Considerations to Maximize Social Security Part 1 – Social Security Claiming Strategies for Married Couples

Millions of baby boomers are set to retire in the next 20 years, and most will rely on Social Security as an important source of retirement income. Recently I began receiving lots of questions from clients about Social Security, and the strategies they should consider when reaching age 62 as well as age 66.

These questions include:

  • Should I collect starting at the minimum age?
  • If I do start at age 62 what effect will it have on the amount I collect?
  • Should I wait until full retirement age or age 70?
  • As a married couple, are there strategies I should utilize to maximize the amounts we receive each month?

In order to address these concerns, I have put together this three part series entitled, “Considerations to Maximize Social Security Benefits.”

Each week, I will highlight a specific strategy and include links to educational videos and other articles which further explain important considerations.

  • Part 1 – Claiming strategies which Couples can use to maximize income
  • Part 2 – What should you do at age 62
  • Part 3 – 4 things Women need to know about Social Security

Please let me know if this information was valuable and if I should consider doing a workshop and webinar on this topic.

To Your Success Retirement,

Michael Ginsberg, JD, CFP®

Part 1 – Social Security Claiming Strategies for Married Couples

Deciding when to begin receiving Social Security benefits is a major financial issue for anyone approaching retirement because the age at which you apply for benefits will affect the amount you’ll receive. If you’re married, this decision can be especially complicated because you and your spouse will need to plan together, taking into account the Social Security benefits you may each be entitled to. For example, married couples may qualify for retirement benefits based on their own earnings records, and/or for spousal benefits based on their spouse’s earnings record. In addition, a surviving spouse may qualify for widow or widower’s benefits based on what his or her spouse was receiving.

File and suspend

Generally, a husband or wife is entitled to receive the higher of his or her own Social Security retirement benefit (a worker’s benefit) or as much as 50% of what his or her spouse is entitled to receive at full retirement age (a spousal benefit). But here’s the catch: under Social Security rules, a husband or wife who is eligible to file for spousal benefits based on his or her spouse’s record cannot do so until his or her spouse begins collecting retirement benefits. However, there is an exception–someone who has reached full retirement age but who doesn’t want to begin collecting retirement benefits right away may choose to file an application for retirement benefits, then immediately request to have those benefits suspended, so that his or her eligible spouse can file for spousal benefits.

The file-and-suspend strategy is most commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or her spouse’s earnings record than on his or her own earnings record. Using this strategy can potentially boost retirement income in three ways.

  1. The spouse with higher earnings who has suspended benefits can accrue delayed retirement credits at a rate of 8% per year (the rate for anyone born in 1943 or later) up until age 70, thereby increasing his or her retirement benefit by as much as 32%.
  2. The spouse with lower earnings can immediately claim a higher (spousal) benefit.
  3. Any survivor’s benefit available to the lower-earning spouse will also increase because a surviving spouse generally receives a benefit equal to 100% of the monthly retirement benefit the other spouse was receiving (or was entitled to receive) at the time of his or her death.

Here’s a hypothetical example. Leslie is about to reach her full retirement age of 66, but she wants to postpone filing for Social Security benefits so that she can increase her monthly retirement benefit from $2,000 at full retirement age to $2,640 at age 70 (32% more). However, her husband Lou (who has had substantially lower lifetime earnings) wants to retire in a few months at his full retirement age (also 66). He will be eligible for a higher monthly spousal benefit based on Leslie’s work record than on his own–$1,000 vs. $700. So that Lou can receive the higher spousal benefit as soon as he retires, Leslie files an application for benefits, but then immediately suspends it. Leslie can then earn delayed retirement credits, resulting in a higher retirement benefit for her at age 70 and a higher widower’s benefit for Lou in the event of her death.

File for one benefit, then the other

Another strategy that can be used to increase household income for retirees is to have one spouse file for spousal benefits first, then switch to his or her own higher retirement benefit later.

Once a spouse reaches full retirement age and is eligible for a spousal benefit based on his or her spouse’s earnings record and a retirement benefit based on his or her own earnings record, he or she can choose to file a restricted application for spousal benefits, then delay applying for retirement benefits on his or her own earnings record (up until age 70) in order to earn delayed retirement credits. This may help to maximize survivor’s income as well as retirement income, because the surviving spouse will be eligible for the greater of his or her own benefit or 100% of the spouse’s benefit.

