Income Discovery allows you to seamlessly incorporate decisions regarding the timing and method of Social Security benefit claims into an income strategy. Social Security is an integral part of any retirement plan. Having an understanding of the rules and the different strategies available is important to maximizing retirement income while minimizing risks.
Basics of Social Security
Based on historical earnings, the Social Security Administration calculates an individual’s Benefit at Full Retirement Age, also known as Primary Insurance Amount (PIA). This is generally the monthly benefit amount that will be paid if an individual files for benefits at their Social Security Full Retirement Age.
An individual’s date of birth determines their Full Retirement Age (FRA) and when they are eligible for the full benefit amount. If benefits are claimed prior to FRA, the individual's monthly income amount is reduced. If benefits are claimed after the individual’s Full Retirement Age, monthly credits will accrue. In fact, all eligible Social Security recipients have the option to defer their benefits up to age 70 and receive credits towards a higher benefit amount upon filing. Whether it’s best to do so, however, depends on a number of variables, including cash flow needs, life expectancy, earnings record of a spouse and relative ages. Income Discovery eliminates the guesswork, giving advisors the flexibility to optimize Social Security in planning scenarios, or manually enter specific claiming strategies if desired.
Social Security in Income Discovery
The Social Security panel within the Sources tab is where inputs related to Social Security benefit amounts are entered.
The Social Security panel within the Strategies tab automatically configures multiple claiming strategies based on the inputs in the Sources tab. You can then use any one of the strategies while analyzing a custom plan, or you can optimize across all strategies using one click.
Social Security Claiming Options
There are many filing options available to both individuals and couples that Income Discovery considers when configuring an optimal Social Security strategy.
- File for Restricted – For certain individuals born on or before January 1, 1954, a Restricted benefit can be claimed on a spouse or an ex-spouse’s benefit in lieu of claiming your own benefit from FRA until the age of 70. A maximum of half the spouse’s benefit at full retirement age will be paid while your own benefits continue to earn deferral credits.
- File for Survivor – Widows and widowers have the option of claiming a Survivor benefit, if eligible. Survivor benefits can be taken for an entire lifetime or until your own benefits are claimed. Your own benefits will earn deferral credits while claiming Survivor benefits.
Clicking the icon in the Social Security panel within the Sources tab opens the input window. Based on the number of members in a household and the member(s)’ respective ages, different inputs are available.
Single Member Households
Single members, depending on their age and marital status, will enter in applicable data displayed in the pop-up including:
- Marital Status – Single member’s marital status including selections for divorcees and widow(er)s.
- Filing Status – Current Social Security filing status
- Benefit at FRA – Eligible monthly benefit amount if filing at Full Retirement Age
- Benefit Type – Type of Social Security benefit currently being received (only applicable when Filing Status is Filed and Claiming)
- Current Benefit – Current monthly benefit received from Social Security (only applicable when Filing Status is Filed and Claiming)
- Survivor Benefit – Benefit amount that can be collected based on the earnings of a deceased spouse (only applicable when Marital Status is Deceased Spouse)
- Spouse Benefit at FRA – Ex-Spouse’s eligible monthly benefit amount if filing at Full Retirement Age (only applicable when Marital Status is Divorced Spouse)
- Spousal Claim Age – Ex-spouse’s benefit claim age. This can be either in the past or an estimated future claim age (only applicable when Marital Status is Divorced Spouse)
- Spouse DOB – Ex-spouse’s Date of Birth (only applicable when Marital Status is Divorced Spouse)
- Spouse Gender – Ex-spouse’s gender (only applicable when Marital Status is Divorced Spouse)
- Spouse’s Life Expectancy – Estimated life expectancy of ex-spouse (only applicable when Marital Status is Divorced Spouse)
Married couples have various filing options available including the ability to collect Spousal benefits and Survivor benefits after one member of the household has passed.
The various filing options available for couples depend on each member’s age and current filing status. The applicable data to enter includes:
- Filing Status - Current Social Security filing status
- Benefit Type - Type of Social Security benefit currently being received (only applicable when Filing Status is Filed and Claiming for one member)
- Benefit at FRA - Eligible monthly benefit amount if filing at Full Retirement Age
- Current Benefit - Current monthly benefit received from Social Security (only applicable when Filing Status is Filed and Claiming for one member)
- Actual Filing Age – Age when member filed for current benefit (only applicable when Filing Status is Filed and Claiming for one member)
After the inputs are entered, select Save & Configure on the pop up. The tool will save the inputs in the Sources tab, and automatically configure three different Social Security claiming strategies in the Strategies tab.
Income Discovery automatically configures Social Security strategies and allows users to compare up to three different claiming strategies to be included in any income plan optimization. The tool returns the required steps and the respective benefit amount for each strategy. The first strategy, Max Lifetime, configures the claiming strategy where the household receives the maximum benefit amount based on the assumed life expectancy. The second and third strategies default to specific claim ages based on the user(s)’ current age(s).
Any member who has a Filing Status of Filed and Claiming cannot configure a different strategy because their benefits have already been claimed. For single individuals, the initial auto configuration not only strategizes the optimal time to claim their own Social Security benefits, but also takes into consideration eligibility to collect benefits from an ex-spouse or a deceased spouse.
To make changes or manually edit the results, select the icon in the Social Security panel within the Strategies tab. For example, Max Lifetime can be customized by unchecking the box labeled “Maximize Lifetime Benefits”. Names and claim ages for the other strategies can also be modified here.
In addition, expert users can manually edit the results in-line by double-clicking on a particular field or by pressing the pencil icon in the Strategies panel. There are no restrictions on what and how data is edited manually, including creating strategies that do not adhere to the regulations governed by the Social Security Administration. Only use the expert mode if you are well-versed on the Social Security rules and your client’s exact benefits.