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Hi, I'm Jim Mahaney with Prudential.
A few years ago, I coauthored a report
for Prudential on ways to maximize
one of the most important retiree benefits
that Americans receive, Social Security.
Many Americans may be leaving money
on the table when it comes to Social Security.
In fact, over 70% of retirees
are currently collecting reduced benefits
because they elected start receiving Social Security
prior to their full retirement age.
Married couples often elect to take
their individual benefits at the same time.
Many divorced women take their individual worker
benefits not knowing they actually could wait
and take that benefit once it has grown larger
but in the meantime take the
Social Security spousal benefit.
Many women who are widowed
upon entering their retirement years
are unaware of the ability to transition
from the survivor benefit to the worker benefit
to generate a higher amount of Social Security
over their expected lifetimes.
These point to one simple idea.
When possible starting Social Security benefits later
can significantly increase the value of the monthly benefit.
For example, if instead of starting your benefits
at age 62 you wait until age 70,
your initial monthly benefit would be projected
to more than double.
When it comes to strategies for married couples
divorced individuals, widows, and widowers
maximizing benefits requires thinking about
not only when to start taking benefits
but also which type to take first.
In many cases it may be possible
to start one type of benefit
while deferring another the deferred benefit will grow
and you can switch to it at a later time
which can make a significant difference
in terms of total lifetime payments.
The strategies, we outlined in a new report for individuals
who are divorced or widowed apply to either gender.
However, women generally have the most to gain
from understanding the options available.
That's because on average women live longer
and tend to accumulate a lesser amount in retirement savings.
To illustrate the impact Social Security
strategy choices can have.
Let's look at one approach a divorced woman
about to retire could use.
Let's assume that this woman's name is Carla
and that Carla wishes to retire from work
at her Social Security full retirement age of 66.
Carla can of course file for her own
Social Security worker benefits at age 66.
But Carla has another option,
because she was married for more than 10 years
and has been divorced for more than 2.
She could take spousal benefits at age 66
based on her former husband's work record
and delay receiving her own individual worker benefits
until age 70.
She could then switch over to that higher benefit
at age 70 and receive that higher benefit amount
for the rest of her life.
Let's look at this example in terms of dollars
Carla is eligible for a worker benefit of $1,200 per month
at her full retirement age.
Carla's former husband Seth also age 66
has a worker benefit of $2,000.
Generally speaking a spousal benefit
is equal to one half of the worker benefit.
So Carla would be eligible for $1,000 per month,
as a spousal benefit, 50% of Seth's benefit.
Because 1,000 is less than 1,200,
she like most people decides to claim her higher worker benefit.
Assuming cost of living adjustments of 3%
and assuming she will collect Social Security for say 25 years
her lifetime payments would be $525,000.
But what if Carla chose to take the spousal benefit first
verses their own benefit.
Carla would start a $1,000 monthly spousal benefit
at age 66.
Then at age 70, she would switch over
to what becomes a $1,782 monthly worker benefit.
Thanks to delayed retirement credits
as well as earning cost of living adjustments each year.
The projected value over the 25 years
has grown to $663,700 a 26% increase
over the $525,000 in the first strategy.
And if she lives longer than the 25 year planning horizon
she continues to receive that higher benefit.
Our new report lays out similar strategies
for people who are widowed at retirement
and it also discusses how married couples
can maximize their Social Security benefits.
The bottom line is that all of us
male or female, single, married, divorced, or widowed
should make sure we maximize the value of Social Security.
We encourage you to consult a financial adviser,
who can help you think through your Social Security claiming strategy.
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