This strategy can be used in a variety of scenarios, but here’s one hypothetical example that illustrates how it might be used when both spouses have substantial earnings but don’t want to postpone applying for benefits altogether. Liz files for her Social Security retirement benefit of $2,400 per month at age 66 (based on her own earnings record), but her husband Tim wants to wait until age 70 to file. At age 66 (his full retirement age) Tim applies for spousal benefits based on Liz’s earnings record (Liz has already filed for benefits) and receives 50% of Liz’s benefit amount ($1,200 per month). He then delays applying for benefits based on his own earnings record ($2,100 per month at full retirement age) so that he can earn delayed retirement credits. At age 70, Tim switches from collecting a spousal benefit to his own larger worker’s retirement benefit of $2,772 per month (32% higher than at age 66). This not only increases Liz and Tim’s household income but also enables Liz to receive a larger survivor’s benefit in the event of Tim’s death.

Things to keep in mind

  • Deciding when to begin receiving Social Security benefits is a complicated decision. You’ll need to consider a number of scenarios, and take into account factors such as both spouses’ ages, estimated benefit entitlements, and life expectancies. A Social Security representative can’t give you advice, but can help explain your options.
  • Using the file-and-suspend strategy may not be advantageous when one spouse is in poor health or when Social Security income is needed as soon as possible.
  • Delaying Social Security income may have tax consequences–consult a tax professional.
  • Spousal or survivor’s benefits are generally reduced by a certain percentage if received before full retirement age.

Is College Debt the Next Bubble?

What might a 23-year-old recent college graduate, a 45-year-old entrepreneur, and a 60-year-old pre-retiree have in common financially? They may all be hobbled by student loan debt. According to financial aid expert Mark Kantrowitz, the student loan “debt clock” reached the $1 trillion milestone last year.1 And even as Americans have reduced their credit card debt over the past few years, student loan debt has continued to climb–both for students and for parents borrowing on their behalf.

A perfect storm

The last few years have stirred up the perfect storm for student loan debt: soaring college costs, stagnating incomes, declining home values, rising unemployment (particularly for young adults), and increasing exhortations about the importance of a college degree–all of which have led to an increase in borrowing to pay for college. According to the Federal Reserve Bank of New York, as of 2011, there were approximately 37 million student loan borrowers with outstanding loans.2 And from 2004 through 2012, the number of student loan borrowers increased by 70%.3

With total costs at four-year private colleges pushing $250,000, the maximum borrowing limit for dependent undergraduate students of $31,000 for federal Stafford Loans (the most popular type of federal student loan) hardly makes a dent, leading many families to turn to additional borrowing, most commonly: (1) private student loans, which parents typically must cosign, leaving them on the hook later if their child can’t repay; and/or (2) federal PLUS Loans, where parents with good credit histories can generally borrow the full remaining cost of their child’s undergraduate education from Uncle Sam.

The ripple effect

The implications of student loan debt are ominous–both for students and the economy as a whole. Students who borrow too much are often forced to delay life events that traditionally have marked the transition into adulthood, such as living on their own, getting married, and having children. According to the U.S. Census Bureau, there has been a marked increase in the number of young adults between the ages of 25 and 34 living at home with their parents–19% of men and 10% of women in 2011 (up from 14% and 8%, respectively, in 2005).4 This demographic group often finds themselves trapped: with a greater percentage of their salary going to student loan payments, many young adults are unable to amass a down payment for a home or even qualify for a mortgage.

And it’s not just young people who are having problems managing their student loan debt. Borrowers who extended their student loan payments beyond the traditional 10-year repayment period, postponed their loans through repeated deferments, or took out more loans to attend graduate school may discover that their student loans are now competing with the need to save for their own children’s college education. And parents who cosigned private student loans and/or took out federal PLUS Loans to help pay for their children’s education may find themselves saddled with education debt just as they reach their retirement years.

There’s evidence that major cracks are starting to appear. According to the Federal Reserve Bank of New York, as of 2012, 17% of the 37 million student loan borrowers with outstanding balances had loans at least 90 days past due–the official definition of “delinquent.”5 Unfortunately, student loan debt is the only type of consumer debt that generally can’t be discharged in bankruptcy, and in a classic catch-22, defaulting on a student loan can ruin a borrower’s credit–and chances of landing a job.

Tools to help

The federal government has made a big push in recent years to help families research college costs and borrowers repay student loans. For example, net price calculators, which give students an estimate of how much grant aid they’ll likely be eligible for based on their individual financial and academic profiles, are now required on all college websites. The government also expanded its income-based repayment (IBR) program last year for federal student loans (called Pay As You Earn)–monthly payments are now limited to 10% of a borrower’s discretionary income, and all debt is generally forgiven after 20 years of on-time payments. (Private student loans don’t have an equivalent repayment option.)

