Chartered Retirement Planning Counselor
P/E Capital Investments
In most of my interactions with people who are about to retire, the very common query they have is not about their 401k, 403b or other employer retirement programs but simply about their benefits with the Federal Social Security. As a Chartered Retirement Planning Counselor, this is something that I tend not to be detail oriented on because I try to tackle the more seemingly complex components of retirement such as creating an investment program once a retirement benefit account is rolled over, or how to create a robust income stream from retirement funds, etc.
However, I do recognize that 90% of the retirees in the US receive Social Security benefits which is the core foundation of their income stream; and, thus the reason why this is normally integrated in my retirement plans. But given this need of my target audience, I’m going back to the basics. To start with, let me share with you an article written by Philip Moeller, a finance writer and contributor to Yahoo finance. Philip is able to articulate the issues and the complexities vital to the decision process on when to create an income stream from the federal benefit once qualified.
Let me also invite all my avid readers in Chicago. I will be conducting a free Social Security Benefits Workshop every week (Sundays at 2PM). This complimentary workshop is in cooperation with the Word of Grace Family Christian Church at 3901 N Whipple St, Chicago, IL 60618 (as part of their community outreach ministry) will commence this month of May until August 2013. Please refer to the P/E Capital Investment ad below for details.
Following is a quote on Philip’s article on Social Security benefits published in Yahoo Finance.
“Social Security is by far the nation’s most important retirement program. And while the decision about when to claim benefits seems clear enough, it is anything but simple.
You can begin benefits as early as age 62 or wait until turning 70. The difference in monthly benefit payments is huge. For each $1 in benefits you’d get when claiming at age 66 (the so-called full retirement age for most people right now), you’d receive only 75 cents if you claimed at age 62, but $1.32 if you waited until age 70. Big difference.
If you’re married, you and your spouse can do what’s called “claim and suspend” benefits so that one of you can collect spousal benefits based on the benefit entitlements of the other spouse. Properly executed, these benefit payments will not reduce your own benefits or those of your spouse when they are claimed at a later date.
Unaware of Much Higher Benefits
Looking only at these two components of the program, it’s possible to craft a seemingly endless number of scenarios reflecting a person’s age, marital status, health, longevity and family considerations. A 401(k) program’s wide choice of investment options and savings rates seems elementary by comparison. And as survey after survey has documented, most employees are baffled if not paralyzed by their 401(k)’s complexity. No wonder we struggle to make the best possible decisions about Social Security.
That’s especially true about the decision to begin claiming benefits at 62. Sometimes, people who do so are unaware of the much higher benefits they would receive if they waited. It’s also taken time for the reality of longevity gains to sink in to the assessments we make about our own mortality. Planning for a 30-year retirement rather than a 15- or 20-year period makes it much clearer why a later claiming age may make sense.
However, millions of Americans know all about these options and are still forced to begin taking Social Security at age 62. They need the money now, and waiting until 66 or even 70 is not a luxury they can afford. Often, early claimants work in physically demanding jobs and cannot continue working past 62. Or they may have lost their job altogether and can’t find a new position. More likely, their new job doesn’t pay nearly as well as the one they lost.
Split Social Security into Payments
With few exceptions, the age you claim Social Security is irreversible. If we claim at age 62, we’re stuck with those payments for the rest of our lives.
But what if that decision did not have such unyielding implications? What if we could claim early but not sacrifice all of our entitlements to the higher level of benefits provided to those who claim at later ages? And what if we could do this without costing Social Security an extra penny? It would be a pretty neat feat.
That’s what Timothy Alan Albright thinks. The Michigan resident retired earlier this year as a Social Security district manager after nearly 35 years with the agency. He recently received $300 from the agency for submitting his idea to split Social Security benefits into layers of payments that could be taken at different ages.
“I propose that Americans be allowed to file for a portion of their retirement benefit early and save a portion of the benefits to be received in the future without a reduction,” he wrote in an email describing his idea. “One possibility is to be allowed to file for reduced benefits based on 25 percent portions of their PIA [primary insurance amount]. A person might not need all of their retirement benefits at age 62 so they could file for 25 percent or 50 percent or 75 percent to begin with, and then phase in each of the other 25-percent portions at a future date.”
“Allowing customers to receive partial or tiered benefits would be one of the first customer-friendly changes to Social Security rules in years,” Albright adds. “It would have a widespread positive impact on our citizens’ ability to plan prudently for their retirement years without locking themselves into an unnecessary low-income stream.”
The idea would be relatively easy to program into agency computers, he explains, and would be budget-neutral as well. “If customers take benefits early, they are still reduced under the same formulas,” he notes. “If they take benefits later in life, their life expectancy would be less.”
“It brings Social Security into the 21st century,” Albright concludes. “We ask that Americans take responsibility for planning for their retirement. This would give them another powerful tool. As it is now their retirement choice is an all or nothing proposition.”
P/E Capital Investments manages the wealth of select families and business owners. P/E Capital Investments does not provide tax or legal advice. It is strongly recommended that you consult your professional advisor prior to implementing any of the strategies mentioned here within. This article does not offer or imply solicitation of any type. Eliseo Jojo Prisno is the Managing Director of P/E Capital Investments, Investment Advisor to FilipinoFunds Investment Management, LLC and a Chartered Retirement Planning Counselor.If you have questions or desire a complimentary analysis of your retirement readiness, email j.prisno@PECapitalInvestments.com or call toll free to 1-888-929-2825