SOCIAL SECURITY BENEFITS: IT’S A PLANNING MATTER

iStock_000008687939XSmallI just read an interesting article from AARP that provided information to help you determine when and how to take your Social Security benefits and how you should relate that decision to your broader financial planning for retirement.  I regularly see clients after they have made these decisions, which may be irrevocable, and often without considering the alternatives or repercussions that might result.  Consider the following:

My clients, Frank and Mary, recently retired at age 66.  Frank’s income was substantial, and his Social Security benefit will be about $3,000 per month.  Mary’s income was very low, but instead of taking her individual benefit, which would have been around $1,000 per month, she instead opted to take her spousal benefit of 50% of his benefit, or $1,500 per month.  Mary also receives a pension of $750 per month.  They have substantial IRA savings of approximately $500,000.  Frank is in excellent health, but Mary has serious health problems.  They did not consider the following three factors:

  • If Frank had deferred collecting Social Security until he was 70, the monthly payments he would start receiving then would be 32% higher, in addition to any Social Security inflation adjustments between now and then.  Given Frank’s good health and his family’s longevity, deferring colleting Social Security could end up generating hundreds of thousands of extra dollars for him, or if he should die, for Mary.  Given the couple’s substantial IRA funds, using those funds to supplement their income during the intervening years might have been a wiser choice.
  • Instead of filing for benefits and collecting immediately, Frank could have filed but deferred collection until he was 70.  This would increase his benefits as described above but still allow Mary, in the meantime, to collect her spousal benefit of $1,500 per month.
  • In addition, Mary did not realize that by taking the spousal benefit of $1,500 instead of her own retirement benefit of $1,000 per month, she was potentially disqualifying herself from several MassHealth programs, such as the Frail Elder Waiver, PACE, and Caregiver Homes, that might help provide home care and other services if she needed them because of her medical problems.  That is because, to qualify for those programs, Mary would need to have monthly income of less than $2,130 per month.  Since Mary also has pension income of $750 per month, taking the spousal benefit of $1,500 gives her monthly income of $2,250 per month, thus permanently excluding her from qualifying for any of these programs.  If she had opted for her own Social Security benefit of $1,000 per month, she would then have income of $1,750 per month, but would qualify for these programs that could provide monthly services worth thousands of dollars.

So, before you file for benefits, analyze how your entitlement to Social Security fits into your broader retirement planning.  Duck

About Arthur Bergeron

Art has been practicing law in Massachusetts for over 30 years. He focuses his practice on elder law, estate planning, probate and trust administration, and land use matters. Art counsels senior citizens and their loved ones regarding elder law and special needs planning, asset protection and Medicaid planning. He works with individuals in all areas of estate planning, including wills, trusts, durable powers of attorney, health care proxies and living wills.
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