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I HAD LUNCH RECENTLY with a longtime friend—a 66-year-old retiree. I asked him how he’s generating income since he hasn’t filed for Social Security and doesn’t have a pension.
He said that, for now, he’s just drawing down his savings. I know his wife is three years older and her lifetime earnings were much lower than his, so I asked him if she’d filed for Social Security. He proudly said that she hadn’t—because she expects to live to age 90, like her mother.
What he didn’t know: Because the Social Security benefit based on his wife’s own earnings record is less than half of his benefit as of his full Social Security retirement age (FRA), it probably didn’t make sense for her to delay her own benefit beyond her FRA.
Why? Let’s start with the basics: His wife’s spousal benefit is a maximum 50% of his FRA amount. Her benefit would be reduced if she receives benefits—whether it’s benefits based on her own earnings record or his—before her FRA. What if she claims after her FRA? That’ll increase the benefits based on her own earnings record. But it won’t increase her spousal benefit. Moreover, she can’t receive that spousal benefit until her husband claims his benefit.
Got all that?
Many retirees delay benefits until age 70, thinking that’s the prudent course, given the chance they’ll live to a ripe old age. But in many cases, it’s best to file at your FRA if your spouse is entitled to a much larger Social Security benefit.
Let’s continue with the example of my friend and his wife. Suppose his Social Security benefit at FRA is $3,000 a month, while his wife’s benefit at FRA is $1,000 based on her own earnings record. To keep things simple, we’ll also assume her FRA is age 66, and we’ll ignore Social Security’s annual cost-of-living adjustment. Also, keep in mind that my friend’s wife is three years older.
If she’d claimed her own benefit at her full retirement age of 66, she would have started receiving $1,000 a month. By delaying until age 70, her benefit beginning at that age would be $1,320 a month. But remember, three years later, when her husband turns 70 and claims Social Security, she’d be eligible for spousal benefits, which would be worth $1,500 a month.
In other words, by delaying her benefit based on her own earnings record until age 70, she’d receive a total of $47,520 over the next three years, while she could have collected $84,000 over seven years if she’d begun her own benefit at her full retirement age of 66.
The bottom line: Many people assume that delaying benefits until age 70 is always the best solution. But they fail to consider that the value of the spousal benefit is often larger than the lower-earning spouse’s individual benefit, and thus that individual benefit disappears when spousal benefits become available.
When I explained to my friend that his wife should have filed at her FRA, I also told him that there’s still time for his wife to act—and there’s a sweetener for doing so. What’s that? After folks reach full retirement age, those filing for benefits can opt to collect a six-month lump sum as though they’d filed six months earlier. Even my friend thought that was pretty generous.
James:
I believe your website “Next Quarter Century” links via Wix are no longer working. Is there another way I can contact you directly for follow up questions?
I want to bounce some thought off you re: spousal SS timing, and re: enrolling in MC for the first time when I turn 65 next summer 2025…thanks!
I believe the timing and decision to claim is very particular to the person/couple involved. In our case, my wife claimed her social security at her full retirement age. I am still three years away from my FRA. Initially my thought was to claim at 70 but after running the numbers I am leaning towards my FRA (I am the higher earning spouse). The flip to me is that at my FRA, my wife will earn $1,250 and I will be earning $4,200 per month. So she will receive an extra $950/mth and I can start collecting. The delta between collecting at FRA and waiting until 70 (with 5% earnings on the brokerage money that I am not spending is $212k that needs to be made up with longevity. This threshold for us is when I am 84 and my wife is 87 (assuming annual 5% investment returns and 3% cola on SS). A WAG, but close enough for me.
Another point that changed my outlook is that the spousal benefit does not increase if the higher spouse waits until 70 to claim, as it is based on the PIA at age 67. It does not receive the benefit of the 24% bump that the higher wage earner will get at 70.
I agree with Winston below that control and knowing and investing and inheritance all come at a not too difficult price. We lose longevity insurance, but roll the dice on this (and other than health care we will have a declining real budget in later years).
