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Social Security 101, by M. Sharon Baker

October 11, 2013

Angela Deppe was surprised when her mother filed for Social Security benefits at the age of 62. While filing for benefits as soon as one is eligible is a very common practice, Deppe, a CPA, and her husband, a financial consultant, knew it was a major mistake. “She asked our opinion, and we told her she should wait,” says Deppe. “She was still working, and it made sense from a longevity point of view to delay accepting benefits.”

Deppe’s mother had talked with a financial planner and attended a Social Security seminar. She felt confident about filing as soon as she could. However, by beginning to receive benefits at 62, she was entitled to about 75 percent of her full payout. And based on her mother’s family history, Deppe expected her mom to live a good, long life.

“By our calculations, if she lives to be 90, she would have received about $116,000 more during the course of her life had she waited until the age of 70,” Angela Deppe says.

The couple shared the numbers with the family, and Deppe says her mother “was shocked that the potential lost income was so large.”

The plight of Deppe’s mother is an all too common issue, and it spurred Deppe and her husband to study the Social Security system. Last year, they coauthored the book It’s Your Money!: Simple Strategies to Maximize Your Social Security Income. Deppe also launched the website, which gives information on the Social Security process.

Her website should receive plenty of traffic. The Social Security Administration estimates that almost 58 million Americans will receive some form of Social Security benefits in 2013. That number is expected to continue to rise as more baby boomers retire.

Yet despite Social Security’s ubiquity, the Deppes say it is surprising how few Americans take the time to understand the details surrounding this monthly income and how best to maximize their benefits.

Social Safety Net

Launched by President Franklin D. Roosevelt in 1935, Social Security was created to provide retirement benefits to older Americans, many of whom lacked any kind of a safety net and were sinking into poverty during the Great Depression. The program was later expanded to include spousal benefits, disability benefits and medical programs, including Medicare.

The earliest age at which workers can start receiving retirement benefits is 62. The ages at which retirees are eligible for full benefits are based on the year they were born.

The amount of monthly benefits they receive is based on how much they have earned during their working years.

Those born before 1938 are eligible to receive their full retirement benefits at age 65. The retirement age increases by two months for each ensuing year of birth until 1943, when it reaches 66 and stays at that age for everyone born up to the year 1954. Thereafter, the full age of retirement increases by two months for each year until 1960. For those born in 1960 or later, the full retirement age is 67.

For decades, the conventional wisdom was for workers, like Deppe’s mother, to automatically sign up for Social Security benefits as soon as they were eligible. About 74 percent of Americans still elect to take this option for many reasons, including the need for additional income. Many younger workers may be attracted to the early age for benefits out of concern that the age for full retirement benefits will be increased.

There is also a pervasive worry that Social Security benefits may be reduced or even eliminated by the time recipients reach their full retirement age.

However, the decisions that retirees make about their Social Security benefits have long-term implications. With the financial impact of the recent recession, coupled with reductions or even eliminations of some pensions, Social Security income has become an increasingly important part of many retirement plans.

Another added wrinkle to this complex system is that those working for the Social Security Administration are allowed to offer factual explanations only, and not advice. Financial planners say seniors need to talk with financial experts and truly understand which strategies are best for them and their families. Financial planners caution that choosing the right options is often not easy.

“There are more than 2,728 rules and 567 ways to claim benefits, so doing this on your own can be very overwhelming,” says David Reyes II, a financial author and founder and chief investment officer for Reyes Financial Architecture Inc. in San Diego. “Many people make mistakes when claiming Social Security that can reduce their benefits by as much as 82 percent. And there are no do-overs—after 12 months, your choices are permanent.”

Experts caution that, just like the example of Deppe’s mother, those who choose to take retirement benefits early before their full retirement age may be reducing the total amount of their benefits for the rest of their lives by possibly as much as $200,000.

Another aspect of Social Security that isn’t well-known is that workers who delay receiving benefits past their full retirement age earn delayed-retirement credits that increase the amount of those benefits. The delayed credits can be collected until one reaches 70. Thereafter, no delayed credits are given.

These credits are also used when calculating survivor benefits. Child and spousal benefits are not affected by these credits.


Experts say one of the top concerns they hear from workers is whether Social Security benefits will continue in the future.

There are reasons for concern. Experts who study both the Social Security and Medicare programs have been saying for more than a decade that Social Security and Medicare are heading toward potential financial trouble. The reasons for this are clear: Money for Social Security comes from the payroll taxes on worker salaries up to the current threshold of $113,700. Salaries above this level are not subject to Social Security taxes.

The fund originally grew due to the large number of workers paying into the system and the relatively small number of recipients withdrawing benefits. Today, that equation is being turned upside down. Baby boomers are retiring and drawing from the fund at a time when there are fewer workers to pay into the system.

Despite such difficulties, many financial experts remain confident that reforms will be implemented and the programs will be continued.

Susan M. Talton, client adviser at Laird Norton Wealth Management in Seattle, says a few options open to the government include increasing Social Security taxes, which are currently at about 6.2 percent of a worker’s taxable earnings. Additionally, Social Security taxes could be levied on salaries above the current $113,700 income cap. Other options do include changes in benefits.

“Social Security has been reformed in the past, and that’s likely to happen again to keep the program sustainable,” Talton says. “However, that might mean some combination of delayed eligibility or reduced benefits.”

How much will you get?

The maximum monthly payout for someone who retires at 70 in 2013 would be $3,350. The average individual collects $1,261 a month, and the average couple receives a monthly benefit of $2,048, according to the Social Security Administration. Those seeking information on their monthly benefits or with other questions about Social Security should visit

What retirees actually receive, though, can depend on a number of factors, which is why financial planners say those nearing the age of eligibility should consult with a professional who is knowledgeable about Social Security strategies. Some of the questions seniors should be asking include when they should begin to collect benefits. They also need to investigate which benefits they should elect to receive.

Just a few of the many factors that impact benefits include marital status, age, whether retirees have been divorced and whether their spouses have passed away.

The rules governing spousal and survivor benefits are not well-known by most people and are also increasingly complex. However, making the right decisions concerning spousal and survivor benefits can have a large impact on a qualified recipient’s income.

Take the case of James, for example. He is 72, married, in excellent health and receives a Social Security income of $2,400 per month. Men in his family tend to live long lives. For calculation purposes, let’s assume that he lives to age 87. James’ wife is 66 and did not earn much income during her working years. Her Social Security benefits were expected to be $400 per month. The couple was going to start taking her benefits when they asked Reyes for help.

He advised them about spousal benefits and explained how, at age 66, she could receive income equal to 50 percent of her husband’s benefit—$1,200 per month—in spousal benefits. This figure would not affect her or her husband’s Social Security income.

James’ wife could take this benefit until her husband passed away. At that point, she would begin receiving his $2,400 monthly benefit. Using this strategy and factoring in cost-of-living adjustments, she would receive $144,000 more in Social Security benefits than if she’d taken early benefit payments at 62.

“This is basically free money that they were not aware that they could take,” Reyes says.

“Social Security is a complex system,” says Steve Juetten, principal of Juetten Personal Financial Planning LLC in Bellevue, Washington. “People need to know their options.”


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor.
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