How Would An Extra $124,342 Suit You In Retirement?

23 October 2012 No Comment Print This Post Email This Post

I have written in the past regarding the benefits of delaying Social Security benefits for your investment portfolio. I recently came across another post that indicates that a proper strategy of delaying Social Security could result in extra income for a married couple of $124,342 over their lifetimes. The research looked at the benefits for a single woman, a single man, and a married couple. In all cases they compared the strategy of taking Social Security at age 62 (the earliest most can claim a benefit) versus delaying the benefit until age 69 or 70. In all cases, the income strategy was maximized by delaying to age 70. (The single man strategy said to claim at age 69.)

For married couples there is a very important point to the higher-wage earner delaying benefits: the surviving spouse is eligible to ’step-up’ to the deceased spouses benefit if it is greater. So, for example let’s take Jack and Jill both age 66. Let’s assume Jack worked his entire career, while Jill worked part of the time, but spent many years at home raising the children. When Jack turns 66 he can ‘file and suspend’ his benefit allowing Jill to claim a spousal benefit on Jack’s record. (If Jack’s primary insurance amount or PIA is $2,400/month, then Jill can begin collecting a monthly benefit of $1,200 at normal retirement age or age 66.) At age 70, Jack would collect a benefit of $3,265 with delayed retirement credits. (He would also have the benefit of cost of living increases but for this example I will omit that.) The big benefit here is that if Jack dies first, Jill gets to ’step-up’ to Jack’s higher benefit. If Jack had taken his benefit earlier, Jill would not get the benefit of $3,265. Rather she would get the benefit based on when Jack started Social Security. Hence, Jack delaying Social Security provides a hedge against Jill’s longevity.

Continuing our example, at age 70, Jack and Jill will have combined income of $4,465. This compares to combined income at age 62 of $2,640, a difference of nearly $2,000/month. (Again, I am ignoring cost of living increases for the example.) This difference adds up to very real money!

You may be thinking, “What if I want to retire at age 62, what do I do about income?” There are several choices here that should be discussed with your financial planner. If you have no other assets or sources of income, then you may not have a choice but to start Social Security early. But if you have options, the better choice is to explore those options and delay Social Security as long as possible.