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Your Bank > Education and Advice > CNB University

Setting an Example for Responsible Social Security Planning

Donna L. Cator
Donna L. Cator, CFP® is Vice President - Financial Planning Officer and can be reached at DCator@CNBank.com or (315) 781-2700 x42220.

I recently received a call from a local resident who is about to retire. He already had an appointment with Social Security but wanted to speak to me about the rest of his retirement assets. I explained that we should first prioritize a discussion around Social Security benefits to see if applying for benefits now is in his best interest.

The prospective client turned 65 on July 1st. He is married, his wife is age 65 ½ and started collecting Social Security at age 65. They both earned about the same Social Security benefits throughout their working careers.

At our meeting, I learned that they already had saved more than enough to meet their retirement income needs. They have a sizeable investment account, two small pensions and two IRA accounts - each at a different investment company. I educated them on the advantages of delaying the husband’s Social Security benefits. After realizing that by delaying his benefits to age 70 he will receive about 132% of his full retirement age benefit, he decided to delay. The difference in his monthly benefit was substantial and they didn’t need the income.

I also explained that he will be entitled to full (not reduced) spousal benefits when he turns age 66. So, in July of 2011, he has put on his calendar to apply for spousal benefits. He will then collect about ½ of his wife’s full-retirement-age Social Security benefit from age 66 to age 70. 

Delaying his own benefit will amount to increased benefits of about $480 per month or $5,760 per year when he begins collecting at age 70. He will collect his spousal benefit starting at age 66 which will be about $750 per month or $9,000 per year.

Had he done what he originally planned, he would receive $1,500 per month or $18,000 per year. Ignoring cost of living adjustments and assuming he lives to age 90 (longevity runs in his family and he is in excellent health):  

Social Security Options Annual Distribution Years Total Benefits
Original Plan

$18,000

25

$450,000

New Plan

$0

1

$0

Spousal Benefit

$9,000

4

$36,000

Age 70 Benefit

$23,760

20

$475,200

Total Benefit    

$511,200

This is a real dollar difference of $61,200. If we take cost of living adjustments (COLA) into consideration, the difference is that much greater- over $100,000 over the 25 year time period.

There are many variables that need to be considered before making the decision on when to begin receiving Social Security distributions: health status, life expectancy, lifestyle goals, financial resources, etc. Reviewing your circumstances with a trusted advisor who will help evaluate variables such as these is the most prudent course to take.

They were both so grateful for this useful information and couldn’t believe that I spent my time educating them on Social Security rather than trying to transfer their investable assets to CNB. Our main goal is to provide education and advice to the communities we serve so informed financial decisions can be made. The prospective client appreciated the fact that we do not work on commission, which allows us to take the time to listen and tailor solutions to best meet the unique needs of each client. Unlike some firms that care more about making a “sale”, our primary focus is building longstanding, mutually beneficial relationships with our clients. 

Outcomes may vary depending on each individual financial situation. For a free review of your personal financial profile, please contact us at our Geneva Office at 315-781-2700.