John
If someone is younger and much lower earning than their spouse, and they file at 62 for their own benefits, will their filing early also lower the spousal benefit they will eventually receive when their spouse files at say, age 70? In such a case, the higher earning spouse would still receive whatever their age 70 amount is, but the lower earning spouse would receive something less than half of that figure because they had filed at 62?
Hi Kim,
That is correct. If the lower earning spouse claims before their full retirement age, their spousal benefit will be reduced. At 62, that could be reduced to as little as 32.5% of the higher spouse’s PIA.
I have tried in vain to encourage my best friend to sign up on the Social Security site to explore her and her husband’s options. She is 67 no longer employed and he is nearing 70 and still employed. She won’t even sign up for Medicare part A even after I tell her it is free to her. Are there any suggestions to get through to her? I don’t understand how people can so easily ignore an important part of their future.
So to make sure I have this right: My husband and I are the same age. Our SS estimates show the same payment at our FRA of 67 or at 70. So in neither case will the spousal benefit be better than our individual ones at 67 or 70.
One of us will wait until 70 to file to maximize the benefit for whichever one of us is the survivor. But if the one files at 67, can the other take the spousal benefit for three years and then file for their own at 70?
The Open SS tool says I should file NOW (age 63) with my husband waiting until 70, an outcome I don’t understand. I’m still working, so I’m either going to wait until I retire (probably age 65) because of the earnings test or until my FRA to claim SS.
https://opensocialsecurity.com/
try this tool/calculator, which has been posted on HD several times before. Be sure to explore options on it such as assumed age at death and discount rate.
Very good article.
another factor for delaying taking SS is the 8% automatic increase per year compounded from FRA to age 70 + all future COLA is based on the higher SS payment
But when to file for SS is unique to each individual/couple
Hi Brad,
FYI that the 8% increase is not compounded each year, but rather a 24% total of investment credits from your original PIA.
The filing decision is a difficult one to consider in many cases, because of all the variables.
I am 4 years older than my wife. When the rules changed in 2015-2016 or so, I was eligible for my FRA. My wife was eligible for her age 62 benefit.
She filed for her personal benefit and received a reduced benefit, around $650. I filed for a spousal benefit, on her record, and I received 650% of her PIA which was $425. For 4 years, we collected $1,000-$1,400. Then when I turned 70, I filed for my own benefit and my wife filed for spousal benefits on my record.
Since the rules have changed that strategy is no longer available, but it worked for us. Today, we are collected @111% of our retirement expenses from our SS benefits and I will get my last “little bump” for having worked in 2023. Since 2020, when I filed, we have received a small increase after the COLA increase, since I continued to work in retirement. Each year the additional income resulted in a recalculation of the PIA upon which the benefits are based, so we get the little bump. In 2024, that working amount will only total @$24,000, so I doubt we will see the little bump in 2025.
Nice explanation of spousal benefits James.
My husband researched this for years before we were eligible. His final decision: I filed first, six months before full retirement (burned out and the increase for waiting another six months didn’t matter that much). He collected a spousal benefit on my lower account and we supplemented with two small pensions and withdrawals from IRAs. Sadly, Doug died six months before reaching age 70, but I immediately began collecting a significantly larger survivor’s benefit on his account. He took good care of me and, through his email account, I discovered Humble Dollar. I’m approaching four years as a dedicated reader and commenter and have found the best online community around!😊
I really this article and the conversation that it starts. I always try to simplify and not overthink decisions.
I use approximations, not down to the dollar or penny. My wife being slightly younger time SS at FRA, mine starts at my FRA which is next month. Here gets bumped up to spousal benefit at that time. My thought is we don’t need the income so we’ll invest it until we do.
With each of our mother’s passing away at 65 but each of our father’s living until almost 90 who besides God knows how long we have on this earth? No one.
