Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
With all the options, varied situations, and probabilities involved, it requires a good understanding of arithmetic, statistics, and rule-based systems to get a good grasp on all the SS scenarios. Unfortunately, that means that most "popular press" columns do a poor job in explaining things (as the writer doesn't seem to have this grasp); this column is no exception.
In the first section, the writer cites a book to say that to maximize present value of benefits by not claiming benefits at FRA, or any of the 36 months preceeding FRA (but what about 48 months - age 62, for those of us whose FRA is 66?). Yet in the next section of this article on how to maximize SS benefits, the writer seems to suggest that a surviving spouse take benefits at the earliest possible age. The benefit reduction tables are similar for workers and survivors, so this is a pretty clear contradiction.
I'll just address the first section. Social Security benefits for single workers (no kids, no survivors, no spouses, no disability, etc.) are designed to be actuarially neutral. What that means is that, using no information about you in particular (ignoring sex, present health, family history, etc.), you would get the same value (on average, i.e. averaging across all single workers) regardless of when you started taking benefits. Age 62, age 66, age 70 - doesn't matter.
But, you're not a statistic, you're a one unique individual. You can make a better than blind estimate of when you'll die. If you're female (and have survived to age 62) you'll likely live longer than the population (male and female) average. If you're in poor health and/or have a terminal illness, you'll likely live less than average, etc. In that case, the numbers say you'd be foolish to wait until age 70 to take benefits, as this article says you should do.
There is, however, another perspective on Social Security - that it is longevity insurance. From this perspective, the objective is not to maximize benefits, but to rely upon it as protection against your living "too long". (We should all have this problem.) Viewed this way, and if you can afford it, a strategy is to defer benefits as long as possible, even if it doesn't maximize your expected draw. What it does is maximize the insurance aspect (since you're insuring against long life, and if that insurance does pay off, however improbable, you win). And by having that higher level of insurance, you're able to spend more of your present assets (which you'd need to do in any case, since you're electing not to take SS earlier).
Think carefully about your expectations - not just for quantity of life but quality. There's a lot that goes into deciding when to take benefits. It's not as simple as someone or some article telling you - this is how to maximize your benefits, fer sure.
It helps to be a little mathematically inclined. After that decisions depend on your priorities. My priority was to smooth the income impact to my husband if something happened to me. My benefits are best by far but I can't pass 100% to him. By delaying SS if I were to die right this second, my husband's income would be about $200/mo more than we bring in right now if he switches to my SS benefit and gives up his own. This difference compensated for things like 50% maximum spousal benefits. The longer I delay, the better for him. I am 64 years old (as of today!!! Happy b-day to me!!!) so it will be a couple of years before I am FRA.
Reply to @Anna: Happy Birthday! The strategy you're following is often the best for couples - to have the larger earner defer benefits for as long as possible. The odds are very good that at least one person in a couple will live past the break-even point (around 82, give or take). Even if one person dies, it is the larger benefit that continues - so this strategy maximizes that benefit.
Whether the other spouse takes early benefits or waits depends in part on the expected longevity of both people (i.e. how soon before either dies), in part in the relative size of each one's benefits (here's where that 50% spousal benefit comes into play), the difference in ages (when one can file and suspend and the other take spousal benefits), and probably lots of other factors as well.
Sounds like you've done your homework. Hope you and your husband enjoy those monthly payments for many years.
Reply to @Ted: You're showing why approximately 98% of annuity owners (SS is basically an inflation-indexed annuity) never annuitize, but take the cash instead. There are many other factors (security, peace of mind, etc.) beyond straight numbers that go into these decisions.
As with Anna, I hope you continue to receive those monthly checks for many years - long enough to see the (mathematical) error of your ways.
Reply to @Ted: Amen to that!!! I don't need SS and never will. But still, I took it as soon as I turned 62 and no regrets whatsoever. Life is not an exercise in math and statistics (nor is trading and investing for that matter) At 65, I run 5 miles or more nearly every day, hike and climb mountains and take no medications. My Mom will be 92 tomorrow, lives by herself and drives all over a large metropolitan town. My aunt passed away last December at 102. But my days of thinking I am somehow invincible health-wise are long gone. I have sadly witnessed far too many friends and former classmates and who like me were in the best of health, inexplicably pass on. So I take nothing for granted and live each day in the precious present. As you said Ted, "a bird in the hand is worth two in the bush."
