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When Maximum Isn’t Optimal

The first step in retirement income planning is generally looking at and maximizing the potential Social Security income stream when possible. Careful planning can give your clients thousands of dollars more income.

Maximizing Social Security alone isn’t necessarily best as your clients’ other income sources, retirement plans and investments may affect what is really best. And in some cases, taking Social Security at different ages than a maximization strategy would suggest may make a huge difference.

Consider this example: Bob is 60 and Barbara 58. Their Social Security benefit at Full Retirement Age is $2500 and $2000, respectively, with 2.5% cost of living increases. They estimate their monthly expenses in retirement to be $5600, with inflation at 3%. They expect to live longer than life expectancy, living to age 85 for Bob and 90 for Barbara.

Maximization has been suggested: when Barbara is 64, she will file for her benefits. At the same time, at age 66 and 2 months, Bob will file a restricted application for spousal benefits based on Barbara’s record. Using a 5% rate of return, the future value of their benefits is approximately $3.8 million dollars. This is over $488,000 more than both just filing for benefits at age 62.

Great job of planning, right? But, what about the rest of their income needs? Bob has other income of $500 until age 85. They have $1,000,000 in qualified plans. Estimated effective tax rate is 20%.

When evaluated inside their actual cash flow, the optimal Social Security method is different. Bob files and suspends until age 70; Barbara files a restricted application for spousal benefits and delays her own benefits until age 70. Bob and Barbara can afford to delay benefits until later, taking advantage of delayed benefit credits and higher survivor benefits. Optimizing Social Security this way produces an additional $27,802 future dollars.



Start Social Security at 65 Maximize Social Security Benefits Optimize Cash Flow
Bob starts benefits Age 65 Age 66 Age 70
Barbara starts benefits Age 65 Age 64 Age 66
Filing Method File for benefits Bob files restricted, Barbara files Bob suspends, Barbara files restricted
Future Value of benefits $3,443,616 $3,791,223 $3,763,154
Assets at Death -$158,439 $252,261 $280,063

Figure 2 from Cash Flow Decisions: The maximization strategy does produce more cumulative Social Security benefit dollars, but less available cash flow over the client’s lifetime.

When your clients’ other income and assets are added to Social Security projections, taxation and RMDs can significantly affect the outcome.


Try Cash Flow Decisions and see what it does for your clients’ retirement income!