Andrew Marshall Financial, LLC

Tag: Strategy

  • What are Social Security Survivors Benefits?

    What are Social Security Survivors Benefits?

    Social Security Survivors benefits are paid to widows, children, parents and ex-spouses of covered workers.

    The Social Security program actually consists of three benefit programs that make payments for various reasons. They are:

    1. Retirement benefits,
    2. Disability benefits,
    3. Survivors benefits.

    This post covers number 3, Survivors benefits. These are not the same as the benefits commonly referred to as spousal benefits.

     

    mother and child

    If a worker, who is covered by Social Security, dies and leaves family members behind, they are the “survivors” and are covered under the Survivors benefits program. Social Security will use the deceased worker’s record to calculate payments for his / her family.

    There are four eligible parties that may receive payments after the worker’s death. They are the widow (or widower if the wife dies first), children, parent, and ex-spouse. Each has detailed rules for eligibility.

    A widow(er) will get benefit payments if:

    • They are age 60+, or
    • Age 50+ and disabled, or
    • Any age and caring for a worker’s child under 16 or disabled and entitled to benefits on worker’s record.

    A child will get benefit payments if:

    • They are under age 18, or
    • Between 18 and 19 and still in secondary school, or
    • Over age 18 and severely disabled before age 22.

    A parent will get benefit payments if:

    • They are dependent on the deceased worker for greater than 50% of their support

    An ex-spouse will get benefit payments if:

    • They fit one of the three requirements for widow(er) above and were married to covered worker for 10 or more years, and
    • They are not entitled to a larger benefit based on their own record, and
    • Not currently married unless marriage was after they turned 60 or 50 and are disabled.

    Another aspect of Survivors benefits that comes into the payment amount is that the “full retirement age” (FRA) for Survivors benefits is different from the full retirement age for retirement benefits.

     

    Birth YearSurvivors FRARetirement FRA
    1937 or earlier6565
    19386565 and 2 months
    19396565 and 4 months
    194065 and 2 months65 and 6 months
    194165 and 4 months65 and 8 months
    194265 and 6 months65 and 10 months
    194365 and 8 months66
    194465 and 10 months66
    1945-546666
    19556666 and 2 months
    19566666 and 4 months
    195766 and 2 months66 and 6 months
    195866 and 4 months66 and 8 months
    195966 and 6 months66 and 10 months
    196066 and 8 months67
    196166 and 10 months67
    1962 or later6767

    This chart matters because a widow(er) or ex-spouse can start claiming benefits as early as age 60, but the benefit will be reduced. For the full benefit payment, the survivor must wait until their FRA in the center column above. For some people it is several months earlier than the full retirement age for Retirement benefits and they may wait unnecessarily long to receive their benefits if they are unaware of this anomaly in the Social Security benefits.

     

  • Importance of Later Years

    Importance of Later Years

    GradCapsYesterday I answered a press request asking about when is the best time to start saving for retirement. The standard answer is as early as possible. This comes from the idea that having more years to compound your returns will lead to a bigger account. I argue it’s the years at the end that are more important than the early years.

    First let’s review the power of compounding. When you invest money and earn a return, your account is worth more at the end of the year. In the second year, you earn return on a larger amount than the first year because your beginning balance in year two is the original year one principal plus the year one return earned. Each successive year will see larger gains as return is earned on a larger starting amount. The account will continue to grow even without new additions.

    When young people finish school and start working around age 22, they usually are not making a significant salary. This leaves them little extra money available for saving. If someone starts with saving $100 per month or $1200 per year, and earns 7%, then how much will they have after five years? My financial calculator tells me it’s $6,900.

    This person did the “right thing” and started early in their retirement savings. I would argue that saving this much by age 27 is not crucial to retirement. A large contribution in year six can easily make up for the first five years. It’s not necessarily how early you start, but a combination of how much is saved and for how many years.

    Now we look at return at the beginning of the 30 year time frame versus at the end. When this example person is 28 years old and in year six of compounding, a 7% return on the $6900 they struggled to accumulate over five years will return $483. At the end of the compounding years however, when the account value is say $1,000,000, then he/she will make $70,000 return in one year. Just one additional year at the end brings another $70,000 versus $483 at the beginning.

    As this person progresses in their career, they will receive pay raises and move up the corporate ladder. Using these pay raises wisely will have a more significant impact on their retirement than saving as early as possible. Staying invested at 7% for three additional years at the end of their career will turn a $1,000,000 portfolio into a $1,225,043. Twenty-two percent more savings for retirement. See the importance of the later years?