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How and why to advise clients on the start-stop-start Social Security strategy

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Brian Fields, Senior Consultant – Internal Practice Development with Waddell & Reed, Inc.

Great Practice Solutions

Every advisor knows a trick or two about creating retirement advantages for clients. However, you may not be familiar with a lesser-known – yet useful – Social Security strategy that can be helpful in the right situation. It’s called the start-stop-start strategy.

The start-stop-start strategy plays on the rules outlined by the Social Security Administration to potentially optimize income payouts for retirees. In many cases, Social Security represents one of the largest retirement assets clients will receive. So offering guidance on this strategy is an important value you can provide.

Generally speaking, 40 working credits are needed to qualify for a Social Security retirement benefit. The benefit is based on work history and is expected to start at Full Retirement Age (FRA). The rules allow the benefit to be collected as early as age 62, subject to an earnings test. When collecting benefits early, the monthly benefit will be reduced by about 25%, for people born between 1943 and 1954, but the benefit could potentially be paid out over a longer expected lifetime. Delaying the benefit until up to age 70 is also allowed. This strategy increases the benefit by about 8% per year of delay, resulting in an increase of 24%-32% above the FRA amount (depending on the FRA). In this case, more money will generally be paid out monthly over a shorter expected lifetime.

The start-stop-start strategy allows an individual who collected Social Security prior to their FRA to submit a request to the administration to suspend the benefit once FRA is attained. Doing this starts the 8% per year increase until age 70, when benefits would resume.

Clients should consider using the start-stop-start strategy if:

  • They need income during the early years of retirement but have resources to support the later years. Various things could drive this decision, such as retiring a mortgage.
  • A tag team approach is desired when an age difference exists between spouses. For example, the older spouse’s benefit could be started early and then stopped at FRA. The younger spouse then starts their benefit early and then suspends it at FRA. Both spouses would restart collecting benefits when each one reaches age 70.
  • They wish to delay triggering an annuity benefit to slip into a higher payout rate.
  • Other income streams are available that will pay out later but not soon enough to provide them what they need in the early years.

There could be many variations to these scenarios.
By opting to delay benefits in the middle of receiving Social Security, it accomplishes two things:

  1. The delayed step ups help to restore the benefit that was reduced.
  2. A delayed higher benefit could be an important provision for the recipient or survivor in the case of an early death of either spouse.

There are a few important things that you should keep in mind:

  • If other members of the family are receiving a benefit that is directly contingent to that of the recipient (this could be the spouse or a dependent child), suspending your benefits will also discontinue the benefit for them.
  • Medicare premiums are taken out of Social Security if a benefit is being received. Suspending the benefit requires making alternative direct quarterly payments to Medicare.

The rules surrounding Social Security are complex. Start-stop-start is not a single-filing process. Instead, it requires multiple filings to accomplish. As the advisor, you can drive the details.

Read here for the allowance of this provision:  https://www.ssa.gov/planners/retire/suspend.html

The information has been obtained from sources believed to be reliable but Waddell & Reed does not guarantee the accuracy or completeness of the information. This information is for educational purposes and it is not financial advice or a specific recommendation of any kind.

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