Getting Ready for Retirement - What to do in your 50s (Marketwatch.com)

7 to-dos between 55 and 65 for a better retirement

By Dana Anspach

Shutterstock.com

Retirement will be here before you know it. Are you ready?

It was Roy Disney who said, "When your values are clear, your decisions are easy."

Many retirement decisions aren't only tied to your values, they are also irrevocable decisions. This isn't the time to play it by ear. By planning ahead, and starting with your values, retirement decisions do get easier.

Work your way through these seven action items, and you'll be facing your own retirement planning with ease:

1. Prioritize values

Time and money are often interchangeable. You may be able to retire earlier, giving you more free time, but the trade-off might entail living on less. For some of you this is an acceptable trade-off. For others, it isn't.

Now is the perfect time to dig deep, and think about what matters the most to you. There are no right or wrong answers. This is a personal choice. When you are clear about your values, it makes money decisions far easier. It even makes spending decisions easier. If you have a clear goal in mind and a target monthly or annual savings number to hit, then it becomes easier to say no to less important items that may hinder you from reaching your goal as quickly.

Once you have clear goals, find pictures and written statements that inspire you. Put them somewhere where you see them every day. Who cares if your family or co-workers think you're a bit wacky. They’re your goals, not theirs.

2. Know your net worth

Have you ever had to watch yourself on video? It's an uncomfortable feeling. Anyone who is in the entertainment field has to overcome this discomfort and learn to watch themselves over and over. This is how they improve.

This same discipline works for your finances. It can be uncomfortable to take an objective look at how much you have, how much you save, and how much you spend. If you want to improve this is a necessity. I started this practice years ago when I embarked on an effort to get out of debt. I tracked remaining credit card balances every single month. It was a powerful motivator to watch them go down.

For retirement, tracking starts with a net worth statement. This a list of what you own, minus what you owe. You'll want to update it each and every year. As an adviser, it is fun for me to go back 10 years and show my client's their net worth statements then versus now. People are often surprised by how much progress they’ve made. You won't know unless you track it.

3. Estimate your benefits

Social Security offers financial features that cannot be purchased on the open market. Take advantage of this. The earliest age you can claim is 62, but you get a powerful boost if you wait and claim later. And if you're married, by planning together you and your spouse can take advantage of spousal benefits and survivor benefits. Survivor benefits function as a great form of life insurance, as the highest monthly benefit amount between the two of you is the amount that continues on for a surviving spouse, regardless of who passes first. By delaying the start date of the highest earner's benefit, you can be sure the survivor benefit is as large as possible,

 And if you are divorced, but have a prior marriage that lasted at least 10 years, don't forget that you have access to spousal benefits too.

4. Get a handle on health care

Too many people think Medicare will cover most of their health care costs once they reach age 65. Wrong. On average Medicare covers about 50% of your health care costs. The 50% that you pay will include Medicare Part B premiums (which are means tested — meaning the more income you have the more you pay), a supplemental policy, long-term care, and then there's dental care, eye care, hearing, copays, deductibles, etc.

When I run retirement expense projections I typically estimate about $10,000 a year per person for health care. This number can trend lower for those with retirement incomes under $75,000 and higher for those with incomes over $150,000. Of course you are already paying a portion of this now, as most people are paying at least a couple thousand a year in of out-of-pocket health care costs while working, so the incremental difference may not be as high as $10,000 a year. Your personal costs will also depend on things like where you live and how healthy you are.

5. Make an income timeline

In school I wasn't much of a history buff. I didn't like timelines as I couldn't see how memorizing the exact date of a bunch of historical events was going to have much relevance to my life. But future timelines are different. I love them.

A future timeline can be organized by month or by year. For retirement projections yearly is best. For budgeting purposes monthly works. You can use Excel or graph paper to lay out a timeline. Each column represents a year, and put in your expected income and expenses for that year and calculate the difference. This is a useful tool for laying out the varied start dates of sources of income, like Social Security and pensions, which may start midyear. You can also use it to account for periodic expenses, like a new car purchase, which may occur every few years, or only once a decade.

I use a monthly timeline for budgeting purposes so I know when to expect annual invoices for insurance premiums, home warranties, Christmas spending, and car repairs. I use a year-by-year timeline for retirement planning projections.