Don’t over think, the stress may shorten your life. Enjoy it instead
Nice article and makes me think about what I concluded with SS a few years ago. I asked about 10 of my friends, all extremely financial literate, and very good personal financial planners. The 10 of them, all of whose judgment I always respect, each had different theories on their personal approach to SS. Some of them even developed their own spreadsheets to help with their analysis. There was no consistency in their SS conclusions…which would almost never happen if I had asked them any other financial planning question. So, my conclusion on SS is IT DEPENDS. Everyone has a particular situation, with different future assumptions that lead to different conclusions on SS.
With SS, it just seems like it all depends! Nice article. For me, I’m taking it at 70 and my wife will take it at 68…….after looking at so many numbers I got a headache….that is where my best gut judgment was it made sense!! But who knows?!.
Before you pull the trigger on claiming go to opensocialsecurity.com which is a free easy to use calculator which will tell you what claiming strategy will potentially secure you the highest lifetime benefit (with the caveat that know one know how long they will live)
However when it comes to the spousal filing in this case there is no reason to wait to age 70. Whether the other one files later or not the spouse should not delay.
Are you aware of any other decisions about when to claim that are this clear cut?
Delaying past age 70 is wrong since the benefit doesn’t increase after age 70. Most other choices are subjective.
I retired at 70 in 2022 and started SS upon turning 70 as well. My wife is 10 years younger (61 now, I’m 71 now) and still working. She plans to work to at least 65 and more likely to 66 or 67. Her income is such that she would not get anything even if she claimed her SS benefits before retiring (or maybe before FRA which for her is 67), but I understand SS bumps up her payment over some period of time after FRA if she does claim early (say at 62). Also, her SS benefit will probably be in the neighborhood of 1/2 of my benefit (maybe more than half of my FRA benefit but less than half of my age 70 benefit) so I think we’ll just have to wait and see whether it makes sense for her to claim spousal benefits. The question is whether it makes sense for her to claim at 62, or wait until she retires, or until her FRA, whichever comes first. Any thoughts?
Earnings test will reduce her SS before FRA if working. FRA seems best if working. But actuarially since she is so much younger and will get your benefit if you predecease waiting much past 62 before filing might not benefit her much.
In this case your friend’s wife should apply for social security at her FRA. Then when your friend applies at 70, she can apply for a spousal benefit. Social Security will update her benefit at that time. She will receive her full spousal benefit going forward.
Yes that is correct. Her waiting till 70 is a money loser.
I have mentioned previously that we didn’t bother with running the numbers and that we started collecting our Social Security as soon as we could.
Why?
It was simply because our children can inherit our savings/investments but NOT inherit our SS benefits.
We would have had to use some of our savings/investments to help pay the bills in our retirement if we had delayed SS. And we wouldn’t be able to leave as much for the kids.
Was that the right decision?
I don’t know. Maybe not.
But it was the correct decision for US.
Obviously other people can have different opinions and make just as valid different decisions for themselves.
I tend to agree. Most people don’t have the luxury of delaying SS at all let along to age 70. Seems to me that starting it at the FRA makes the most sense even if it is not needed – invest it in that case.
This is a good informative article that most people are not aware of, or don’t know who to go to for answers until it’s too late. I put this along side of not knowing about Roth IRA’s at an earlier point in time. In my case, it is probably a win win for the gov’t because of not knowing what I didn’t know.
My lunch friend also has a Wharton MBA so is not financially illiterate.
Great article James. It nicely explains a complex topic. Couples have a more difficult decision , especially with disparate earnings records, life expectancies, and age differences. A tool like Open Social Security can help understand the choices and impacts.
I found Open Social Security to be a very powerful tool. It allows for adjustments to longevity assumptions so one can possibly make a better assessment of the impact of dying earlier or later in life. it also does a great job of taking into account disparate ages between spouses and their respective earning records.
Good article. During my career I’ve seen people miss out (or fail to maximize) on a wide variety of benefits by either not understanding the basic rules governing those benefits or failing to do a quick “back of the envelope” calc to compare options. This is another example of Mark Twain’s quote to the effect of “It ain’t what you don’t know that gets you in trouble. It what you know for sure that just ain’t so”. Thanks for yet another example to be careful and have a questioning attitude.