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Understanding Social Security options

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By Gary Boatman
Wednesday, Sept. 25, 2013, 12:01 a.m.

This week it is time to do our monthly review of Social Security.

As I meet with people either at workshops or one-on-one, many people do not understand all of the options that are available for Social Security planning. For many families the future value of their Social Security benefits is their greatest retirement source of income. It is very important to understand all of the options.

This week, we are going to look at the value of Social Security to widows. It is important to remember that these same benefits could affect a widower. For a young mother with children at home, Social Security can be a game-changer. Although this is a great help, it should be only one part of a financial plan in case the principal bread-earner should die at an early age. Life insurance is often used to supplement the needed cash for this occurrence. Life insurance is very affordable for people at a young age and can allow the widow to deal more effectively with the crisis. A review should be done to see if term or whole life would be the most efficient answer.

Children can receive benefits if their parent dies. Each child can receive some benefit subject to a family maximum. A child is eligible for benefits until age 18 or the completion of high school. A widow could receive mother's benefits until the youngest child turns 16. At that time she will lose her benefit until she reaches age 60. These mother's benefits are subject to an earnings test. This means if a mother earns more than $15,120 per year, one dollar of benefits will be withheld for every two dollars earned. Often these benefits are not enough to maintain the current lifestyle.

Many women do not start to receive survivor benefits until later in life when their children are grown. Although we have seen some shift in dual working couples, women have often earned less than their husbands. This means the higher lifetime wage-earner probably has a higher Social Security primary insurance amount or the amount of benefit he or she will receive at full retirement age. While both spouses are alive, the family income is probably higher. Both people could be receiving Social Security and possibly pensions. At the first death, one of the Social Security checks will stop and possibly some of the pension income. While there will be less living expenses for only one person instead of two, it will not be half as expensive. This is because while there will be less spending on food, clothing and medical expenses, most expenses such as maintaining a home will continue.

If your spouse is deceased, you may have the option of collecting Social Security based on either your own work record or theirs. You can choose the higher one or select a strategy that will maximize your total benefit. Since women are often younger than their husbands and have a longer life expectancy, survivor benefits can be very important. This can add up to tens of thousands of dollars. Anyone taking a benefit before their full retirement age will receive a reduced benefit.

Someone can claim Social Security survivor benefits from a current spouse. If they are divorced, but were married for at least 10 years, they may still be eligible to receive benefits from their ex-spouse's work record. They must be single or not remarried before age 60. The ex-spouse does not need to consent to the benefits and will probably be unaware of them. Someone who was re-married after age 60 and had been married to someone else for 10 years can choose to receive a benefit based on either work record.

A recent Supreme Court ruling seems to open the door for Social Security planning for married same-sex couples. They must be living in a state that recognizes these marriages. At this time, Pennsylvania does not. There should be more clarity coming on these issues, but it is suggested that people in these situations apply for benefits.

Treat Social Security like the valuable asset that it is and learn ways to maximize the benefits. Unfortunately, while it can answer specific questions, the Social Security office cannot give advice on maximum claim strategies. Look for workshops to attend and work with professionals to gain this knowledge.

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

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