no clear answer unless you know how long you and your spouse will live and what interest rates and investment returns will be for the rest of your lives.
Is Social Security your only source for RELIABLE income during retirement? A generation ago, many retirees had pension plans as additional reliable income. Today, annuity strategies provide a “private pension” to supplement existing pensions or to replace pension income if not provided by your employer.
Life insurance cash value can also provide a source for reliable income (like a private Roth IRA). Life insurance death benefits provide income replacement for a surviving spouse, if you are the insured. Insuring the life of a parent and/or grandparent can provide an additional source of retirement income. Remember, a financial plan without life insurance is just an investment portfolio that dies with you. v
Mr. Daroff is affiliated with Baystate Financial Planning, Boston, and is a contributing editior to this magazine. Connect with him by email at [email protected] or visit his site at www.baystatefinancialplanning.com
Pursuant to IRS Circular 230, Baystate Financial is providing you with the following notification: The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. This article supports the promotion and marketing of life insurance. You should seek advice based on your particular circumstances from an independent tax advisor.
This article is based on income tax and transfer tax laws in effect as of January 2013. Future changes in income taxes, transfer tax exemption amounts and transfer tax rates may impact the appropriateness of any income tax and/or transfer tax planning strategy or product sale. Clients need to understand that tax law is always subject to interpretation and legislative change. Baystate Financial and its affiliates do not provide tax advice and therefore clients must speak with their qualified legal and tax counsel regarding their current estate plan and what planning options are available and appropriate.
Neither MetLife nor any of its affiliates, employees, or representatives provide tax or legal advice. Please consult your tax advisor or attorney for such guidance.
Securities offered through New England Securities Corp.(NES), (member FINRA/SIPC). Baystate Financial Services is not affiliated with NES. Branch Office: 200 Clarendon Street, 19th Floor, Boston, MA 02116. L101228xxxx[exp1213][AllStates]