Social Security

William Reichenstein, Ph.D.

William Reichenstein

By judiciously deciding when to begin Social Security benefits, retirees can maximize their lifetime Social Security benefits, while saving tax dollars and prolonging the life of their retirement portfolio--in some cases significantly.

’They can stand to lose $100,000 or more in lifetime Social Security benefits and pay more in taxes if they don’t understand the complexities of the system,’ said William Reichenstein, Ph.D., an investments professor at Baylor University in Texas. His research focuses on optimizing Social Security benefits, financial planning, retirement investing, and tax-based investment strategies.

’If married couples do not optimize their decisions as to when each partner should begin Social Security benefits then they will have mismanaged a significant portion of their retirement assets,’ said Reichenstein, a professor of finance and the Pat and Thomas R. Powers Chair in Investment Management at Baylor's Hankamer School of Business. ’If they do not begin their Social Security benefits at the optimal time, it may cost them $100,000 or more in cumulative lifetime benefits.’

VIDEO: Dr. William Reichenstein offers advice to married couples on when to take advantage of their social security benefits.

For most households, Social Security represents more than half of their retirement assets, according to Reichenstein. For example, a wealthier-than-average newly retired couple may have a financial portfolio worth $500,000 and Social Security to fund their spending needs in retirement. Since Social Security may provide $1,000,000 in cumulative lifetime benefits in today's dollars, it represents two thirds of this couple’s retirement assets.

Taxes also can play a substantial role in eroding available funds during retirement. According to Reichenstein, most of the rise in the taxable portion of Social Security benefits occurs when retirees have between $200,000 and $600,000 in personal savings. In this range, each dollar withdrawn from their 401(k) usually causes either an additional 50 cents or 85 cents of Social Security benefits to be taxable, thus effectively raising their marginal tax rate.

Reichenstein also explained the benefits of taking Social Security benefits later rather than sooner, saying that doing so can mean an extra $200,000 worth of lifetime retirement benefits.

VIDEO: Dr. William Reichenstein gives tips on avoiding the "tax torpedo".

If you start receiving benefits at age 62, you’ll receive 75 percent of the benefit level you would receive if you waited until full retirement age (FRA) of 66. If you wait until age 67, you’ll receive 108 percent of your FRA benefit level. Begin benefits at age 70 and you’ll receive 132 percent. The difference in monthly benefits between beginning benefits at 70 instead of 62 is 76 percent. If you expect to live a long time and can wait that’s a lot of extra money,’ he said.

’Social Security is not meant to satisfy all your retirement needs. You need to supplement your Social Security income through personal savings,’ Reichenstein said. ’The higher your income, the larger the portion of your income you will need to save to maintain your pre-retirement level of spending.’

Reichenstein has helped develop software to help people decide when to begin Social Security benefits; see He is past president of the Southwestern Finance Association. He also served two terms as associate editor of Financial Services Review and served on the review board of the Research Foundation of the Institute of Chartered Financial Analysts.

He received his bachelor's degree from St. Edward's University in Austin and his doctoral degree from the University of Notre Dame.

To interview Dr. Reichenstein, contact Eric Eckert, at (254) 710-1964, or the Office of Media Communications at (254) 710-1961.