When it comes to social security, the biggest decision clients need to make is whether to claim at age 62, full retirement age (FRA), or age 70, right? It certainly can be that simple, but there are many next-level nuances to consider. To become your clients’ go-to resource for their social security planning needs, start by mastering the foundational rules—then, you’ll be prepared to address the more complex aspects of their situation, too.

Mastering the Basics

Retiree benefits. Clients who are not disabled may collect social security retirement benefits beginning at age 62. If clients claim their benefit prior to FRA, however, it will be reduced permanently. The amount of the reduction depends on the number of months prior to FRA that they collect. The benefit may be further reduced for clients who claim early but continue to work, under the Social Security Earnings Test. Please note: Any benefits withheld due to the earnings test reduction will be repaid once the client reaches full retirement age.

Clients who claim social security at FRA are entitled to their full benefit, whereas clients who wait until age 70 will earn delayed retirement credits of 8 percent per year, maximizing the amount they receive.

Spousal and dependent benefits. Spouses are eligible to receive their own retiree benefit or a spousal benefit equal to 50 percent of their spouse’s FRA benefit, if their spouse has already claimed. The Social Security Administration (SSA) should automatically pay the higher benefit. Those claiming a spousal benefit between age 62 and FRA will see a reduction in the amount they receive, based on how early they claim.

In addition, a social security recipient’s dependent children may be eligible for benefits if they are 19 and younger and currently in high school. Keep in mind that the SSA has placed a maximum on the amount of dependent benefits it will pay a family; that amount is generally 150 percent to 180 percent of the retiree’s full benefit.

Survivor benefits. A widow/widower is eligible to collect a survivor benefit as early as age 60. The beneficiary must have been married for nine months and cannot have remarried prior to age 60. Further, claiming early will reduce the amount of the benefit received.

Unlike with spousal benefits, where most individuals will receive the higher of their own benefit or their spousal benefit, the survivor benefit can be considered a separate pool of money. Individuals can collect a survivor benefit and allow their own benefits to accrue delayed retirement credits until age 70, at which time they can switch to their own benefit if it’s higher.

Divorce benefits. Divorced individuals may be entitled to collect benefits on their divorced spouse’s record beginning at age 62, even if the ex-spouse has not filed a claim for his or her own benefits. (The divorced couple must be divorced for a minimum of two years and the ex-spouse must also be at least age 62.) The ex-spouses must have been married for 10 years or more and not remarried. Keep in mind that clients who have been married multiple times may be able to pick their benefit from among their exes, as long as the other criteria are met.

Getting Started: Questions to Ask Your Clients

The goal of social security planning is to maximize total benefits while ensuring that clients have enough income to support their lifestyle. The decision of when to claim requires a comprehensive exploration of clients’ current financial situation and their working years.

To start, be sure to ask your clients for their current Social Security Statement, which they can request online. The statement lists the current estimated social security benefits at age 62, FRA, and age 70. You’ll also see an accounting of the years in which the client paid into social security. If you see years with zero entries, be sure to ask why: Was the client unemployed during this period? Did he or she work in a government job? The latter situation could affect future benefits received.

Here are some additional questions you’ll want to consider:

• What is the client’s FRA?

• Was the client born before 1954?

• Can the client afford to wait to collect benefits?

• When does the client plan to stop working?

• If the client doesn’t plan to stop working, how much does he or she expect to earn annually?

• Did the client work in a government job or as a teacher? If yes, did he or she pay social security taxes?

• Are there any medical issues that may affect the client’s longevity?

• Was the client married previously? If yes:

  • How did the marriage end (e.g., divorce, annulment, death)?

  • How long was the client married?

  • Is the spouse still living?

  • If divorced, how long has the client been divorced?

  • Did the client ever remarry? At what age?

• Does the client have any dependents still in high school?

Strategies for Maximizing Benefits

Once you have answers to these questions and a clearer idea of where to focus your planning efforts, you can look into specific strategies for maximizing the benefits your clients receive. Here are a few places to start, depending on your clients’ age and marital status.

Married couples where at least one client was born before 1954. In this situation, the younger spouse claims benefits early, or, if both spouses were born before 1954, the one with the lower retiree benefit claims early. Then, the other spouse, who is grandfathered under the law, files a restricted application for spousal benefits only at his or her FRA. (Remember: In general, when a spouse files a claim, he or she is considered to be claiming all benefits for which he or she is eligible; only those born before 1954 have a second option.) At age 70, the spouse receiving spousal benefits can switch to his or her own benefit, which will have accrued delayed retirement credits, thus maximizing the overall benefits the couple receives.

There are various industry tools available to help you illustrate the impact of this and other claiming methods. One such program, which Commonwealth advisors are given access to, is Nationwide’s Social Security 360 Analyzer. The tool’s reporting functions can be helpful during conversations with clients as you work with them to make the right decisions for their situation.

The output will look something like this:

Each report will highlight an optimal strategy to maximize benefits as well as the earliest claiming strategy based upon the parameters you enter.

Married couples born after 1954. Generally, the optimal strategy for a married couple is for the higher earner to wait until age 70 to claim benefits, as this will allow the spouse to receive a higher dependent benefit as well. This is not always the best solution, however, depending upon your clients’ financial situation. And some clients will insist on collecting their benefit no matter what. What you can do is present the bottom-line advantage of waiting to claim and compare it against how much the client can expect to receive if they claim when first eligible and at various points along the way.

Single clients. Is there an optimal strategy for single clients? The answer depends on several factors, including the ability to wait to collect and estimated longevity. Generally, the longer one waits, the greater the overall benefit. In the below example from Nationwide’s tool, waiting just three years had a significant effect on income; waiting eight years was even more impactful.

Navigating Complex Situations

The above scenarios are fairly black and white, but when you’re in the midst of planning conversations with clients, you may have to navigate your way through more nuanced situations. For example, one of the most common questions Commonwealth’s Advanced Planning team receives has to do with how the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) affect the benefits for individuals who did not pay social security taxes during their employment (e.g., government workers, some teachers).

The WEP reduces the government pensioner’s own monthly retiree benefit amount by one-half of the government pension amount. The maximum reduction is indexed annually ($447.50 in 2018). If you are working with a married couple, any spousal benefit the nongovernment pensioner spouse collects is based upon the WEP-reduced FRA benefit.

Under the GPO rules, the government pensioner’s monthly spousal or survivor benefit may be reduced by two-thirds of the monthly government pension amount. There is no maximum reduction amount here, however, so the social security benefit could be reduced to zero.

It’s important to note that the Social Security Statement does not reflect any reduction for WEP or GPO; however, the SSA can provide your client with his or her adjusted benefit number upon request.

Helping Clients Make the Right Decision

The decision of when to claim social security benefits is complex. Ensure that you are well versed in the finer points of social security planning rules to be prepared to answer any questions your clients may have. By helping your clients through this often overwhelming aspect of the transition into retirement, you can create a great opportunity to strengthen your relationship and further solidify the foundation of trust you’ve built over the years.