6. Outline options

There may be retirement possibilities you haven't thought of yet. Perhaps substituting a lower paying, lower stress job for a few years would work. In many cases this works if you stop contributing to savings during your lower earning years but don't start withdrawing yet. A transition to part-time work often works in the same way.

For some, a move to a different state can make a world of difference. This works if you live in a state with high taxes and high property values, and can move to a retirement tax-friendly state where you may be able to buy an equivalent home for less, freeing up home equity.

There are also options that involve reverse mortgages or annuities. These are viable strategies that, contrary to what many believe, can allow some to retire earlier, and often on more money.

7. Determine your level of engagement

Are you going to do your own planning and investment management, or hire someone to do it for you? Either way, you need to gain a basic understanding of how things change when you near retirement and what new risks you face. At a minimum, you need to know enough to recognize good advice from bad advice. I'd suggest you subscribe to publications particular to those near retirement. 

Books are also a great resource. Many of my fellow RetireMentors are experts in their subject matter and have written outstanding books that you can learn from. You are also welcome to a free download of the first chapter of my book, Control Your Retirement Destiny .

If married, you also need to consider your spouse's level of engagement. You may be the money person, but how will your spouse fare when you are gone? It is cruel to leave an unsophisticated spouse to figure it out on their own. At a minimum do your research so you can tell them what kind of assistance they will need when you are gone, and how they can go about finding the appropriate resources.

Some of these steps may sound boring, and to be honest with you, sometimes they are. But the results they deliver — in terms of less stress and greater peace of mind — are anything but boring.

Young Retirees: Can you use Obamacare before Medicare? (Morningstar)

Obamacare and the Early Retiree

One of the biggest risks for the early retiree has been the rising cost of health care and the pressure on savings when health issues arise.  

Helen Modly and Tommie Monez, 04/17/2014

We've all seen it--clients who are unrealistic about their spending habits, overly optimistic about the strength of their portfolios and the direction of the markets, and who just can't wait to embark on a leisurely retirement in their 50s or early 60s. But all too often, health-care expenses in the period between early retirement and Medicare eligibility have cratered those plans and dreams.

Enter Obamacare. Love it or hate it, the Affordable Care Act (ACA) offers an element of predictability in the health-care marketplace. Premiums based on pre-existing conditions are a thing of the past. The only criteria for setting premiums are age, geography, family size, and whether or not the applicant is a smoker. And, interestingly, not all states consider smoking status when setting premiums.
Levels of Coverage  There are four levels of coverage designated as Bronze, Silver, Gold, or Platinum. Premiums are lowest at the Bronze level and highest at Platinum. The difference is the out-of-pocket costs, which are highest for Bronze and lowest for Platinum. Bronze plans cover approximately 60% of the enrollee's total cost, 70% for Silver, 80% for Gold, and 90% for Platinum.

All plans must cover "essential health benefits" such as preventive care, prescription drugs, lab services, mental health treatment, pediatric care, maternity care, hospitalization, and emergency services (with no pre-authorization required). There are no longer lifetime limits on the amount of coverage.

Health-Care Premiums  Under the old rules, basically there were no rules. The insurance companies could use occupation, age, health history, or more to determine premiums. Under the ACA, rates for older adults cannot exceed three times the rate of a younger person. This is the heart of the concern that not enough young people will participate in ACA plans for the economics to be financially viable. However, this pricing restriction can be very beneficial to the younger retiree.

Premium Subsidies This is where the planning opportunity comes in. Government subsidies in the form of a tax credit will be available to help pay insurance premiums based on income. This assistance is available for people with family income that is between 100% and 400% of the federal poverty level. For 2014 that range is $15,730 to $62,920 for a family of two.

Premium calculations for purposes of the subsidy are based on the second lowest-cost Silver Plan, although the participant is free to choose a higher- or lower-cost plan. The maximum premium for those eligible for the subsidy is between 2% and 9.5%, based on family income. Since health-care premiums are higher for older people but the amount of the subsidy is based on income, the older enrollees derive a greater relative benefit.

Family income is defined as modified adjusted gross income (MAGI) using the IRS definition. MAGI includes wages, salary, foreign income, interest, and dividends. It also includes non-taxable income (i.e., muni bond interest) and non-taxable Social Security income. MAGI does not include income in the form of gifts or inheritance, and it does not take assets into account.

