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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.