Get the Most out of Social Security…While You Still Can

By Frank R. Owen, III

No one can predict what will happen with Social Security, but that doesn’t mean your clients have to leave money on the table.

Since its beginning in 1935, the Old Age, Survivors, and Disability Insurance program – otherwise known as Social Security – has been one of the most dependable limbs of the proverbial three-legged stool of retirement. Unfortunately, however, it’s quite possible that the best days of this government program might be behind us.

Social Security was designed to be a pay-as-you-go (PAYGO) system, with current workers funding the benefits of retirees. In 1935 the ratio of workers to retirees was 42 to one. Today that ratio has plummeted to 3 to 1. As the baby boomer generation retires that ratio is going to dwindle even more.

With a PAYGO system in this condition, and a “lock box” basically filled with treasury notes, why would anyone count on Social Security in their retirement portfolio? It’s a model under increasing financial pressure.

Yet the Social Security Administration has reported that almost two-thirds of Americans derive at least 50 percent of their retirement income from Social Security. This is an alarming statistic and demonstrates the need for us as financial and retirement planners to encourage people to save for their retirement. But at the same time, the high percentage of retirees depending on Social Security intensifies the need for us to better understand the provisions and options within the Social Security program.


Social Security reform has always been a political hot potato, yet almost every discussion around reforming the program insists (promises) that those retired or near retirement will not be affected by any changes. If reform comes, however, there’s no assurance that promise will be kept.

As planners, we have to advise our clients on what we know about current provisions and alternatives both inside and outside Social Security. With so many retirees relying on it, we’d better be prepared to know how to advise them and position them to be less dependent on it.

As a 403(b) advisor, I hope our industry takes a proactive position in this debate. I believe we have some unique thoughts and ideas that might offer actuarial and long-term solutions to reforming Social Security. When so many people depend on it, and with the benefit under such pressure, it seems fair to say that our three-legged retirement stool is a little unbalanced.

The three legs of the stool, of course, are employer pensions, Social Security, and private savings. No wonder current surveys attesting to worker confidence in having a secure retirement reflect great concern over retirement security. State pension plans appear to be seriously underfunded, Social Security is predicted to run into deficits as early as 2017, the stock market has given us roller coaster rides; and interest rates are at all-time lows.

According to the Social Security Administration, two thirds of workers who acknowledge receiving a Social Security statement each year still aren’t exactly sure what their options are at retirement. This could be why almost 75 percent of retirees are receiving reduced benefits without knowing they could be getting more. If retirees understood that other options were available, would they choose them in lieu of receiving reduced benefits?

If our mission is to assist clients in preparing for retirement by ensuring that their assets generate a comfortable and secure retirement, then we need to know more about this program. As people are more concerned today about outliving current assets, let’s visit a few nuances of the Social Security program.

File and Suspend

Upon attaining retirement age, any worker can apply for benefits. However, the Senior Citizens Freedom to Work Act of 2000 created the option for one spouse to collect on another spouse’s benefit. While available starting at age 62, it’s best applied when attaining full retirement. Social Security benefits aren’t affected by earnings and benefit reduction if they’re received after full retirement age.

By filing and suspending, the worker’s spouse is entitled to receive 50 percent of the worker’s benefit. This allows the worker’s benefit to continue to grow at about 8 percent each year until age 70. By electing this option, spouses get a higher benefit than would be available under their own record, and the death benefit for the spouse continues to grow as well. Of course, if the spouse’s earnings record generates a benefit higher than 50 percent of the retiring spouse’s benefit, this option is not nearly as attractive.

Restricted Application

Restricted application is file and suspend in reverse. The retiring spouse has a higher earning record so the spouse that continues to work draws 50 percent of the retired spouse’s benefit until he or she reaches age 70.

They would then file on their own record and, in essence, create additional income from their spouse’s retirement to their own retirement. The key to both options is both workers reaching full retirement age with one spouse continuing to work. Of course they could also just draw down on their own assets.

Divorced Widow or Widower Benefit

If your client was married to someone for more than 10 years and isn’t married now, then at age 60 the client can claim a benefit if the ex-spouse is deceased. The same applies if the client is age 62 and his or her ex-spouse is at least 62. The key is that the client was married for 10 years or more, divorced at least 2 years, and not married at the time the benefit is filed. Gives “till death do us part” a new meaning, doesn’t it?

Benefits for a Minor Child

According to Social Security, 3.8 million children receive almost $1.6 billion in benefits each month because a parent is retired, disabled or deceased.

Retired and eligible for benefits? Yes, retired. Generally, a minor child can apply for and receive 50 percent of the retired worker’s benefit without affecting the retiring worker’s monthly benefits.

You can’t help wondering if FDR had this in mind in 1935 when he signed the Social Security Act into law. Maybe this plays a part in the financial concerns of this entitlement program today.

I do know this, however: As financial advisors and retirement planners, we need to know more about Social Security so we can better advise our clients. I know our working knowledge will enhance our client relationships because the knowledge we have in this area will enhance our client’s trust. It will generate more referrals as it sets you apart from others in this profession. We may not be experts on Social Security but we can certainly have a working knowledge and direct our clients to the right place for right answers.

For more information refer to www.ssa.gov and surf the net. Another resource is www.justfacts.com/socialsecurity.asp


Frank R. Owen III is president of F.R. Owen & Associates, a division of U.S. Retirement Partners. His broker dealer is GWN Securities. Frank is a past president of NTSAA and a member since 1995. He can be reached at frowen@frowen.com

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