Here's how it works:

•  Sally and Russell are 62-year-old non-smokers earning $40,000 per year. This is 258% of the Federal Poverty Level
• Their maximum premium is 8.28% of income, or $3,312 per year ($276/month)
•  Annual premium for the Silver Plan is $14,500 (varies by state)
•  Government subsidy is $11,188 (77% of the plan cost)
•  Premium cost for Sally &  Russell is $276 per month if they choose the Silver Plan
•  In this Silver Plan, the maximum annual cost for health care is capped at $12,700 over and above the premium. Preventive services are covered without cost sharing.
•  For planning purposes, the worst-case scenario would be health-care costs of $16,012 per year ($3,312 premiums + $12,700 out-of-pocket expenses), or $1,334 per month.
• Cost sharing varies according to the plan type. A Platinum plan would have the highest premiums and lowest cost sharing limits.

How to Enroll An open enrollment period will be scheduled at the end of each year to purchase coverage effective the following year. 2014 open enrollment is Nov. 15, 2014, through Feb. 15, 2015. Coverage begins Jan. 1, 2015, if enrolled by the end of 2014. Enrollment may also be allowed throughout the year if there is a qualifying event such as marriage, birth of a child, or loss of employer coverage.

Is There a Catch? The premium subsidy is only available for participants who sign up using the exchanges, also known as the marketplace. Participants who purchase qualifying plans through health insurance brokers are not eligible for the tax credit. Clients who prefer to use a specific physician may find that the doctor participates in broker-sold plans, but not necessarily in the exchange-offered plan.

Individual health insurance plans in place on or before March 23, 2010, are grandfathered under ACA. They are not required to provide the essential benefits mandated by the ACA and therefore do not qualify for the premium subsidy.

What Happens if the Participant Makes Too Much Money? This is similar to any other underpayment or overpayment of taxes. When applying for health insurance on the exchange, applicants give their best guess as to income for the coming year. They can apply all, part, or none of the subsidy to the premium. At tax time, the account is settled as part of the personal income tax filing. If the income estimate is too high, some or all of the subsidy may need to be returned. If income is lower than expected, or if the taxpayer elected not to apply the subsidy to the insurance premium, the subsidy will come in the form of a refund.

Making the Numbers Work

•  Lower the MAGI--Bronze plan participants may be able to contribute to a Health Savings Account, which reduces the MAGI.
• Contribute to an IRA--If the early retiree has worked part time or retired during the year, he or she may be eligible for a deductible IRA, which will reduce the MAGI--a great last-minute planning opportunity.
• Prepare income and dividend projections for the existing portfolio.
•  Consider dividend and income before making changes to asset allocation.
• Determine whether or not smoothing income or staggering high- and low-income years provides the greater benefit.

The system was designed to make health-care costs comprehensive and affordable at all income levels. Right or wrong, by ignoring assets as a criteria, the system can also provide benefits for those who are relatively affluent. Whether or not the early retiree is eligible for subsidies or prefers to shop outside the exchanges, advisors now have better tools for predicting future health-care costs than in the past. Removing the fear of financial ruin due to unpredictable health-care costs should make for a more carefree retirement.

Social Security - When to Start Taking Your Benefits (NY Times)

Social Security at 62? Let’s Run the Numbers

By JOHN F. WASIKMAY 14, 2014

FOR many retirees, Social Security benefits are seen as hot money on the table, to be devoured as soon as possible. But as with preparing and savoring a fine meal, a careful approach and delayed gratification may yield the highest rewards from the program.

Many financial planners advise that you wait as long as possible before receiving benefits. Despite this, a sizable number of Americans who have reached 62 — 41 percent of men and 46 percent of women — apply for Social Security at 62, the earliest age at which you can take payments. The way Social Security works, this will lock in the lowest possible payment for life.

Individual dollar totals over the course of a retirement are never easy to predict, but unless your current health prognosis is gloomy, the longer you expect to live, the more sense it makes to delay benefits.The “early” approach works if you need the money immediately. A lot of people, especially the millions who haven’t saved much, do need it. But the decision would penalize you over time. You would be passing up a progressively higher benefit available in each of the next eight years. This period includes when you reach what Social Security calls your “full retirement age” — 66 for those born between 1943 and 1954, as old as 67 for later arrivals — and what might be called a bonus period after that, ending at age 70.

