Friday, 11 July 2014

Tips on Optimizing Guaranteed Income Sources in Retirement

Dyman Associates Insurance Group of Companies - In Part 2 of a three-part interview, T. Rowe Price's Christine Fahlund discusses getting the most out of Social Security benefits as well as longevity and long-term care insurance.

Christine Fahlund, senior financial planner for  T. Rowe Price Group (TROW), retired in May after 18 years with the firm. Before her departure, Morningstar's Christine Benz sat down with her to get her wisdom on creating a successful retirement plan.

In Part 1 of the three-part interview, Fahlund discussed how to assess whether you've saved enough to retire as well as the benefits and pitfalls of working longer. In this section, she addresses lifetime income sources, including Social Security and longevity insurance.

Christine Benz: You think Social Security planning is a very important aspect of retirement planning. Can you outline some of the things that people should be thinking about as they look to maximize their Social Security benefits?

Christine Fahlund: We believe that there are a variety of ways to enhance the amount you receive from Social Security. The preponderance of Americans are still taking it at 62. We want them to stop for a minute and educate themselves, talk to a financial planner, and come up with at least one strategy for them to consider other than, "We're just going to take it at as soon as possible."

For married couples, the way to maximize benefits is for both spouses to work until age 70, or at least to full retirement age for one of you and 70 for the other. The higher breadwinner should always be waiting until 70. The reason to wait until 70 is that benefit is the amount that the surviving spouse, whether it's the husband or the wife, is going to receive from Social Security once the first spouse dies. So, you definitely want to maximize that because in most cases we don't know who it's going to be or when it's going to be.

The frosting on the cake is in addition to waiting until 70, one of you could file and suspend your payments until 70, which would enable the other spouse to file and restrict his or her application to spousal benefits. So, depending upon the age difference between the two, many times, one of the spouses could receive four years' worth, from age 66 all the way to 70, of spousal benefits, and that might end up being, for example, $1,000 a month for four years. That's $48,000.

Now, it may not be quite possible to wait until age 70. It may be that 68 turns out to be the number, but you're going in the right direction. For us personally, some people would say, "I don't know why you and your husband both waited until 70." Some of that is an emotional decision, too. In our particular case, I felt that it would be ideal for us to get the largest checks possible from Social Security while the two of us are enjoying our retirement together.

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