March 23, 2012

CONSUELO MACK: This week on WEALTHTRACK- why timing is everything when taking social security benefits. Social security expert Mary Beth Franklin teaches pre- and post-retirees how to maximize their benefits to get the most income for themselves and their loved ones, next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK. I’m Consuelo Mack. They say that timing is everything and there is one area of retirement planning where getting it right can make a huge difference in your retirement income and security. This week we are devoting our entire program to helping you maximize your and your loved ones’ social security benefits with the help of one of the acknowledged experts in the field, personal finance journalist, Mary Beth Franklin. More on her in a moment.

Most Americans assume collecting social security is a no-brainer- just start collecting yours when eligible. The reality is far more complicated and can make a difference of tens of thousands of dollars for you, your spouse and dependents, plus ex-spouses, widows and widowers. In an age when traditional pension plans are disappearing, more and more Americans of retirement age are depending on social security for all or a substantial part of their retirement income. For many it’s the only source of guaranteed income they have. According to the Employee Benefit Research Institute, in 2009, 60% of Americans 65 or older received at least 75% of their income from social security benefits. Last year, some 58 million Americans received some sort of benefit from social security. According to a Bankrate survey, over half of 62-year-old baby boomers- those born from 1946 to 1964- are expected to follow their parents’ example and file for social security at the youngest possible age, which is 62. And 75% of baby boomers are expected to file before age 66, the age when one receives full social security benefits.

The conventional wisdom when it comes to social security follows the old adage- a bird in hand is worth two in the bush and many Americans need the income that social security offers starting at age 62. But as you’ll hear from Mary Beth Franklin, the cost of such a decision can be high for millions of older people and their family members. Mary Beth is now a contributing editor at InvestmentNews, the leading trade publication for financial advisors. For many years, she was a senior editor at Kiplinger’s Personal Finance magazine and editor of Kiplinger’s annual retirement income issue. In a recent interview, I asked Mary Beth why timing is so important, when taking social security benefits.

MARY BETH FRANKLIN: Because it can mean the difference of tens of thousands, and in some married couple’s cases, $100,000 or more, over your lifetime. That is huge.

CONSUELO MACK: So the rule is that take your social security benefits as late as you legally can, is that right? Is that kind of the general rule of thumb?

MARY BETH FRANKLIN: That’s the general rule and of course, there’s exceptions to everything. Start with the basics. Yes, you can collect social security benefits as early as age 62. But if you do, it means you’re going to have 25% less in benefits for the rest of your life. That haircut doesn’t go away once you reach your normal retirement age. So the general rule is, if possible, wait ’til 66 so you can get a full benefit. And in some cases, particularly if there’s long lives in your family, you might want to wait ’til age 70, because for every year you wait between 66 and 70, you get an 8% increase.

CONSUELO MACK: In your benefits.

MARY BETH FRANKLIN: In your benefits. In other words, if you would get 100% benefit at age 66 and you wait until 70 to collect, you get 132%. Now, tell me, with the investments and CD rates and bond rates these days, where else can you get a guaranteed eight percent?

CONSUELO MACK: You know, it’s interesting, though, a lot of people will look at benefits such as social security and they’ll say, you know what? I might not live until I’m 66. And I certainly might not live until I’m 70. So you’re taking a chance, right, in that, in fact, that you might not live? In the meantime you’ve missed the income, even if it’s 25% less.

MARY BETH FRANKLIN: Yes, that is true.

CONSUELO MACK: How do you weigh those odds?

MARY BETH FRANKLIN: You know, a lot of it is your personal health. If you have some physical impairment, then you probably do want to take it at 62. The other thing to keep in mind is if you continue to work and claim social security benefits, you’re going to lose some of those benefits. It’s called the earnings cap, and it’s a very low level. If you collect benefits before age 66 and you continue to work and earn more than $14,640 this year.


MARY BETH FRANKLIN: Not a lot. You will start losing a dollar in benefits for every two dollars over that limit. So the first rule is, if you plan to keep working, as so many people say they plan to do now, don’t take benefits early. It just doesn’t make sense.

