Social Security Optimization: Special Supplement Sponsored by Forethought

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Educate Your Clients and Prospects
Each issue of NAFA Annuity Outlook Magazine contains educational content that will help insurance
professionals educate themselves and their clients on various areas of retirement.
In this special issue, we cover the concept of Social Security Optimization, a hot topic within our industry.
This special supplement is sponsored by FORETHOUGHT.


Baby Boomers are finally getting forced into learning about Social Security. The subject, and its planning,
are not something your clients can rush into on a whim. This is where we need to address how to
take action.Social Security Optimization sounds difficult because there are a lot of options; as a matter of
fact there are over 817 possibilities from 57 basic variations.Each of the options, solutions and
implementation steps will vary with the unique situation of age(s), benefit amounts and needed cash flow.

A number of companies have developed software which takes all of the elements into account and calculates
the best possible results. Social Security offers some simple answers at
Before any planning can begin, we must address the thought process. We call this fact-finding and needs analysis.
With this process completed we will look at a scenario involving a married couple in determining their best options.
It will be just one of the many that is available. Finally, we will address the importance that Social Security
income represents over a lifetime and focus on how it is just part of an overall plan.

Gather all of your client’s financial information. What are the sources of income and what are their expenses?
Determine their standard of living needs for both now and into the future.

  • What are their sources of income? These could include current employment income, pension income
    from previous employment, IRA income (current or anticipated required minimum distributions),
    and investment income.
  • What assets are available if cash is needed for anticipated or unexpected needs? These assets could include
    cash, savings or checking, non-yielding investments and equity in real estate.
  • Do you have their most recent earnings history from Social Security?
  • What is available from Social Security?

Life Expectancy Calculator (1)
According to data compiled by the Social Security Administration:

  • A man reaching age 65 today can expect to live, on average, until age 83.
  • A woman turning age 65 today can expect to live, on average, until age 85.

And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10
will live past age 95.

To determine your client’s life expectancy, use a simple life expectancy calculator (there are many life expectancy
calculators, one option can be found at to get a rough estimate
of how long they (or their spouse) may live. Knowing this information can help them make a more informed
choice regarding when to collect Social Security retirement benefits.

Making the assumption that the full retirement age is 66, remember every year that they delay starting benefits from
Full Retirement Age to age 70, the benefit will increase 8%. Over the four years this is a 32% increase.

CAUTION: A common mistake is the decision to take income as soon as possible to receive as much
as possible in case of an early death. This action can dramatically reduce the benefit stream that is
vitally important at older ages. Ultimately, the goal should be for the maximum cumulative lifetime income.
Sometimes cash flow needs or a health situation will be a deciding factor to consider starting early. 

When To Start Receiving Retirement Benefits (2)
An information sheet can be downloaded from the Social Security site. It illustrates how much the benefit amount
can vary depending upon the age that distributions start. It is an example and each client’s benefit level will be
different based on their unique situation.

Social Security actuarially reduces benefits if taken early and actuarially increases benefits if taken late. Retirement
benefits starting at 70 are 76 percent higher than starting at 62. Spousal benefits are 43 percent higher at full retirement
age than at 62, and survivor benefits are 40 percent higher at full retirement age than at 60. These percentages assume
full retirement age of 66.

As your client approaches age 62 he/she has decisions to make. Let’s say full retirement age is 66 and the monthly
benefit starting at that age is $2,000. If your client chooses to start getting benefits at age 62, the monthly benefit
will be reduced by 25 percent to $1,500. This is generally a permanent reduction in the monthly benefit.

If your client chooses to not receive benefits until age 70, that increases the monthly benefit amount to $2,640.
The benefit amount at age 70 in this example is 32 percent more than your client would receive per month if he/she
chose to start getting benefits at a full retirement age of 66. This is with no Cost of Living Adjustment (COLA) increases.

During years when there is a Cost of Living Adjustment the difference can be much more. This example shows
how a client’s Primary Insurance Amount (PIA) can grow from $2,000 to $3,167 during the delayed timeframe.





















Retirement Estimator (4)
Note: To use this Estimator your client must log into their Social Security account.

This information is available at both local Social Security offices and online at A complete earnings history can be downloaded from this site. The site will ask several specific questions relative to your client to verify their identity. If they answer one of these questions incorrectly they will be locked out for the next 24 hours.