By receiving Social Security at 62, you take a haircut on potential future payments of 30 percent compared with a 6.7 percent reduction at 67. For those waiting until age 70, Social Security offers an 8 percent yearly rate of increase in payments (not including cost-of-living adjustments) over taking benefits at 62. That easily beats what you would earn in government bonds these days.

The “wait to take” strategy makes even more sense when you consider longer life spans. On average, women reaching age 65 today can expect to live to age 86 and men to 84, according to the Social Security Administration.About a quarter of this group will live past 90. If you’re relatively healthy and there’s longevity in your genome, you’ll probably need the extra money.

Then there is the cost-of-living adjustment, making Social Security one of the few inflation-adjusted retirement benefits around — at least for now. But keep an eye on Washington: Several proposals have been floated to trim the cost-of-living adjustment, though none have made it through Congress and all are likely to be extremely unpopular among current retirees and near retirees.

Prof. Richard H. Thaler, the University of Chicago behavioral economist and Sunday New York Times columnist, said that with most people claiming Social Security benefits within a year of eligibility, “they are passing up a chance to increase the most cost-effective way to get more inflation-protected annuity income, which is to delay claiming. For those who are strapped for cash, it may be better to start drawing down their 401(k) assets sooner and keep building up their Social Security credits.”

The extra dollars gained add up in a profound way for those who delay benefits until 70. Assuming a “full retirement age” of 66, a $1,000 monthly payment at that age becomes $1,320 at 70 if the recipient waits until that age to begin drawing it.

Uncle Sam’s 30 percent waiting bonus is in addition to any money you contributed to your other retirement plans and savings during those eight years of delayed payments, assuming you didn’t make withdrawals and were working or contributing to your savings. And keep in mind, there’s also the persistent power of compounding, which will multiply your nest egg, depending on how you invested and rate of return.What if you chose to work past 62 and then collect Social Security at 70? In addition to the boost in Social Security benefits, your 401(k) could grow significantly in those eight years, even with conservative assumptions. Let’s say you had a $250,000 balance in your 401(k) at age 62 and decided to stay in the plan by contributing 10 percent annually with a 50 percent employer match (up to 6 percent). At a modest 5 percent rate of return, based on an $80,000 salary and 3 percent annual raises, you’d have nearly $482,000 at age 70. But things get more complicated if you have a spouse and you choose to work longer.

There are some tricky rules regarding how spousal and survivor benefits are paid, so it would be worthwhile to talk to a qualified financial adviser or the Social Security Administration to see how to reap the maximum benefit. The simple math here is that higher-earning spouses should wait as long as they can before taking Social Security. The higher his or her preretirement income, the higher the spousal or survivor’s benefit. Conversely, it’s less of an advantage for the lower-earning spouse to delay since benefits are tied to lifetime earnings.

For same-sex couples, the process would work the same, but with one wrinkle: Couples have to be legally married and live in states that recognize the union. All of the other eligibility rules apply.

Another strategy is that the higher-income spouse can file for benefits, then ask the Social Security Administration to suspend payments. Then, the lower-earning spouse files for a “spousal” benefit — half that of the higher earner. This produces some cash flow until the top earner files for the maximum payment at age 70 and the other spouse can file for his or her regular benefit, which would also be a higher payment. It’s an interim strategy that might work for those who want to work longer or semi-retire.

“Focus on the full lifetime benefit for both spouses and delay until 70,” said Marty Allenbaugh, a certified financial planner for the mutual fund firm T. Rowe Price. “Protecting a survivor’s benefits is really important.”

Howard Hook, a C.P.A. and financial planner in Princeton, N.J., says you need to consider a wide range of health, income and tax issues before making a decision. While it’s tempting to take early benefits because of ill health, many underestimate their longevity.

“It comes down to your needs, not your health,” Mr. Hook advises. “Who’s working? Who has a pension? What kinds of savings do you have? If they don’t need the money now, I’m likely to tell clients to defer taking Social Security.”

