It’s been mentioned on HD many times. Rick Connor mentioned it today. I even asked Gemini what was most important, monthly income or total lifetime benefits. Apparently Pipers calculator uses accumulated lifetime benefit as a decision guide.
My monthly pension is most important. I care less what the accumulated amount may be – unless I can become a significant actuarial loss in good health, but it’s financially irrelevant. The fact my pension and SS are both lifetime benefits is important, but that is not the question
The Gemini answer was lifetime benefits are most important for the following reasons which to me have nothing to do with the question. Doesn’t this answer support the idea that monthly income amount is most important?
Why Total Lifetime Benefits are More Important:
- Longevity Risk: The biggest fear in retirement is running out of money. Social Security provides a guaranteed, inflation-adjusted income stream for the rest of your life. If you live a long life (which is increasingly common), a higher monthly benefit that lasts for more years will result in a significantly larger total amount collected.
- Inflation Protection: Social Security benefits receive Cost-of-Living Adjustments (COLAs). A higher starting monthly benefit means your COLAs will be applied to a larger base, leading to even more significant increases in dollar terms over time, further boosting your total lifetime income.
- Spousal and Survivor Benefits: Your claiming decision can impact the benefits of your spouse and/or survivors. If you are the higher earner, delaying your own benefit can mean a substantially larger survivor benefit for your spouse if you pass away first. This contributes to the household’s total lifetime benefits.
- Irreversibility (Mostly): While there are some limited circumstances where you can change your claiming decision (like withdrawing an application within 12 months), generally, once you start collecting, that decision largely locks in your benefit amount for life. You can’t easily go back and “undo” claiming early to get a higher future monthly payment.
The more I think about this, the more I think talk about break even and maximum lifetime income is an unnecessary complication. There are three possibilities: a single person, a married couple with one high earner (HE) and one low earner (LE), and a married couple with two HEs. I define LE as someone whose own SS, even at age 70, would be less than 50% of the HE’s SS at FRA – i.e. in the event of a divorce.
I think we agreed that a single person in good health who can afford to defer to 70 should do so, thus getting the maximum monthly payment plus the maximum basis for future COLAs. Otherwise she claims early.
Surely a healthy HE married to an LE should do the same, thus also securing the maximum monthly payment for a survivor. The LE might claim early if the money is wanted for a major expense – converting a house to age-in-place, a round the world cruise, taxes on Roth conversions etc. – or to make waiting for the HE’s claim feasible.
In the case of two HEs, both healthy, I would advocate for both waiting. Otherwise, the early claimant will lose out in the event of a divorce. And please don’t tell me that divorce doesn’t happen to seniors.
As a leading edge baby boomer, born in 1946, my spouse who didn’t have 40 quarters of SS earnings, was able to begin collecting half of my FRA benefit when she turned 66. I filed for benefits (we are the same age) and then suspended my benefit allowing it to continue to grow at 8% per year. Around 2015 or 2016 the rules were changed to prevent this from happening thereafter.
I assume that a LE spouse can still file today at their FRA on, assuming 40 quarters of tax payments, on his/her own record. I don’t know how that effects what they might collect when the HE spouse begins to collect benefits at age 70. Will they be able to switch to the spousal benefit if it is higher?
And, I think that a spouse, without 40 quarters of tax payments, is stuck and cannot collect spousal benefits until the HE spouse begins to collect. The spousal benefit is still limited to 50% of the HE spouse FRA benefit.
My understanding is the lower earning (LE) spouse can file on their earnings record at any time after 62, and still switch to a spousal benefit when the higher earner (HE) files. The LE spousal benefit is limited to 50% of the HE spouse’s FRA benefit. However, if the LE files before their FRA, the reduction they receive is permanent, i.e., the future spousal benefit is reduced by the same percentage.
The file and suspend strategy was a pretty good deal for those who adopted it.