With company pensions nearly extinct, retirees have even more reason to make sure they are reaping the full benefits of the Social Security system. Often confusing to retirees and soon-to-be retirees, most clients do not realize that powerful strategies exist to maximize their Social Security payments. Armed with these optimization strategies, financial advisors can empower their clients as they navigate the retirement income jungle.
Quite simply, a retiree’s Social Security payment is higher if he or she delays the payment starting date. Take, for instance, someone who elects to begin their payments at age 62, which is the minimum required age. Beginning at 62, the maximum monthly benefit for 2012 is $1,855. Delay the start of Social Security payments until age 70, and the same person will now receive $3,266 per month.
With our new plan, the Social Security payments would kick in at age 70 and, since the payments are larger, many retirees may find they have more than enough income to cover basic expenses in their 70s. By investing in the DIA or VA with GLWB, they could help protect their financial future from inflation or hedge the risk of high medical costs associated with living into their late 80s or 90s. Also, any growth within these annuities is tax-deferred, which can help reduce the tax burden on their Social Security benefits.
Consider that with just $50,000, a 70-year-old male could purchase a deferred income annuity so that starting at age 85 he would receive $13,100 every year for the rest of his life. To counter the objection of loss of deposit in the event of early death, we include an installment refund payout option so if he died before he began receiving income, his beneficiaries would receive a death benefit for the full amount of the $50,000. Even if he died in the first few years of receiving income, he would receive a death benefit for the remaining balance of the $50,000 investment. By age 90 he will have received a sum of $65,000 of annuity payments and if he lives to age 100 he will have received nearly $197,000.