CONSUELO MACK: But at 66, the normal retirement age right now, and that’s going to go up to 67 when?

MARY BETH FRANKLIN: It will eventually go to 67 for people who were born in 1960 or later. But for right now, the first wave of the Baby Boom- and this is interesting, the first of the Boomers turned 66 this year, 2012, and that’s also the full retirement age. So we should think of 66 as the magic age at this point.

CONSUELO MACK: So normal retirement age, when you can start collecting, when you think we should start collecting our full benefits because we don’t get a 25% reduction in it, but the fact is, is there any cap from 66 on, in how much you can earn from?

MARY BETH FRANKLIN: No, it disappears at 66. So that you can continue working and collect a social security benefit and get your full benefit without reduction.

CONSUELO MACK: Now, of course always the devil is in the details. And if you’re a married couple, the rules can kind of change, right? So what you call is a combo, there’s an approach that you should take as a married couple where you might bend the rule that you just described a little bit. So tell us how, as a married couple, we should approach social security.

MARY BETH FRANKLIN: I want married couples to think of this just like any other investment. The way you would coordinate your investing strategy or coordinate your 401(k) strategy. You need to coordinate your social security benefits. Now, we did say in most cases you should wait ’til 66. Now here’s the exception to the rule: let’s say maybe you’re Ozzie and Harriet. The husband’s earned the big benefit most of his life, the woman’s had some earnings on her own record, but not a whole lot. She may actually, assuming she’s no longer working, take benefits early at 62. Yes, she’ll get that 25% haircut, but it’s only temporary because once he claims his benefit, she’ll step up to a higher spousal benefit. And more importantly, if he waits ’til 66 or later, what his benefit will be and if he dies first, which is actuarially likely, she then gets 100% of what he got during his lifetime. So by the bigger breadwinner waiting as long as possible to lock in the biggest social security benefit possible, he’s also securing the biggest survivor benefit possible. And that really should be the goal of most married couples. You want to look to maximize your income over both your lifetimes and have the biggest benefit left for the surviving spouse.

CONSUELO MACK: So the lower earning spouse, for instance, or the spouse in some traditional households- the Ozzie and Harriet household- the spouse that didn’t earn, the wife who did not earn any income during her life, then it’s really to their benefit to have her start collecting at 62. And she’s going to get social security income.

MARY BETH FRANKLIN: Bring some money into the house.

CONSUELO MACK: Bring some money into the house.

MARY BETH FRANKLIN: Now, this makes the assumption she’s had some earnings on her own record.

CONSUELO MACK: Right, otherwise she wouldn’t be able.

MARY BETH FRANKLIN: Otherwise she wouldn’t be eligible. So here’s another scenario: maybe the wife has never worked. And yet the husband does want to lock in this bigger benefit. And he plans to wait ’til 70. As long as he waits ’til age 66, this magic age, full retirement age, he can exercise a strategy called ‘file and suspend.’ What that says to social security is I am filing my benefits for the purpose that my wife can claim spousal benefits. And then I am immediately going to suspend my own and not claim them ’til age 70. So here’s a combo strategy. The wife gets to get the spousal benefit, which is worth up to half of what his benefit would have been. He delays up ’til age 70, when they get the maximum benefit. So you’ve got money coming in during probably those eight years, and then the maximum benefit later. It’s a huge strategy.

CONSUELO MACK: That’s so interesting, so how do you do this? You go to the social security office.

MARY BETH FRANKLIN: Well, this can get tricky. These nuanced strategies really only came to light in the last few years.

CONSUELO MACK: Thanks in large part to the research that you’ve done on maximizing your social security benefits, I might add.

MARY BETH FRANKLIN: I really feel, thank you, that this is my niche, and it has been my mission to let Americans know that this is probably the most valuable retirement benefit most people will ever get, and you have to be smart about it and you have to maximize it.