Ya - 62 is when I took it. Fate intervened shortly after and markets fell 50%. Used some of the $$ to do a Roth conversion. No regrets. Unrelated question: Close friend 66 just encountered a serious med issue. Fine now - but odds of needing long term care some day have gone sky high. Wishes he had taken out long term care policy and wonders if the situation now would make the terms prohibitive? Guessing it will be a number of years yet, if it's just a 3 year exclusion or something like that. Curious if anybody has experience with similar situation. Thanks.
Reply to @hank: Unfortunately, insurers are like bankers - they won't sell you a policy (give you a loan) when you need it. Poked Genworth last summer (prior to their announced rate hike, they had some attractive options that were going away). Was told that not only are rates much higher for people likely to need LTC, but that they (and other companies) were tightening requirements so much that one would likely not qualify, even for something like being over a certain weight.
In fairness to the insurers, I can see their point. They are not in the business for the commonweal, but for profit (insert Ferringhi rule of acquisition here). If the people who buy the insurance are (mostly) very likely to use it, then in effect what the people are doing is pre-paying, not buying insurance for a low probability event. As such, the insurers have to charge the full freight for LTC (since on average, that's what they'll pay out).
Reply to @Hiyield007: just WOW... good for you and your family... my mom is taking more pills daily than normal food i think. and she is the oldest surviving sibling of four @ 74yo with two gone by 61. Genetics are not in my favor, but i do what i can. in my case, the 'bird in the hand' will make the most sense... i just need to make it to 62!
Spouse and I are both > 65, both employed full time. Don't need the money yet (although you discussants have provided several unfunded ideas), but I've got my Greedy Gomer T-shirt and I wondered if it was even legal to both take spousal benefits, switching to own at 70? As you can tell, I haven't read any of the books mentioned above, but the SS mailings I've gotten didn't address it, and my accountant ignored the emailed question.
Once you reach full retirement age (which for you could be 65, or as high as 66 if you were born in, say 1947 and are now 65.5), you are allowed to file for spousal benefits only, and defer your own benefits.
This lets you get credit for deferring benefits until age 70 (or whenever you start taking your own benefits, but not later than age 70), while still getting 1/2 your spouse's benefits. This strategy works well if you expect at least one of you to live past break even (around 82). Generally one defers the benefits of the person who earned more, because that boosts the higher payout, and it is the higher one that continues the longest - even after one person dies.
Often, the other spouse takes benefits at age 62, because the odds are much lower of both of you living past break even. But if you expect or hope for long lives (plural, i.e. for both of you), then you can both defer payments until age 70. In that situation, even though neither is drawing their own benefits, only one is allowed to draw spousal benefits. It would seem that you'd have the lower earning person claim the spousal benefits to get 1/2 the benefits of the higher earning spouse.
If there is a significant age difference between the spouses, then the strategy can change slightly. For example, if there is a five year difference (and both are planning to defer, because you're expecting each to live a long time), then the first one defers until age 70, takes benefits, and the younger spouse gets spousal benefits starting at full retirement age. The twist here is that the younger spouse could be the higher or lower wage earner - doesn't matter in this case because of the age difference.
Here's what the SSA says about the rules for doing this:
If you and your current spouse are full retirement age, one of you can apply for retirement benefits now and have the payments suspended, while the other applies only for spouse’s benefits. This strategy allows both of you to delay receiving retirement benefits on your own records so you can get delayed retirement credits.
Note: If you want to do this, only one of you can apply for retirement benefits and have the payments suspended.
Thanks to the above three. Seems like I should file and suspend and let my wife file for spousal benefits. (Hope I can convince her that it's OUR money and that she has enough shoes already. Really should use it to fund our children's IRAs, if she'll agree, and pass it forward - they'll need it.) Does anyone know if anyone successfully did this on line? MB Franklin suggests doing it face to face with a competent SS employee, but I'd assume the SS software should be compliant.
Comments
In the first section, the writer cites a book to say that to maximize present value of benefits by not claiming benefits at FRA, or any of the 36 months preceeding FRA (but what about 48 months - age 62, for those of us whose FRA is 66?). Yet in the next section of this article on how to maximize SS benefits, the writer seems to suggest that a surviving spouse take benefits at the earliest possible age. The benefit reduction tables are similar for workers and survivors, so this is a pretty clear contradiction.
