financial planning – Clever Benjamins

* The Bipartisan Budget Act of 2015 has updated the options available for claiming Social Security. Please click here for my updated post

Free $ From Social Security?

Sounds too good to be true doesn’t it? It’s not.

Social security optimization…this may not be the first time you’ve heard those three words, but I guarantee it won’t be your last. If you are approaching retirement and trying to map out your retirement income, those three words could have a major impact on not only your retirement income but also insurance and estate planning. Fact, every year you delay taking your social security benefit, your monthly benefit grows 8%. That’s pretty powerful. Can you beat that in the market?

Example of Monthly Benefit Growth

Age 66 Age 67 Age 68 Age 69 Age 70

$2,500 $2,700 $2,900 $3,100 $3,300

Obviously, the longer you wait the higher the benefit. Most people know this, but have you heard of filing a “restricted application for spousal benefits”? FREE MONEY! To better explain how this works let’s assume we are looking at a married couple. Mr. Smith is 60 years old and Mrs. Smith is 58 years old. Mr. Smith’s benefit at full retirement (age 66 and 2 months) is $2,500/mo. And Mrs. Smith’s benefit at full retirement (66 and 6 months) is $1,800/mo. One strategy to maximize lifetime benefits is as follows…Mr. Smith at full retirement age files for his social security benefits and immediately suspends payments. At age 70, he starts taking his benefit with delayed credits. Mrs. Smith at full retirement files a restricted application for spousal benefits (What is that?) Pause…a restricted application for spousal benefits allows a spouse to file for half of the other spouses benefit. Mr. Smith’s benefit at age 68 would be $3,046/mo. Half would be $1,523/mo. or $18,276/yr. FREE! There is no impact on Mr. Smith’s future benefits and because Mrs. Smith isn’t taking her benefit, her benefit continues to grow 8% a year until age 70. I’ve attached an illustration using a tool from Allianz Life. There are many out there, but this one explains the process the clearest and simplest way. In this scenario, using the above strategy would increase their lifetime benefits by nearly $470,000 compared to taking their benefits at age 62.

There’s more…the estate planning benefit. I’ve mentioned in the past that we like to see clients have at least 60% of their expenses covered by guaranteed income sources. Using the same example as earlier, let’s assume Mr. Smith dies early at the age of 75. His benefit at that time, assuming he started taking social security at age 62, would be $32,225/yr. With the optimization strategy in place it would have been $56,775/yr. 76% higher annual benefit! The remaining spouse, Mrs. Smith, has the choice of taking her benefit of $40,043/yr. or her deceased husbands benefit of $56,775. Easy choice.

Be clever with your benjamins!

Written by: Brad Kaplan

Request a FREE consulation: www.kaplanwealth.com

(703) 352-1780

No one wants financial stresses in Retirement! Here are three things that I believe you need to do in order to make your retirement years financially stress free.

Payoff your mortgage – With rates today so low, there is no argument that from a financial standpoint you are better off NOT paying down your mortgage early. BUT…This only works if you are disciplined enough to invest the money you would have used to pay down the mortgage. In my experience, people are less disciplined in paying themselves than they are paying bills. Things come up over time and they either stop investing or they dip into the investment account. To make staying on track easier, I would suggest three things. First, if you haven’t already done so, set up your payment to be automatically drafted from your bank account. Second, set up your payment bi-weekly (this alone could have you mortgage free 5 years earlier). You will have to check with your lender, if the loan only compounds monthly this won’t work. Interest must be compounded daily or be compounded monthly based on the average balance of that month. Last, figure out how much extra you would have to pay towards principal each payment to have your mortgage paid off at retirement. Then set up your automated payment to include the increased principal payment. Not all decisions are financial. The feeling of being mortgage free and eliminating, in most cases, the largest month-to-month bill can far outweigh the perceived financial benefit of having a mortgage and put a lot less stress on your retirement savings.

Have a Pension – Rule of thumb…at least 60% of your basic expenses during retirement should be covered by guaranteed income. Problem is pension plans are largely extinct today and 20 years from now Social Security may not exist in the same form we know it today. Volatile stock markets and low interest rates made pension plans very expensive for private businesses. Most employers have converted to 401(k) plans, which in turn, put the expense and risk of saving for retirement in the laps of their employees. If you are like most of us and don’t have a pension through work, you should look into insurance programs that can provide a guaranteed* income stream. There is a world of options available and no plan is perfect for every situation. Having a guaranteed income stream may help take the stress out of watching the markets and wondering if you are going to outlive your assets.

Get a Financial Plan – Going through the process of having a financial plan done is maybe the most important step towards retirement. It provides a road map to retirement, will identify any gaps or potential red flags, and assist in making sure any unforeseen life events don’t throw your plan off the cliff. At the very least it will help you work toward a financially stress free retirement.

Be clever with your benjamins, follow these steps and your chances of maintaining your pre-retirement lifestyle will become much easier.

Written by: Brad Kaplan

Request a FREE consulation: www.kaplanwealth.com

*Guarantees are based on the claims paying ability of the issuing company.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states:MD, MI, NJ, NC, PA, VA, WV