Description
In this issue of The Kitces Report, we explore the issues to consider when evaluating the benefits and economic impact of various Social Security claiming strategies, from the importance of understanding who is eligible for benefits in the first place, to the breakeven analysis needed in deciding when to claim the Social Security benefits! We also look at how crucial, and complicated, Social Security planning is for couples. As a result, it’s necessary to gather and consider the full range of client goals and preferences to optimize Social Security planning solutions, rather than just focus on the strategy that gives the most amount of money by delaying all the way until 70, or pays the client immediately at age 62. Finally, we wrap up by identifying the various Social Security “reform” proposals, and consider how potential changes to Social Security in the future should impact the claiming decision.
Learning Objectives
LO #1: Clarify who is entitled to Social Security benefits and be able to calculate the Social Security benefit your clients will receive. Be able to explain the difference between, and understand the meanings of, the acronyms AIME, PIA, and COLA.
- LO #2: Describe what the Full Retirement Age (FRA) is and explain how choosing dates to receive Social Security benefits that are before or after the FRA impact the benefit amount.
- LO #3: Illustrate an understanding of the cost/benefit analysis on the decision to delay Social Security benefits. Be able to calculate the additional benefit received for delaying while also calculating the time to break even. Explain why there might be times when clients may not want to delay Social Security benefits.
- LO #4: Identify the three unique factors that drive the relative benefit of delaying Social Security benefits and explain how these factors act as a hedge to a portfolio.
- LO #5: Discuss why Social Security planning is more complicated for couples than individuals. Understand what a restricted application for spousal benefits is, and identify when these might be relevant. Identify challenges that pertain to couples in timing Social Security benefits.
- LO #6: List the four key options for couples claiming Social Security benefits.
- LO #7: Understand when the Social Security “Earnings Test” applies, and to whom it applies. Explain the impact it can have on your client’s benefits.
- LO #8: Identify the various Social Security “reform” proposals that have been presented and explain how future reforms could impact the optimal claiming decision.