The Social Security website is a good place to begin learning about benefits, but searching for information can expose the complexity of the system. There are many variables to consider including:(5)

  • Benefit eligibility rules
  • Benefit entitlement rules
  • Calculation of Average Indexed Monthly Earnings
  • Calculation of Primary Insurance Amount (full retirement benefit)
  • Reduction factors for taking spousal, survivor, and retirement benefits early
  • Deeming provisions
  • Delayed Retirement Credit
  • Re-computation of Benefits based on earnings during retirement
  • Earnings Test
  • Adjustment of Reduction Factor at full retirement due to benefits lost via Earnings Test
  • Family Benefit Maximum
  • Option to start, stop (either immediately or later), and then restart retirement benefits
  • Windfall Elimination Provision (affects those with non-covered pensions)
  • Government Pension Offset (affects those with non-covered pensions)
  • Indexation of benefits for inflation

We won’t be able to address all issues here, but it is important to look at all variables.

How Much Money Are We Talking About:
Lifetime Benefits – If the monthly benefit is $2,000 today and your client lives: (6)

  • Over 10 years: $266,427 
  • Over 20 Years: $600,879
  • Over 30 Years: $1,020,725

(Assumes 2.3% annual cost-of-living adjustments)

Social Security Optimization Meets Financial Planning Optimization
We are first addressing Social Security Optimization. However, this must also be viewed in light of overall Financial Optimization. There are many moving parts to your client’s financial picture:

  • Cash Flow requirements – now and in the future
  • Healthcare Costs – now and in the future
  • Other Income – now and in the future
  • Taxation – now and in the future

One example is that at age 701⁄2 it is required that you begin taking the Required Minimum Distributions (RMD) from Traditional IRAs. This will increase your taxable income. In addition, if you are receiving tax- exempt interest income, this additionally may cause more of your Social Security benefits to be taxed. From this table you can see that if the combined total of your Adjusted Gross Income (AGI) (generally the bottom line on the first page of your tax return), plus one-half of your SS benefit, and any tax-exempt interest is over $44,000 for a married filing jointly couple, up to 85% of your benefits may be taxable.









Optimization Strategies

Each of the following strategies has a varying degree of benefit based upon the unique situation of the single or married filer. Each strategy may have required qualifications and potential limitations.File and Suspend (Claim and Suspend)If more money is needed right now, this strategy is not appropriate.This strategy focuses on a way for a couple to receive the maximum benefit over a lifetime. It makes a lot of sense for couples in which one spouse has earned substantially more. The process is for the higher wage earner to claim and immediately suspend benefits and wait to start higher benefits later. At the same time, the other spouse can begin claiming spousal benefits and not claim his or her own benefits until later. Whomever files and suspends has the ability to continue to work and avoids the potential of withheld benefits if earnings are above a certain amount. An added consideration in suspending until age 70 is to determine if doing so will provide the other spouse with a higher benefit when the filing and suspending spouse passes away.A variation of this strategy is Claim Now – Claim Later. The lower earning spouse, when eligible, can claim their benefits, which allows the higher wage earner to claim spousal benefits at full retirement age and delay claiming full benefits until later.Social Security after a Divorce
Divorce doesn’t necessarily end spousal benefits or eligibility. Benefits levels for a divorced spouse are the same as for a current spouse. Claiming Spousal Benefits as a divorcee will not affect the former spouse’s benefits.Several rules and conditions apply for claiming. Review parameters at

Claiming Survivor Benefits
This strategy seems straightforward. However, there are a number of conditions which may enhance or diminish eligibility. A filer may qualify for benefits as a married spouse and as a widow or widower. For example, the filer may be eligible for a widow’s or widower’s benefits from a deceased former spouse’s earnings record. If this filer remarries after age 60, and their new spouse files for Social Security retirement benefits that have spousal benefits available, the filer may choose which benefit to take, but not both. Same-sex marriages may not qualify.

Limiting Conditions
The Windfall Elimination provision may reduce Social Security retirement benefits for individuals who earned pensions through government work not covered by Social Security, such as under the Civil Service Retirement System. The Government Pension Offset is a provision that reduces Social Security spousal and widow/widower’s benefits if they’re based on the earnings record of a worker who spent part of their career in government employment not covered by Social Security.

Provide Professional Advice
Decisions made when filing can be permanent. There are certainly many options to consider and a strategy needs to be put into place before moving forward. Remember, that although Social Security is a vital part of the retirement planning process, sustainable lifetime income should be the end goal. Take into account other sources of income, investments, taxation, and the risks of inflation and health care costs.

(5) Dr. Laurence Kotlikoff, Annuity Outlook, “The Power of Social Security Optimization Finding $120,000 in 2 Minutes Was Just The Start”

This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. Neither Forethought, nor its agents or employees, provide tax or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice.

NAFA, the National Association for Fixed Annuities, is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities. NAFA is the only association whose sole purpose is advocating for the fixed annuity product.

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