CONSUELO MACK: How do we take advantage of, let’s say, file and suspend? How do we take advantage of this? Do we go to the social security office? And say this is what I want to do.

MARY BETH FRANKLIN: It’s getting easier, but it’s not a piece of cake to get the benefits you deserve. Frankly, a lot of the thousands of social security administration employees are not as familiar with these strategies as they should be. I do tell people take copies of my stories. Call the social security administration. Make an appointment in person. They really do like most people to file online these days, if possible. But when you’re involved in any of these more complicated strategies, I think a face-to-face meeting helps. Go to the social security office, tell them what you want. If they say no, which is possible, be polite, ask to speak to a supervisor. If that doesn’t work, continue to be persistent. And contact me at Investment News. I’ll help you out, if they can’t. But this is really something you deserve, and if you can maximize these guaranteed benefits, which will last the rest of your life, and will be cost of living adjusted, for many people this is like a pension. A pension that many people wish they had.

The other thing is, it may help you let the rest of your money last longer. Yes, you might have to tap your other savings early on, but then this money’s going to be there the rest of your life. So overall it could give you a better quality of retirement income.

CONSUELO MACK: Let me talk about the file and suspend again. So the husband files at age 66, but he suspends taking his benefit until 70. And that’s kosher, that is legal.

MARY BETH FRANKLIN: That is kosher. Now, here’s another magic thing you can do at age 66, the magic age. File and suspend works if the husband needs to file so the spouse can get a benefit. She doesn’t have one on her own record, and then he suspends his own so it’s worth more later. Now let’s say you’ve got a power couple, they’ve both worked. Maybe the wife has claimed her benefit. If the husband waits until age 66 and he’s not planning to claim ’til 70, he can say to social security, now that I have reached 66 I want to restrict my claim to spousal benefits only. What that means, let’s say his power wife is collecting $2,000 a month. He reaches 66, he can say I want half of what she’s getting. He’d get $1,000 a month.

CONSUELO MACK: So it can work both ways. Both genders can.

MARY BETH FRANKLIN: Right, and he hasn’t tapped his benefit yet. His is going to keep growing. So again, a great way to bring extra money into the household and still make sure that one of the earners is going to get a maximum benefit so that if he dies first, then she will receive that survivor benefit, which is 100% of what he got during his life.

CONSUELO MACK: And this is going to sound repetitive, but I just want to make sure that I understand this. But so when does it make sense to claim your spousal benefits?

MARY BETH FRANKLIN: Spousal benefits are worth up to half of the other spouse’s income. For someone who has no earnings record of her own, the only social security benefits she’s going to get is a spousal benefit. However, he has to claim so she can get it. In that sense, he may want to file and suspend. File for the purpose that she gets half, gets the spousal benefits. And then he delays later, he suspends his own ’til a later date.

CONSUELO MACK: Okay.  So let’s talk about the exes. And this is so fascinating, because I didn’t realize that your ex-husband or wife can actually claim benefits based on your earnings.

MARY BETH FRANKLIN: It’s the ultimate revenge. When I do some public speaking on this to consumer audiences, the look I get of relief and joy from the audience of women who are divorcees, yes, I could get some of this payback! The basic rule is you must have been married at least ten years in order to claim social security benefits on your ex. And you also must not be currently married. Doesn’t matter if he has remarried. If you are currently single and you were married at least ten years, you can claim social security benefits on your ex.

CONSUELO MACK: Do you have to consult your ex before you claim the benefits?

MARY BETH FRANKLIN: No, and the best part is, maybe he says, well, you know what? I’m never going to claim. And you’ll never get it. Doesn’t matter. When you are a divorced spouse, as soon as your ex is eligible, even if he or she doesn’t claim, you can claim benefits. Okay, now the other basic rules apply. You can claim as early as 62, but if you are still working, you are subject to the earnings cap. And more importantly, if you wait until 66, the magic age, you can do a combo strategy. You could perhaps claim spousal benefits only on your ex record, not claim on your own until age 70, when it’s worth more, and switch. So this is really important information for divorced spouses. Now, doesn’t matter, he may have remarried, he may be currently married. What you do does not affect his current spouse. And there’s no limit to that.