Yet another approach — if you don’t mind locking in a lower payment — is to take Social Security at age 62 and let your nest egg grow as long as possible before withdrawing funds. That’s assuming Social Security and other savings, if available, could cover your daily living expenses. To make that determination, you would need to prepare a cash-flow analysis showing how much you and your partner or spouse need to cover your weekly expenses, then run a calculation showing how your savings could grow under certain assumptions like rate of return, additional contributions and employer match. You could work with a financial planner on this or use any number of free calculators on the Internet. Be sure to evaluate tax considerations and the effect on future payments to survivors.

Although Social Security math gets gnarly when two people are involved, there are a number of calculators that can help you reach a decision. TheSocial Security Administration provides simple tools to help you calculate retirement age, longevity estimates and benefits. T. Rowe Price has a free tool that can work with Social Security’s numbers.

Keep in mind that Social Security can be a small but integral part of a complex puzzle of pensions, annuities, savings and other sources of income. A certified financial planner, certified public accountant or chartered financial analyst can review possibilities that take into account all of your assets and your tax situation.

The best decision allows you to maximize income, build your nest egg and not worry about running out of money.

A version of this article appears in print on May 15, 2014, on page F2 of the New York edition with the headline: Social Security at 62? Let’s Run the Numbers

Inherited IRA Tips (Forbes Magazine)

http://onforb.es/13LhpwX

Inherited IRA Rules: What You Need To Know

Many people who inherit IRAs are unfamiliar with the rules that apply to them. My article for Forbes magazine, “Five Rules For Inherited IRAs,” gives a broad overview of the subject. In this post I answer questions from two readers with concerns that affect other people, too.

Michael Twersky, a 26-year-old consultant in New York, asks:

I inherited a $15,000 traditional IRA from my father. As a child beneficiary, will I avoid income tax upon withdrawal if I wait until I’m 60? If not, would it be better to withdraw now while I’m still in a pretty low tax bracket?

You don’t have the option of waiting until you are 60 to take withdrawals. Generally, non-spousal IRA heirs must withdraw a minimum amount each year, starting by Dec. 31 of the year after the IRA owner died. Note: This is true whether it’s a traditional IRA or a Roth (a common misconception).

To calculate this distribution, you take the balance on Dec. 31 of the previous year and divide it by the inheritor’s life expectancy, as listed in the IRS’ “Single Life Expectancy” table. (You can find the table in IRS Publication 590, “Individual RetirementArrangements (IRAs),” which downloads here as a PDF.) Unless the account is a Roth, there is income tax on this required payout.

Don’t make the mistake, as some people do, of using the number from the table to figure a percentage. In subsequent years, you simply take the number you used in the first year and reduce it by one before doing the division.

If they choose to, IRA inheritors can draw out these minimum required distributions over their own expected life spans, as explained here. This is known as the stretch-out – a financial strategy to extend the tax advantages of an IRA. Stretching out the IRA gives the funds extra years and potentially decades of income-tax deferred growth in a traditional IRA or tax-free growth in a Roth IRA. This is a wonderful investment opportunity.

If you weren’t aware of the minimum distribution requirement and have not taken the required withdrawals, see my post, “What Happens When IRA Inheritors Miss A Key Deadline.”

6/09/2010 @ 6:00PM

Five Rules For Inherited IRAs

Before they inherited $3 million in retirement accounts from their father last year, the three middle-aged siblings didn’t know it was possible for heirs to stretch out the tax benefits of such accounts for decades. But what they also discovered after his death is that doing this is tricky–and in some cases impossible–if the original owner of the accounts didn’t fill out his beneficiary forms just so. Although their 78-year-old dad was a lawyer, “He may never have realized that it made any difference,” says a daughter, who has spent days trying to sort it all out.

Whether you’re inheriting an IRA or aiming to protect your own heirs, you’ve got to dance the IRS jig.

1. First, do no harm.

If you inherit a retirement account, don’t do anything until you know exactly what rules apply. With your own IRA you can take the money out and redeposit it in another IRA within 60 days without penalty. Not so an inherited IRA. All movement of money must be from one IRA custodian to another–be sure to specify a “trustee-to-trustee” transfer. Moreover, unless you’ve inherited from a spouse, you must retitle the IRA, including the original owner’s name and indicating it is inherited, e.g., “Daddy Warbucks, deceased, inherited IRA for the benefit of Little Orphan Annie, beneficiary.”

