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For Pre-Retirees Delaying Social Security Benefits, New Tools May Help Fill Income

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New tools added to LifeYield’s Social Security Advantage solution could help pre-retirees supplement income while delaying Social Security benefits.

The Boston-based software company’s Social Security Advantage, which is currently used by more than 50,000 advisors and investors, was created three years ago to simplify the complex process of determining when and how an individual should file for benefits in order to maximize income in retirement.

“We always compute the optimal strategy, which means maximizing the benefits [the pre-retiree] can get from Social Security,” Mark Hoffman, CEO of LifeYield, told ThinkAdvisor. “Oftentimes that means delaying to get the maximum benefit.”

Often retirees think taking benefits means taking them as soon as they can, Hoffman added.

“The majority of folks, when they file for Social Security, file immediately,” Hoffman said.

According to Social Security Administration data, 42% of eligible men and 48% of women born in 1945 claimed retirement benefits at age 62. Only 28% of that cohort’s men and 23% of its women waited until age 66, also known as the full retirement age. Only 2% of men and 4% of women waited until 70.

However, a recent Government Accountability Office report revealed that few people realize Social Security benefits can go up by 8% annually for each year they delay claiming benefits, up to the age of 70.

The two new features LifeYield added to its Social Security Advantage solution will provide advisors and investors direction on how to fill income gaps during years where Social Security income might be lower as part of a strategy to maximize overall benefits, according to Hoffman.

The two features—called “Benefit Delay” and “Benefit Replacement”—will analyze and suggest where investment and/or insurance products can provide income during the gap years.

The Benefit Delay feature helps determine how to fill the income gap if filing is delayed, while the Benefit Replacement feature suggests how to replace income lost when the first of a married couple dies. 

“There are a lot of Social Security calculators out there, and they’re useful,” Hoffman told ThinkAdvisor. “[But they’re] not helpful with showing the optimal amount you could get. The calculators don’t help with any of the important questions.”

The Social Security Advantage tool also considers other options that would allow investors to reap the highest level of income – such as strategies in which married, widowed or divorced individuals switch between benefit types—all of which are difficult to determine manually.

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