CONSUELO MACK: So let me just make sure that I understand this. This is a rich area to mine. So if your ex, whether it be a male or a female, let’s say could you wait until they are 70 to collect half, and in which case you’re going to collect a much bigger benefit? And if they die, do you get their survivor benefits?

MARY BETH FRANKLIN: Yes, you are also entitled to survivor benefits, even if he is married to someone else. You both get survivor benefits. Now, that’s a good thing you brought up. Survivor benefits. Now, we just talked about the rules for divorcees. There are different and even more generous rules for widows and widowers.

CONSUELO MACK: More generous than for exes?

MARY BETH FRANKLIN: Yes, because you can collect as early as age 60. But again, you’re subject to the earnings cap.  So if you’re working, it really doesn’t make sense. And again, the easiest way to think about this is retirement benefits are one pot of money and survivor benefits are another. So you can claim on one and then switch to the other later. A widower, a widow may want to do this. They may want to claim survivor benefits now, and then assuming they have a work history of their own, wait ’til age 70 and switch to their benefit, it’s larger, or do it the other way around.

You can imagine the calculations that go into this. This is not something you should attempt to do on your own. And in the last couple of years, there’s been a lot more tools available to help you with this. I want to compliment the AARP, they came up with a great educational tool on their website. It’s free. It’s at, and it’s just called the Social Security Claiming Calculator. It’s a great way to familiarize yourself with all these convoluted rules. But I don’t think it’s precise enough to make decisions on it for financial planning. But it’s a great educational tool.

CONSUELO MACK: But there is a tool that you do think is a better tool, that you believe we should use as our One Investment for a long-term diverse portfolio? Something that we all should take advantage of, and that is?

MARY BETH FRANKLIN: Right, this is called It is a consumer site. It’s a for-profit site. In other words, you will pay for the advice, but it’s very modest. I know people don’t like to pay for advice when it’s often available for free. But literally it’s a modest price, and could mean the difference of tens, if not $100,000 over your lifetime. So I think it’s a good investment.

CONSUELO MACK: So that’s So how concerned should we be about the future of social security, and the benefits that many of us are depending upon receiving?

MARY BETH FRANKLIN: A lot of it depends on your age. I think social security will always be there. Particularly during this recession, we have demonstrated how critical of a safety net it is for retirees. So it will always be there. And even if Congress did nothing and the quote, ‘trust funds’ run out in 2036 or whenever that happens, there would still be enough money collected from payroll taxes to pay 75% of promised benefits. So it’s not going bankrupt, per se. But frankly, no one’s going to be satisfied with 75% of their promised benefits; they want all the benefits they’re promised.

I think people who are currently age 55 or older will most likely get the benefits that are promised under current law. I think people who are younger than that may have to accept the fact that there will be changes going forward, probably both on the tax side, maybe we’ll pay more in payroll taxes; on the benefit side, maybe you might have to wait even longer for full retirement benefit. But if history is any example on this, the last time Congress approved changes to the social security system, it took 17 years to phase them in. So I think everyone would have a pretty good heads-up of what’s going to happen. And we’re basically talking about today’s four-year-olds waiting ’til age 70 to retire. It’s not like it’s going to be a big surprise.

CONSUELO MACK: We spent a lot of time talking about strategies for married couples, what about singles?

MARY BETH FRANKLIN: For single people who have been single all their lives, not widowed, not previously divorced, for the most part it’s actuarially the same if they collect reduced benefits early at 62, they collect full benefits at 66, or they collect enhanced larger benefits at age 70. The difference in their case is going to be their state of health; if they have health problems, you probably want to collect early. But if, like so many people, you will live to 80 or beyond, the longer you can wait to collect benefits, the bigger the benefits are going to be, and it’s going to serve as effectively longevity insurance in those later years when you’re really going to need the money.