If two or more people are named as beneficiaries, ask the custodian to split it into separate inherited IRAs. That avoids investment squabbles and allows a longer stretch-out for the younger heirs.

2. Beneficiary forms rule.

The beneficiary form on file with the custodian of an IRA controls both who inherits it and its ability to be stretched out. If people other than a spouse are named as heirs, they must begin taking distributions from the account by Dec. 31 of the year after inheriting, but they can draw these out over their own expected life spans, enjoying decades of income-tax-deferred growth in a traditional IRA or tax-free growth in a Roth IRA. To give your heirs maximum flexibility, name both primary and alternate individual beneficiaries–say, your spouse as primary and kids as alternates or your kids as primary and grandkids as alternates. Your primary beneficiary then has the option of “disclaiming” or turning down the account, enabling it to pass to the younger alternate.

By contrast, if an estate is named as beneficiary, tax deferral is cut short. If it’s a Roth IRA, all funds must be withdrawn within five years. For a traditional IRA the same rule applies unless the former owner was already 70 1/2–the age at which a traditional IRA owner must begin cashing out. In that case the distribution rate for the heir is based on the age of the person who died, notes Rockville Centre, N.Y. CPA Edward Slott.

What if there’s no beneficiary form on file? Heirs are at the mercy of the IRA custodian’s default policy. Vanguard Group and Ameriprise award an IRA first to a living spouse and then to the estate. Merrill Lynch sends it straight to the estate. Few custodians will pass on an IRA directly to the kids without a beneficiary form.

---

3. Employer plans are different.

By federal law the money in a 401(k) goes to a spouse, unless he or she has signed a form waiving rights to it. But some employer plans will allow the funds to go straight to the kids if no spouse is living and no beneficiary form is on file. On the other hand, employers usually won’t let nonspouse beneficiaries stretch out 401(k) withdrawals. These beneficiaries should ask the employer to transfer the money into an inherited IRA. They can then divide it into separate inherited iras, says Natalie B. Choate, a lawyer with Nutter McClennen & Fish in Boston.

4. Spouses have more options.

A spouse who inherits–let’s assume it’s the wife–has an option not available to other inheritors. She can roll the assets into her own IRA and postpone distributions from a traditional IRA until she turns 70 1/2. The catch is, like other IRA owners she may have to pay a 10% early-withdrawal penalty if she takes money before age 59 1/2 from her own IRA. So a young widow should generally wait until after reaching 59 1/2 to do the rollover, says Brooklyn, N.Y. CPA Barry C. Picker. Meanwhile, she doesn’t have to take out any money until her late spouse would have turned 70 1/2.

5. Watch for distribution traps.

If the late IRA owner was 70 1/2 or older, beneficiaries must make sure the owner’s mandatory distribution for the year of death is withdrawn before doing anything else. When nonspouse beneficiaries take their own payouts, they should be aware of two quirks. First, if the estate paid estate tax, they may be able to take an itemized deduction to offset some IRA income. Second, the minimum is calculated differently than for your own IRA. You take the balance on Dec. 31 of the previous year and divide it by your life expectancy listed in the IRS’ “single life expectancy” table, rather than the table used by IRA owners. The next year you use the same life expectancy, minus a year. (With your own IRA, you take a new life expectancy from a table each year.)

Little Known Social Security Benefits (Bankrate.com)

RETIREMENT

7 little-known Social Security benefits

ByJennie L. Phipps• Bankrate.com

Retirement» 7 Little-Known Social Security Benefits

  

That FICA guy won't be your buddy

In the first season of "Friends," Rachel Green looks at her first paycheck as a waitress and asks, "Who's this FICA guy, and why is he getting all my money?"
That's one hard lesson about Social Security. Another is that when it's time to claim, you can't depend on the Social Security Administration to be your personal adviser.
In an effort to save time and cut costs, Social Security employees generally don't give case-specific advice. So that means you are on your own to make the most important financial decision of a lifetime. You have to read the rules and do the research yourself.
William Meyer, whose website, Social Security Solutions, gives Social Security advice for a fee, says you also can't depend on Social Security to follow instructions you give them electronically. If you have a request that is not the most common choice, you'll need to go to the Social Security office and make the request in person, he says.