I'll just address the first section. Social Security benefits for single workers (no kids, no survivors, no spouses, no disability, etc.) are designed to be actuarially neutral. What that means is that, using no information about you in particular (ignoring sex, present health, family history, etc.), you would get the same value (on average, i.e. averaging across all single workers) regardless of when you started taking benefits. Age 62, age 66, age 70 - doesn't matter.
But, you're not a statistic, you're a one unique individual. You can make a better than blind estimate of when you'll die. If you're female (and have survived to age 62) you'll likely live longer than the population (male and female) average. If you're in poor health and/or have a terminal illness, you'll likely live less than average, etc. In that case, the numbers say you'd be foolish to wait until age 70 to take benefits, as this article says you should do.
There is, however, another perspective on Social Security - that it is longevity insurance. From this perspective, the objective is not to maximize benefits, but to rely upon it as protection against your living "too long". (We should all have this problem.) Viewed this way, and if you can afford it, a strategy is to defer benefits as long as possible, even if it doesn't maximize your expected draw. What it does is maximize the insurance aspect (since you're insuring against long life, and if that insurance does pay off, however improbable, you win). And by having that higher level of insurance, you're able to spend more of your present assets (which you'd need to do in any case, since you're electing not to take SS earlier).
Think carefully about your expectations - not just for quantity of life but quality. There's a lot that goes into deciding when to take benefits. It's not as simple as someone or some article telling you - this is how to maximize your benefits, fer sure.
Regards,
Ted
Happy Birthday! The strategy you're following is often the best for couples - to have the larger earner defer benefits for as long as possible. The odds are very good that at least one person in a couple will live past the break-even point (around 82, give or take). Even if one person dies, it is the larger benefit that continues - so this strategy maximizes that benefit.
Whether the other spouse takes early benefits or waits depends in part on the expected longevity of both people (i.e. how soon before either dies), in part in the relative size of each one's benefits (here's where that 50% spousal benefit comes into play), the difference in ages (when one can file and suspend and the other take spousal benefits), and probably lots of other factors as well.
Sounds like you've done your homework. Hope you and your husband enjoy those monthly payments for many years.
You're showing why approximately 98% of annuity owners (SS is basically an inflation-indexed annuity) never annuitize, but take the cash instead. There are many other factors (security, peace of mind, etc.) beyond straight numbers that go into these decisions.
As with Anna, I hope you continue to receive those monthly checks for many years - long enough to see the (mathematical) error of your ways
have a good weekend, Derf
http://www.amazon.com/gp/aw/d/0615457533/
Regards,
Ted
Unfortunately, insurers are like bankers - they won't sell you a policy (give you a loan) when you need it. Poked Genworth last summer (prior to their announced rate hike, they had some attractive options that were going away). Was told that not only are rates much higher for people likely to need LTC, but that they (and other companies) were tightening requirements so much that one would likely not qualify, even for something like being over a certain weight.
In fairness to the insurers, I can see their point. They are not in the business for the commonweal, but for profit (insert Ferringhi rule of acquisition here). If the people who buy the insurance are (mostly) very likely to use it, then in effect what the people are doing is pre-paying, not buying insurance for a low probability event. As such, the insurers have to charge the full freight for LTC (since on average, that's what they'll pay out).
This lets you get credit for deferring benefits until age 70 (or whenever you start taking your own benefits, but not later than age 70), while still getting 1/2 your spouse's benefits. This strategy works well if you expect at least one of you to live past break even (around 82). Generally one defers the benefits of the person who earned more, because that boosts the higher payout, and it is the higher one that continues the longest - even after one person dies.
Often, the other spouse takes benefits at age 62, because the odds are much lower of both of you living past break even. But if you expect or hope for long lives (plural, i.e. for both of you), then you can both defer payments until age 70. In that situation, even though neither is drawing their own benefits, only one is allowed to draw spousal benefits. It would seem that you'd have the lower earning person claim the spousal benefits to get 1/2 the benefits of the higher earning spouse.
If there is a significant age difference between the spouses, then the strategy can change slightly. For example, if there is a five year difference (and both are planning to defer, because you're expecting each to live a long time), then the first one defers until age 70, takes benefits, and the younger spouse gets spousal benefits starting at full retirement age. The twist here is that the younger spouse could be the higher or lower wage earner - doesn't matter in this case because of the age difference.
Here's what the SSA says about the rules for doing this: Good luck.
wealthtrack.com/previous_03-23-2012.php
Does anyone know if anyone successfully did this on line? MB Franklin suggests doing it face to face with a competent SS employee, but I'd assume the SS software should be compliant.