CONSUELO MACK: You know, and it’s so interesting, it can’t be stressed enough that if you wait, every year you wait from that normal retirement age of 66 to 70, you get eight percentage points more in benefits. So we’re talking about 32% more, if you wait until age 70, which is huge, per year.

MARY BETH FRANKLIN: Right.  And if you think of it, the difference between collecting at 62, reduced benefits, roughly 75% of your benefits, or waiting ’til age 70, it’s virtually double.

CONSUELO MACK: So Mary Beth, you have done some groundbreaking research on social security, started doing it several years ago. You discovered a do-over strategy for individuals who started collecting their benefits at 62, for instance, before they should have, to get the full benefits. One of the do-over strategies, a loophole has been closed, but there is one that you can still take advantage of. What is it, for those people who started collecting earlier than they probably should have?

MARY BETH FRANKLIN: If you have collected benefits and now realize that you shouldn’t, that you should have waited, you have 12 months from when you first claim benefits, to change your mind, pay back those benefits. And then when you start collecting later, there’ll be no reduction. It’s as if you had never collected them.

CONSUELO MACK: So give me an example, a for example how that would work.

MARY BETH FRANKLIN: Okay, I’m 62 years old, I am entitled to $2,000 a month at my normal retirement age, but I want them early. So I get $1,500 a month instead. And three months later I see a tape of WEALTHTRACK and I hear this conversation, I thought, I should have waited. Because I have been collecting benefits for less than a year, I can contact the Social Security Administration, I can withdraw my claim for social security benefit. I can pay back what I’ve already received. And then at a later date I will start collecting again at that full benefit, as if I had never done this before. And suffer no reduction.

CONSUELO MACK: And again, you’ve just got to go to a social security office and explain to them that this is what you want to do, and file the papers.

MARY BETH FRANKLIN: Right. And if you’re not getting the answer you believe is correct, be polite, be persistent, ask to speak to a supervisor. You will eventually break through to someone. And if not, contact me at and I’ll see what I can do for you.

CONSUELO MACK: So what haven’t we covered in the maximizing your social security benefits? What do you think, what should we cover that we haven’t?

MARY BETH FRANKLIN: I think people need to look at social security benefits as one of the most valuable pieces of retirement income, and something that they should treat with great respect. They should get advice, whether it’s with a financial advisor that might understand this. Or through some of the websites that I have talked about, to see the best way to not just increase the benefits now, but to really maximize the benefits over your lifetime. And while for most people, waiting ’til 66 makes sense, there are some cases, particularly for married couples, where one should collect early at 62, and the other should wait ’til later, at age 70.  But in between, there are these nuances at age 66, where you may be able to collect a little bit more.

CONSUELO MACK: Mary Beth Franklin, really such valuable advice for all of us who anticipate, or are collecting social security, to thank you very much. Contributing editor with Investment News.

MARY BETH FRANKLIN: Thank you for the opportunity to explain it.

CONSUELO MACK: At the conclusion of every WEALTHTRACK, we try to leave you with one suggestion to help you build and protect your wealth over the long term. This week’s Action Point follows up on Mary Beth Franklin’s recommendation about how you can get specific advice on maximizing social security benefits. Our Action Point: contact Social Security Solutions which, as Mary Beth mentioned, offers three levels of personalized reports at a modest price. If you go to our website,, you can find a code to receive a 10% discount, as well as contact information for Social Security Solutions’ website and phone number.

Next week we’ll continue our discussion about retirement income with financial planner Erin Botsford, the author of a new book, The Big Retirement Risk: Running Out Of Money Before You Run Out Of Time. She has a novel approach to matching your investments to your retirement needs. She calls it “lifestyle driven” investing and it’s definitely worth hearing.

If you want to see our WEALTHTRACK interviews ahead of the pack, subscribers can do so 48 hours in advance by going to our website,, and signing up. You can also watch prior shows and find our One Investment and Action Point recommendations. And that concludes this edition of WEALTHTRACK. Thank you so much for watching and make the week ahead a profitable and a productive one.


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