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Myriad ways to claim the goodies

There are many ways a married couple can decide to take their Social Security benefits, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. You can't ask Social Security to list them all, so what's the right choice?
Munnell says it's hard to beat waiting until you're 70 to begin benefits because the monthly payment is 76 percent higher than it would be if you had started to take benefits at 62 and 32 percent higher than it would be if you claimed at age 66.

 

Betting against death

On the other hand, some people advocate drawing Social Security benefits at the first opportunity.
Doug Carey, who founded the financial planning software firm WealthTrace, says Social Security doesn't see itself as an oddsmaker, but it does require you to bet on your longevity. He offers this chart as proof. It graphs the break-even point for a person who earned the inflation-adjusted equivalent of $70,000 per year for 35 years. If this person waits until 70 to claim Social Security and lives until at least age 90, he'll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there's a possibility of losing the bet and getting nothing.
Retired law professor and Social Security expert Merton Bernstein says the longevity bet odds are bad, so claim early. "You never know when the bell will ring. I subscribe to the Woody Allen principal: 'Take the money and run.'"

A reward for delaying divorce

If you're not happy in your marriage after 9 1/2 years, hold off before hiring a divorce attorney.
"Stay married for at least 10 years," says San Francisco-based Bank of America personal banker Raphael Gilbert.
Why? That's what it takes to stake a claim to your ex-spouse's Social Security benefits. If you terminate the marriage after nine years and 11 months, you're out of luck.
If you make it for 10 years, you can collect a Social Security benefit based on up to half of your ex's earnings  

Bigger reward if ex has 'departed'

And we have another dirty little secret for you. If you haven't remarried, chances are your ex-spouse is worth more to you dead than alive -- especially if he or she was a high earner. Once an ex-spouse passes away, you'll be treated just like a widow or widower. If you are at least 60, you'll be able to collect your late-spouse's benefit and allow your own benefit to grow unclaimed until you reach age 70, when you can switch if your own is higher, according to Carol Thomas, who worked for the Social Security Administration for 28 years and answers questions about Social Security at RetirementCommunity.com.
Assuming your ex will dwell on Planet Earth to a ripe old age, the longer your ex-spouse delays claiming Social Security, the better it is for you. So, if you get a chance, encourage your ex to work until age 70. Then, when it's all over, you'll get to claim half of his or her maximum Social Security. Or once you and your ex-spouse reach full retirement age -- usually 66 -- you can claim half your ex's benefit and let your own grow untouched until you're 70, says Thomas. Consider it payback.

  

More flexibility for widows and widowers

Social Security does a good job of explaining widow and widower benefits, but Dan Keady, director of financial planning for TIAA-CREF Financial Services, says it doesn't clearly spell out a key difference between widow/widower benefits and spousal benefits. A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits or begin with survivors benefits and later switch to benefits based on his or her own record -- even if the surviving spouse is filing before full retirement age. You can't do that with spousal benefits.
In other words, a widow can begin drawing a survivors benefit on her late husband's Social Security when she is as young as 60, but only at a reduced rate. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age -- or even age 70. This works for widowers, too.

 

SSDI step 1: Hire help

When you apply for disability insurance, Social Security doesn't tell you that your first step ought to be hire a lawyer or other expert adviser. Allsup, a private firm that advises people about how to get SSDI, says Social Security doesn't even make it clear that an applicant can have representation from the very beginning of the application process. As a result, lots of people don't get help until they've been initially denied, and that slows down the process unnecessarily, according to Allsup spokeswoman Mary Jung.
Jung also warns SSDI applicants to be accurate and precise on the application. Small mistakes can make a big difference. Minimizing how much exertion was required to perform the person's job is a common mistake that frequently results in denial of a claim.  

35 years is the magic number

The Social Security website offers an explanation of how your benefits are calculated, but it's a little hard to follow. You can find a simpler explanation at MyRetirementPaycheck.org, a website sponsored by the National Endowment for Financial Education.
Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages. Each year's wages are adjusted for inflation before being averaged. If you worked longer than 35 years, the government will use the highest 35 years. If you worked for less than 35 years, they'll average in zeros for the years you are lacking. You don't have to be a math genius to figure out the impact of that -- it drags down your average. If you can avoid zeros by working a couple of years longer, you'll increase your Social Security payment.

 

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