|
E-mail this page to a friend!
Social Security News
Before Choosing Social Security's Early Retirement
Consider the Consequences
Expert explores implications for married
couples
May 23, 2007 - According to the Social Security
Administration, of the total aggregate income received by retired
Americans, Social Security benefits provide the lion's share: 42.5
percent. Because of the importance of this income source in retirement,
making educated choices regarding the benefit is critical; yet, many
fail to fully analyze these choices.
An article in the May 2007 issue of the Journal of
Financial Service Professionals, entitled "Social Security Spousal
Benefit Considerations in Early Retirement," asks the important
question: 'what are the implications of early retirement for married
couples who will be receiving the spousal benefit?'
Author Clarence C. Rose, PhD introduces his article
by detailing the Social Security landscape. He notes that, according to
the Social Security Administration, a majority of Americans -
approximately 60 percent - elect to begin receiving retirement benefits
at age 62, the youngest eligible age.
In 2007, opting for early retirement at that age
means a 25 percent reduction in the amount received as compared to
waiting until age 66. And the reduction in benefits is slated to
increase over time, so that early retirees in 2022 will take a 30
percent hit.
Rose notes that for two out of three Americans,
Social Security provides at least half of their retirement income. He
then enumerates the eligibility requirements for spousal benefits, which
generally can be said to accrue to the spouse of a worker when the
spouse's income is less than half of the workers, if a variety of other
conditions are met.
For those couples for which the Social Security
spousal benefit is part of their retirement income, the long-term
financial implications of early retirement are generally negative. Rose
uses a number of approaches to illustrate this finding.
First, a table shows the substantial reduction in
monthly Social Security benefits for both the covered worker and his or
her spouse when they choose early retirement.
A second table illustrates the combined percentage
reduction in benefits for a husband and wife opting for retirement at
age 62 whose combined benefits would have been $3,000 per month at full
retirement age. Those taking early retirement in 2007 would effectively
lose $800 per month. Alternatively, they could be said to receive only
73.33 percent of their full monthly benefit.
Table 3 illustrates the approximate Social Security
benefits based upon the covered worker's annual average income during
the 35-year time period considered for determining benefits for a
husband and wife using the spousal benefit. Again, opting for early
retirement is shown to dramatically reduce the combined benefits for a
married couple receiving the spousal benefit.
Finally, the author addresses the argument that by
receiving smaller checks for an additional four years (the period of
time between age 62 and 66), the ultimate benefit "evens out" over time.
A present value analysis shows that, although no one can predict for
certain how long they or their spouse will live in retirement, delaying
Social Security benefits is likely to yield a greater sum for most
couples.
Clarence C. Rose, PhD, is a professor of finance
and director of the MBA and Academic Outreach Programs in the College of
Business and Economics at Radford University in Radford, VA. Dr. Rose
can be reached at crose@radford.edu.
Published by the Society of Financial Service
Professionals, the Journal of Financial Service Professionals is one of
the oldest and most prestigious journals in the financial planning
field. From its roots in insurance, pensions and estate planning, the
Journal has evolved into a vehicle for groundbreaking applied research
in all areas of financial planning, including retirement planning,
investments, tax, health care, economics, ethics and other topics of
concern to insurance and financial advisors.
Editor’s Notes:
Founded in 1928, the Society of Financial Service
Professionals is the standard bearer for excellence in professionalism,
advanced continuing education, and ethical guidance for the nation's top
financial advisors. The Society has approximately 19,000 members, each
of whom holds one or more of the following recognized financial service
credentials: CLU®, ChFC®, CFP®, CPA, JD (licensed), RHU®, REBC®, CEBS® ,
CLF®, CFA©, CTFA®, CPC, EA and graduate degrees in financial services.
Active in nearly 200 Chapters nationwide, Society members assist the
public in their efforts to achieve personal and business-related
financial goals. Consumers can obtain free financial information or find
a Society member in their community by calling the Society's toll-free
National Consumer Referral Service at 1-888-243-2258 or visiting
www.financialpro.org.
Click to More Senior News on the
Front Page
Copyright: SeniorJournal.com |
