Retirement strategy: How boomers can lock down Social Security income
By Paul Cross
Annuity National Brokerage Co.
This article explains how boomers can lock down and grow Social Security income into substantial sums starting at age 62.
For decades, the greatest fear was running out of money during retirement. That was until recent times, when so many have become fearful of going bust before retirement even begins. And now, Social Security incomes are in peril.
Here is how the numbers stack up as of February 12, 2011:
- Social Security liability: $14.8 Trillion
- Prescription drug liability: $19.6 Trillion
- Medicare liability: $78.2 Trillion
- U.S. unfunded liabilities: $112.6 Trillion
- Liability per taxpayer: $1,016,186
After paying into Social Security for 40+ years, each boomer's individual liability is now more than a million dollars.
The boomer Social Security lockdown
Relative to retirement dates, ages, and financial needs, we can help many people lock down and grow Social Security income into substantial sums starting at age 62.
The extension of Social Security’s full retirement age — when will it stop? The further out the normal retirement age is extended, the more people will die without having collected Social Security income and perhaps only a $250 death benefit.
Full retirement age is age 66 for boomers born between 1943 and 1954. You may start Social Security income at age 62, but you will receive 25 percent less income. For example, a $2,000 monthly benefit will be reduced to $1,500 if the income is started at age 62.
In a case study two years ago, Tom, age 60, took early retirement and a buyout from his employer, Caterpillar.
Tom’s pension plan and his 401(k) provide sufficient income. Now at age 62, should Tom take the Social Security buyout at $1,500 a month, or should he wait another four years for $2,000 a month starting at age 66? He doesn’t need the Social Security income. Should he take the Social Security buyout? If for 48 months, Tom deposited $1,500 a month into a 10 percent premium bonus annuity with a special lifetime income feature, it could grow into a large sum by the time he turns 66.
15 percent tax free. Tom will pay tax on 85 percent of his social security income, however, the cost basis of his annuity is 100 percent of his premium deposits.
Spousal buyout — The spouse will receive the larger of her Social Security income or an amount that equals 50 percent of her spouse’s Social Security income reduced by the appropriate percentage based upon age at early retirement.
The Social Security income deposited into annuities can be continued beyond age 66 if the income is not needed. Income from the premium bonus annuities may be started anytime after the first year or accumulate wealth for beneficiaries.
To lock down or not lock down is relative to individual circumstances and whether someone has earned enough income to reduce their monthly Social Security income. Earned income, not retirement income or passive income, above $10,000 will reduce Social Security income and may therefore merit the wait until a future date when earned income is reduced or eliminated or until full retirement age.
For those who start Social Security income early and then later have earned income or other income but are still not at their full retirement age, may opt to suspend the Social Security income and restart at a later date to their own advantage.
For more information or clarification, please leave a comment below. I look forward to hearing from you.