Families are taking a much more active role, too. Increasingly, they are researching majors, job prospects, and salary ranges, as well as comparing out-of-pocket costs and job placement results at different schools to determine a college’s return on investment (ROI). For example, parents might find that, with similar majors and job placement success but widely disparate costs, State U has a better ROI than Private U. At the end of the day, it’s up to parents to make sure that their children–and they–don’t borrow too much for college. Otherwise, they may find themselves living under a big, black cloud.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP®



“Shallow Risk” and “Deep Risk” Are No Walk in the Woods

As you know, I structure portfolios to limit volatility.  I accomplish this through an appropriate balance of risk adjusted income generating equities, bonds and non-publically traded REITs.  The article below was published in the July 27th weekend edition of the Wall Street Journal.  It explains some of the reasons why I structure portfolios in the manner I do.  As the article explains, balancing the different types of risks are very difficult to do yourself without the appropriate tools.  Let me know what you think after you review this interesting article.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


The Intelligent Investor – By Jason Zweig, Wall Street Journal, July 27, 2013

Earlier this week, the Dow Jones Industrial Average hit 15567.74, a new high. That was the 28th time this year the Dow closed at a record.

At these all-time-high prices, just how much riskier stocks are than alternatives like bonds, cash or gold depends largely on how you define “risk.” William Bernstein, an investment manager at Efficient Frontier Advisors in Eastford, Conn., and the author of several books on investing and financial history, says risk takes two basic forms—and understanding the difference can help investors figure out what they should be afraid of.

What Mr. Bernstein calls “shallow risk” is a temporary drop in an asset’s market price; decades ago, the great investment analyst Benjamin Graham referred to such an interim decline as “quotational loss.”

Shallow risk is as inevitable as weather. You can’t invest in anything other than cash without being hit by sharp falls in price.

“Shallow” doesn’t mean that the losses can’t cut deep or last long—only that they aren’t permanent.
“Deep risk,” on the other hand, is an irretrievable real loss of capital, meaning that after inflation you won’t recover for decades—if ever.

In a forthcoming e-book, “Deep Risk: How History Informs Portfolio Design,” Mr. Bernsteinsifts through decades of financial data and global history to identify what creates deep risk. The four causes he came up with sound almost like lyrics to the old Temptations song “Ball of Confusion,” but they are deadly serious: inflation, deflation, confiscation and devastation. “These forces can make assets lose most of their value and never recover,” he told me this week.

Imagine, suggests Mr. Bernstein, that you are a homeowner with a fixed annual insurance budget. If you live in a dry part of Kansas you probably should tilt your insurance spending toward tornado and fire coverage; if you live in Southern California you should cover earthquake and fire first; along a river, flood insurance matters most.

Likewise, you should insure against deep risks based both on how likely and on how severe they are.

Devastation—war or anarchy—is a long shot with horrific consequences, but there isn’t much you can do about it. If you hoard gold, you are as likely to be killed for it as to be protected by it. “For Armageddon, what you really need is an interstellar spacecraft,” Mr. Bernstein quips.

Confiscation—a surge in taxation, or a seizure by the government as happened to bank depositors in Cyprus—is more common. There, says Mr. Bernstein, your best option is to own real estate abroad, since governments rarely reach beyond their boundaries to seize assets of law-abiding citizens.

Deflation, the persistent drop in the value of assets, is extremely rare in modern history, Mr. Bernstein says. It has hit Japan but almost nowhere else in the past century, thanks to central banks that print money to drive up prices.
The best insurance against deflation is long-term government bonds. Diversifying your portfolio into international stocks also helps, since deflation often doesn’t hit all nations at once.

While bonds protect you from deflation, they expose you to inflation—far and away the likeliest source of deep risk. Mr. Bernstein notes that inflation can destroy at least 80% of the purchasing power of a bond portfolio over periods as long as 40 years. That is deep risk at its deepest—a hole so profound most investors can’t get out of it in a lifetime. That happened in, among other places, France, Italy and Japan from 1940 through 1979, Mr. Bernstein says.

The best insurance against inflation, he says, is a globally diversified stock portfolio with an extra pinch of gold-mining and natural-resource companies. Treasury inflation-protected securities, U.S. bonds whose value rises with the cost of living, also can help.

But holding stocks to insure against deep risk drives your shallow risk through the roof. While stocks should protect you against inflation in the long run, they are guaranteed to expose you to frightening price drops in the shorter run. That, in turn, could push you into the final frontier of deep risk: your own behavior.

Most investors can’t survive the pain of plunging prices, Mr. Bernstein says, unless they have a surplus of both cash and courage.
If you have plenty of each, hang on. If you don’t, a sudden drop from record highs could lead you to bail out near the bottom, thereby inflicting a permanent loss of capital on yourself.

Look back, honestly, at what you did in 2008 and 2009 when your stock portfolio lost half its value. Then ask how likely you are to hang on in a similar collapse. Your own behavior can turn shallow risk into deep risk in a heartbeat.