Products July 16, 2015

Social Security Guide Updated for Same-Gender Couples

Prudential’s 2012 “Innovative Strategies to Help Maximize Social Security Benefits” has been updated to address concerns for same-gender couples.
Reported by

Prudential Financial Inc. has updated its 2012 edition of “Innovative Strategies to Help Maximize Social Security Benefits.”  

The guide has gone through a couple of editions, says James Mahaney, author of the paper and vice president, Strategic Initiatives, at Prudential. This last update brings in the impact of the recent Supreme Court decision that lays the groundwork for same-gender married couples to collect spousal benefits “It serves as reminder that all married couples should look at their benefits to see how to maximize Social Security,” he tells PLANSPONSOR.  

Get more!  Sign up for PLANSPONSOR newsletters.

Unlike defined benefit (DB) plans, Mahaney says, that required people to start taking Social Security benefits right away, when the pension benefits began, “401(k) plans offer a great deal of flexibility, allowing people to draw income in ways that they can coordinate with their Social Security benefits.”

Most important for plan sponsors, Mahaney says, is to tell same-gender couples who are married or considering marriage to review their options as a spouse.

“There are two effective yet often overlooked strategies currently available for married couples, which now includes same-gender married couples,” Mahaney says. The file and suspend method allows the higher-earning spouse to claim benefits at full retirement age and voluntarily suspend the receipt of those benefits until a later time; this provides the lower earning spouse the opportunity to claim and immediately receive spousal benefits.

NEXT: Timing, salary levels and other factors of claiming strategies. 

The second strategy, filing a restricted application, allows an individual at full retirement age to receive his/her full spousal benefit first, while delaying the receipt of his/her own worker benefit, thus allowing it to grow larger through Delayed Retirement Credits.

Mahaney noted that the goal of the restricted application filing is to “step up” into what is usually a higher paying worker’s benefit at age 70. Other key points for individuals in married relationships include:

  • Regardless of which spouse dies first, the smaller benefit currently being paid out between the two spouses is eliminated while the larger benefit continues; and
  • Timing of when to claim benefits is a key decision; a financial professional can help individuals understand the options available when putting a claiming strategy in place.

The latest edition also includes updated key figures that impact how benefits are paid in 2015, explains how Social Security income receives preferential tax treatment during retirement, as well as provides descriptions and examples as to how married couples, divorced persons and widow and widowers can incorporate strategies to help maximize their potential Social Security benefits.

“It’s often a matter of people don’t know what they don’t know,” Mahaney says. On the cusp of retirement, whether divorced or widowed or married, people need to educate themselves about the options and the best ways to integrate Social Security benefits with a 401(k) plan or a defined benefit plan—“and do it as a couple,” he stresses.

“Innovative Strategies to Help Maximize Social Security Benefits” can be downloaded from Prudential’s website. The paper is also available in Spanish.

Data and Research July 16, 2015

Overspending Means Retirement Trouble

Two in ten employees say spending too much is the biggest financial mistake they have made.
Reported by

The Principal Financial Well Being Index for June 2015 finds 19% of working Americans feel “spending too much” has been their biggest financial mistake up to this point.

Another 17% feel “taking on too much credit card debt” has been their biggest financial mistake, while 10% say they do not know what their biggest financial mistake has been. Interestingly, just 11% say falling behind on retirement savings has been their worst financial mistake, despite the fact that it’s likely harder to catch up on years of lost savings than it is to craft and stick to a budget, or even to pay down reasonable amounts of credit card debt.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Paying down debt is the top money management priority for about a third (34%) of employees. Employees who do not use a financial professional (39%) are more likely to say paying down debt is a top priority compared to those who use a financial professional (20%). About a quarter (24%) say saving for retirement is their top money management priority—a number that jumps significantly among the employees who use a financial professional (40%) and falls significantly among those who do not (19%).

The numbers belie some serious cognitive disconnections between retirement and the other financial challenges faced by the typical American and highlight the critical role an adviser can play in constellating a web of financial difficulties into an actionable plan forward. And the support of advisers is clearly needed: The wide range of financial and personal factors that go into a successful retirement savings effort mean far more than 11% of people are behind on the retirement savings effort. Indeed, three in five (59%) say they are “concerned about their long-term financial future.”

NEXT: Confident or confused?  

Some positive trends emerge in the data. About half (52%) of employees say they have closely monitored their spending levels in the past year as a way to give themselves a financial checkup. Other findings show there was a 10 percentage point increase since early 2014, from 48% to 58%, in the number of people who are proactively monitoring their spending levels as a means of improving financial well being.

The data shows only about two in five (39%) people “feel stressed about their current financial situation,” down significantly from the 47% testifying as much in late 2014. Employees who use a financial professional (52%) are more likely to say they are happy with their current financial situation than employees who do not use a financial professional (31%).

Overall, Baby Boomers (31%) are less stressed about their current financial situation compared with Millennials (47%) and Generation X (41%). Over half of all employees (58%) say they “usually feel in control of their personal financial situation.” There's no surprise that employees who use a financial professional are much more likely to feel in control of their personal financial situation (71%) than employees who do not (54%).

And it’s not just financial factors impacting peoples’ outlooks: The majority of employees believe it is either extremely important (36%) or very important (33%) for them to remain physically healthy in order to avoid major health expenditures later in life. The vast majority of employees (87%) agree to some extent that being physically healthy is an investment in their financial future.

NEXT: When confidence hurts 

Writing about the research results on the Principal blog, Jerry Ripperger, vice president of consulting for the Principal Financial Group, agrees the numbers reveal troubling confusion and overconfidence—especially on the physical health side of the data.

“Employees are more positive about their health status than other research would support,” he notes. “For example, according to the National Institute of Health, more than two in three adults are overweight or obese. Similarly, more than 60% of Americans do not have enough funds set aside to deal with even a minor calamity.”

His prescription is much the same for both problems: “Many people either do not have a primary care relationship or fail to seek primary care. Avoiding preventive care also avoids early detection and intervention of disease. Similarly, many people go it alone and do not engage a financial adviser to help them with their long-term planning. As with preventive health care, working with a financial professional can help identify issues and create a plan to avoid them.”

It doesn’t help that few investors grasp the long-term savings potential of health savings accounts (HSAs), but Ripperger remains confident that more Americans are preparing themselves for a sound financial future. 

“Set goals,” he urges. “It’s hard to know if you got to your destination if you don’t know where it is. That is certainly true with your health. The same is true of your financial health. Setting goals with the help of your adviser can provide direction and a framework for moving forward.”

«