I probably have written more than 100 columns about the obsession older adults have with “maximizing” their Social Security retirement benefits. I’m not going to get into that issue today. I personally don’t think it’s always the right move. But if you’re determined to employ these alleged strategies (which almost always mean delaying starting your benefits as long as possible), then go ahead and do it. And then hope you just live long enough to beat the system!
But today I’m going to deal with another side of the maximizing coin. This has to do with spousal benefits. It’s based on an email I got from a woman whose husband is trying to convince her to get on his maximizing bandwagon. And I’m going to give her some food for thought to help her decide if that is really what she wants to do. To see what I’m talking about, let’s start with the email.
Q: My husband is absolutely determined to maximize our Social Security benefits. That’s why he is going to wait until age 70 to file for his Social Security. His name is Frank, and he is currently 62 years old. My name is Ann, and I’m also 62. I have a much smaller benefit than Frank does. I want to file for my benefit now and switch to higher benefits on his record when he starts his at 70. But he is telling me that to get the highest possible benefit and maximize my Social Security payout, I should wait until my full retirement age to start my own and then switch to his when we’re 70. Will you please help me decide what to do?
A: The best way to help you figure this out is by looking at the numbers. Your husband gave me the benefit projections in a subsequent email. Frank’s full retirement benefit is $3,010. His benefit at age 70 will be $3,973. He told me your full retirement rate would be $1,390. If you take benefits at 62, you’d get $1,002.
And before I go on, here’s an apology. Most of the rest of this column is going to be filled with lots of numbers and lots of math. I hate too many numbers and too much math. I think it just confuses most readers. But in order to make the points I want to make, I have to trot out all these numbers. If your eyes start to glaze over with math anxiety, just go to the last paragraph or two of the column to see my bottom-line message. OK, here comes the math!
Frank wants you to wait until your full retirement age, which for you is age 66 and 10 months, and start collecting $1,390. Then a little more than three years after that, when he turns 70, he wants you to file for spousal benefits on his record. At that point, you’d be due an amount equal to 50 percent of his age 66 rate, not his age 70 rate. Fifty percent of $3,010 is $1,505. So, you’d keep getting your $1,390 retirement benefit and then you’d get $115 in spousal benefits to take you up to the $1,505 rate you are due.
Now let’s look at what happens if you do what you want to do—file for reduced retirement benefits now. That means you’d start getting $1,002 now already. Then you would keep getting those reduced retirement benefits until Frank turns 70. At that point, here is how they will figure your spousal benefits. They will take your full retirement rate, or $1,390, and subtract that from one-half of his full retirement rate, or $1,505. The difference, or $115, would be added to your reduced retirement benefit. So, from that point on, you’d start getting $1,117.
That’s $388 per month less than you’d get if you follow Frank’s advice and wait until you are 66 and 10 months to file. But remember, in Frank’s option, you wouldn’t get a nickel in Social Security benefits until you are almost 67 years old. In your option, you’d start getting benefits now.
So, let’s compare the two scenarios. What would you get in total benefits between now and the point when Frank turns 70? In your option, you’d get $1,002 for 8 years (96 months) for a total of $96,192. In Frank’s option, you’d get $1,390 for 3 years and 2 months (38 months) for a total of $52,820.
So, you’d get $43,372 more in benefits between now and age 70 in your option. But again, your spousal rate beginning at age 70 would be $388 per month less. In other words, it would take you 112 months, or more than 9 years, before you come out ahead of the game using Frank’s “maximizing” strategy.
So, if you’re pretty sure you are going to live well past age 80, then you probably are ahead to follow Frank’s advice. But if you’re not so sure about your life expectancy, or if you just happen to be a “live for today” kind of person, then call Social Security tomorrow and tell them you want to file for your retirement benefits now.
Oh, I forgot to mention a possibly crucial point. And that has to do with future widow’s benefits. Assuming Frank dies before you do, your widow’s rate under either scenario will be exactly the same. When he dies, you’ll start getting his age 70 rate, or $3,970, in the form of widow’s benefits.
So, for example, if you do take benefits at 62 and start getting $1,002 per month then, and then $1,117 per month at 70, you’d start getting an additional $2,853 per month to take you up to his $3,970 level after he dies.
Or if you waited until you are 66 and 10 months to file and started getting $1,390 per month and then $1,505 per month at 70, you’d start getting an additional $2,465 per month to take you up to his $3,970 level after he dies.
The point I am making here is that you suffer absolutely no reduction in your future widow’s benefits if you take reduced retirement benefits on your own now.
So, what should you do? Your husband wants you to jump on his maximizing bandwagon and wait almost five more years to file for Social Security. I’d be inclined to suggest you jump off that wagon and file for benefits tomorrow. But before you take my advice, remember this: You’ve got to live with Frank. I’m just an old goat you meet once a week in the newspaper!