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Caring For Generations

Why Social Security Decisions Are Part of Estate Planning

by | Dec 21, 2022 | Estate Planning, estate planning documents, Social Security benefits and estate planning

It’s important to understand that Social Security is an estate planning issue, Steve Parish, Adjunct Professor of Advanced Planning for American College teaches. That’s true not only because Social Security is a retirement benefit that must be used in a manner that reduces longevity risk (the risk of running out of income before one runs out of years of life), but because Social Security’s spousal benefit Is a form of death benefit “insurance”.

At Geyer Law, we’re aware how important longevity is as a consideration in estate planning, As RBC Wealth Management of Canada puts it: “What does longevity mean when planning to hand down your wealth?” The potential of living longer means setting aside extra funds for your own retirement years, the RBC authors aptly observe, and that could delay when you start passing down wealth to the next generation, and how much to give while you are still alive..

When it comes to Social Security in the U.S., your monthly benefit will increase for each month after your full retirement age that you do not file for benefits. That Delayed Retirement Credit is added to your calculated benefit at the rate of 8% annually.

Prof. Parish’s specific planning recommendations and observations include:

  • When planning as a couple, the higher-earning spouse should claim Social Security benefits as late as possible.
  • For higher-earning women, delaying Social Security benefits from age 62 to age 70 can result in a gain of as much as $179,999 for healthy women.
  • In the early years of retirement, income should be drawn from after-tax accounts, drawing those down, avoiding the “tax torpedo” (paying high taxes on Social Security benefits) while allowing the tax-deferred accounts to grow.

At Geyer Law, we view estate planning as giving our clients control over both their documents and their wishes for themselves and for their loved ones. As our Indiana estate planning clients plan both lifetime and post-death gifts and inheritances, life expectancy factors need to be considered. For one thing, individuals with income from wages, self-employment, interest, and dividends will need to pay tax on up to 85% of their Social Security benefit, so that planning gifts to others must take these tax liabilities into account.

Social security decisions and estate planning decisions are often interwoven, with the goal being to help clients first provide for both their own needs, then realize their dreams of helping both family members and their charities of choice.

– by Ronnie of the Rebecca W. Geyer blog team