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Planning for Social Security benefits

| Wednesday, Aug. 14, 2013, 12:01 a.m.

This week it is time for our monthly look at Social Security issues.

We are going to study this from the woman's perspective. When Social Security was first started in 1935, most women did not work outside of the home. Since they did not have work records on their own, the government created spousal benefits so a woman could take advantage of her husband's earnings record. Today, that trend is reversed with many families having two income earners. Since the laws have not changed, that leaves some planning options to receive more money from Social Security.

These options are often lost, however, if you take Social Security at age 62.

Spousal planning is still important today because studies show that women earn 77 cents for every dollar that a man does. Some of this is because of glass ceilings, some by the different types of jobs many women and men do and also because women sometimes take time out of the workforce to raise children or care for an elderly parent.

Half of all people elect to start taking Social Security at age 62. They look at only a break-even chart and think that they will not live long enough to make up deferred payments.

This could be a major mistake, especially for women. If both spouses are in good health, it is extremely likely that one of them will live longer than the break-even point. There is a strong likelihood that both of them will. Break-even analysis does not consider several things, including cost-of-living indexing.

Let's look at an example.

If a worker's PIA (primary insurance amount) is $2,000 and he waits until age 70 to collect, he receives $2,640 per month. PIA is the amount you will receive at full retirement age. This is 66 for Baby Boomers born before 1954 and it slowly goes up to age 67. This is especially important to a woman if her husband was the higher wage earner. This is because upon his death, she will no longer receive her own Social Security but will switch to his as a survivor benefit. Since other income such as a pension may be eliminated, this money could be very important.

We also know that many women marry older males and women live an average of three years longer. This is shown by the fact that women represent 57 percent of all Social Security recipients 62 and older, but 68 percent of those age 85 or older.

Now let's look at the cost-of-living adjustment. Our hypothetical recipient who had a PIA of $2,000 will be used. Your monthly income at age 85 will be $2,831 if you started receiving benefits at age 62 and there was a 2.8 percent cost-of-living increases. That is a reasonable projection. If this same person started benefits at age 70, his check would be for $4,982 per month. That is a major difference. The wife could possibly receive this as a survivor's benefit. It could be possible to get this and possibly an extra $40,000 with proper planning. These options are lost by taking benefits at age 62.

It is possible to get benefits based on a divorced spouse's work record if you were married for at least 10 years and you are either not re-married or did not re-marry until after you turn age 60. The ex-spouse cannot stop this and will not be notified of this action.

For Social Security purposes, a person must have 10 years of work earning to be fully insured. In calculating your PIA, they use your 35 highest earning years. This means that you will not hurt your earnings record if you continue to work extra years even part-time. You will either replace some of the 35 years that may have had zero earnings or they may be lower than enough other years and not hurt you. If someone has his or her own work record and applies for Social Security at age 62, that person will receive benefits from their own record first. They may get some spousal benefits added on. Most people expect to get half of their spouse's benefit in retirement. If you start at age 62, you could get only 35 percent. Remember, this affects future cost-of-living increases.

Social Security income is a valuable retirement asset.

No Boomer should start taking Social Security early because they think that the program will run out of money. While Washington needs to get its act together and strengthen Social Security for our children, no one under age 40 is not going to get his or her benefits.

Work with someone knowledgeable about the subject and your retirement will be more fulfilling.

Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.