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Understanding Social Security retirement assets

| Wednesday, Jan. 15, 2014, 12:01 a.m.

This week, we are going to do our monthly review of Social Security benefits.

These benefits are a very important retirement asset. Studies have shown that these benefits make up a much larger portion of lower-income retirement funds than for people with more assets.

The Social Security system was designed with this concept in mind, because lower-income recipients have been credited at a higher rate of return. This is because the first dollars that go into your Social Security account pay back at a higher percentage than later dollars.

Half of all people begin Social Security at age 62, which is the earliest possible date. While some people have no choice because of financial need, many people would benefit by waiting to full retirement age or longer.

You should never wait past age 70 since your account will no longer be earning delayed credits. When possible, it is often advantageous for the higher wage earner to delay his or her benefit to build the family's total Social Security income. Spousal benefits are figured from the primary insurance amount and do not include delayed credits. Survivor benefits do included delayed credits. If both spouses are full retirement age and have not started receiving their benefits, it could be like free money for the higher wage earner to file and suspend and the spouse to file for spousal benefits. This is one of several things that most people do not consider when doing a Social Security break-even analysis.

This week, we are going to look at some of the ramifications for widows or widowers.

The rules are the same for either gender, but for this discussion, we will use widow to keep it simpler. Women often marry men who are older than they are. Women tend to live about three years longer than men who are their age. In the past, woman tended to earn less lifetime income than men. This is shifting some in today's culture. For these reasons, proper Social Security planning is even more important to women. It can mean the difference from a fulfilling retirement or just getting by.

If both spouses are full retirement age and just beginning Social Security benefits, the higher earning spouse will receive their primary insurance amount and the other spouse would receive about half of that if they did not have their own work record. If the higher earning spouse were to die, the surviving spouse would give up their half of Social Security and receive the higher amount that the deceased spouse had been receiving. While this is certainly a financial help, one-third of the money that was being received by the couple ceases to come in.

Many of the costs of running a home are fixed costs and will continue whether there are one or two people living in the house. Taxes, insurance, maintenance, utilities and many other costs will go down very little.

If the surviving spouse is under full retirement age and the deceased spouse did not claim benefits early, the surviving spouse will receive between 71.5 percent and 99 percent of the deceased spouse's primary insurance amount. Now if the surviving spouse is full retirement age or older and the deceased spouse claimed early, could be as low as 82.5 percent of their primary insurance amount. If the surviving spouse is under full retirement age and the Social Security claim was done early, it is even a more difficult calculation.

Without confusing you any more, you can see some of the important reasons to wait to full retirement age if possible. There is a lot of confusion about these issues. You need to review the situation with someone who understands this subject.

Next month, we will be holding a workshop on Social Security because of all of the questions that we have received.

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