Baby Boomers And Social Security

Baby Boomers are the largest generation in U.S. history. Starting in January, the first of an estimated 82 million baby boomers turn 62 years old and become eligible for Social Security Benefits.

The Baby Boom is the most significant demographic phenomenon of the 20th century, shaping all aspects of our economic lives. The aging of the 82 million Baby Boomers has major implications not only for them, but for the generations of workers that follow.


Social Security Benefits

Now in its eighth decade, Social Security is arguably more important, and certainly more complicated, than ever before. Baby Boomers, for the most part, are on their own when it comes to planning for later life. Pensions and related safety nets are disappearing from the workplace. Thus, Social Security checks, the closest thing to a sure bet in most retirement budgets, are expected to play an ever-larger role in older Americans' financial security.

The rush of baby boomers is heading for retirement and the process of filing for Social Security Benefits. The process of getting that check, however, is sure to cause headaches for boomers and bureaucrats alike. The Social Security Administration's 1,300 offices nationwide already see 850,000 visitors each week and field about 68 million telephone calls a year. Would-be retirees, meanwhile, are about to discover that many factors -- taxes, a spouse's earnings history, life spans -- can muddy decisions about how and when to file for benefits.

You can, of course, keep things simple and take the plunge on your 62nd birthday. Even if that's your plan, you owe it to yourself and your spouse to learn about Social Security and how to get the most out of the system. Don't let Social Security just 'happen. There are a number of variables that you should consider before you start.


When Should I File For Social Security Benefits?

Should you file for benefits at age 62 or wait until later? The question refers to the Social Security agency's earnings test and the apparent penalty for collecting a salary and Social Security at the same time.

If you are under your full retirement age, the age at which you qualify for full benefits, when you first receive Social Security payments, and if you have earned income, $1 in benefits will be deducted for each $2 you earn above the annual limit. In 2008, the limit is $13,560.

In the year you reach your full retirement age, the penalty shrinks: $1 in benefits is deducted for each $3 you earn above a higher limit, $36,120 in 2008. Then, starting with the month you reach your full retirement age, the deductions end.

What most people don't realize is once you reach full retirement age, the agency recalculates your future benefits to compensate for any benefits lost due to the earnings test. For most people, the earnings test isn't a tax so much as a delay in benefits, and so you shouldn't stop working or limit your earnings in order to avoid it.

Where many advisers once recommended grabbing benefits at age 62 at which point your monthly check is reduced permanently by as much as 25%. Experts today say extended life spans and the demise of traditional pensions argue for waiting until your full retirement age, or later, to collect a paycheck. You get your largest possible benefit at age 70.


Foolproof Strategies?

Even foolproof strategies are no longer looked upon as foolproof. Let's say your doctor tells you that you have six months to live. So, it's obvious: You take benefits at 62, right? Maybe not. Because of Social Security rules involving spousal benefits taking a reduced benefit at 62 could serve as a cap on the surviving spouse's payout, reducing that person's future benefits by tens of thousands of dollars.

One way many couples can maximize Social Security benefits over their lifetimes is for wives to claim benefits at age 62, and for husbands to delay filing until almost 70. That's based on a number of factors, including income levels, life spans and survivor benefits.

Of course, 70 is a long time to wait for Social Security. So, here's a way to avoid the wait and still get a sizable benefit at age 70. You, the husband, at your full retirement age of 66, expect a benefit of $2,000 a month. Your wife at her full retirement age of 66 expects a benefit of $1,000 a month.

The strategy: Your wife files for a reduced benefit on her own at age 63, or $800 a month. You, at age 66, file for just a spousal benefit, based on your wife’s earnings. You would get $500 a month as your wife’s spouse.

Social Security allows you to get half of what your wife was projected to receive at her full retirement age. Then, at age 70, you apply for benefits based on your earnings history. With the delayed retirement credit which is the additional dollars you receive for waiting until age 70 to claim Social Security. Your benefit would be 32% higher, or $2,640 a month.

Social Security would stop your spousal benefit of $500 a month because you’re entitled to the $2,640, based on your own earnings, at age 70. Again, for this to work, you must wait until your full retirement age or later to file for a spousal benefit.

The nice part about this strategy is if you are trying to maximize yours and your wife’s combined benefits, you don’t have to wait three or four years beyond your full retirement age for a paycheck. You can start collecting benefits at 66 based on your wife’s earnings history, and jump to a considerably bigger benefit at age 70.


Confused About Your Security Benefits?

As you can see, the Social Security Benefits rules are complicated to say the least. To get a full understanding of how to put the maximum Social Security dollars in your pocket - give us a call at 352-622-1444.