A Strategy for Claiming Social Security Benefits:
| John Rukosky of Rukosky & Associates |
We believe there is a critical difference
between our firm and others that
perform only financial planning: while
others will refer you to a tax advisor
after having designed a financial plan
for you, at Rukosky & Associates
Financial Group Inc. you are
consulting with a tax accountant, so
we know your plan will succeed.
between our firm and others that
perform only financial planning: while
others will refer you to a tax advisor
after having designed a financial plan
for you, at Rukosky & Associates
Financial Group Inc. you are
consulting with a tax accountant, so
we know your plan will succeed.
Contact us:
508 Driewood Court
Raleigh, NC 27609
Office: 919.781.9319
Mobile: 919.906.4234
Fax: 919.791.0990
Email: john@rafginc.com
Raleigh, NC 27609
Office: 919.781.9319
Mobile: 919.906.4234
Fax: 919.791.0990
Email: john@rafginc.com
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Greater than 50% of Americans eligible to take benefits at age 62, the
earliest age allowed, take those benefits. But, given Americans’
increasing life expectancy, the question is whether they should wait
until age 66, or even longer, to file a claim for Social Security benefits
since the monthly benefit will be larger.
Married couples who have a typical wage-earning structure (where the
male is the higher wage-earner) will want to take a strong look at the
strategy of one spouse claiming benefits between age 62 and 66 while
the other spouse waits until a later age, say age 70, to begin taking
benefits. Due to some ambiguous Social Security rules and some
facts about life expectancy, this strategy pays off.
To explain, when one claims Social Security benefits at age 62, that
person gets just 75% of their full retirement benefits. For each year a
person waits after age 66, an 8% increase kicks in (plus an inflation
adjustment) for a total benefit equal to 132% of the full benefit payout.
The payout system has been set up in this way on the basis that if
you live to an average life expectancy, you get the same amount of
money (in total) whether you started collecting at age 62 or age 70.
But, it works differently for married couples because, should one die,
the survivor can take the dead spouse’s benefits (if they’re higher) and
drop his or her own benefits. In this fashion, the higher benefit
“continues on.”
So, here’s the strategy: if possible, the higher wage-earning spouse
(typically the male) should delay taking Social Security benefits until
a later age, hopefully 70, in order to maximize the Social Security
benefits. Doing this also sets up the lower wage-earner (typically the
female) to take a much higher benefit should the high wage-earner
pass away.
But what if the lower wage-earner decides to continue working after
age 62? It’s true that retirees can lose a portion of their Social
Security benefits if they earn too much, but also keep in mind that
once someone reaches their full retirement age (age 66 for those born
between 1943 and 1954), that person will not incur a penalty for
working. So, it’s a matter of mathematics: see if the amount of Social
Security benefits lost will be more than made up because the higher
wage-earner delayed taking Social Security benefits.
Why does this strategy work? Because of joint mortality. Here’s an
example: let’s say both the husband and wife were born on January 1,
1950. At age 62, the wife will have a projected life expectancy of 84
years and 8 months. That roughly means there’s a 50% chance that
she’ll live that long (roughly because the median life span is not
necessarily the average life span). On the other hand, the husband’s
life expectancy will be 81 years and 10 months. But, according to the
Government Accountability Office, there’s a 50% chance that one
spouse will die before age 78 and a 50% chance that the second
spouse will hold on until almost 89 years of age. So, in effect, a
woman who takes Social Security at age 62 isn’t necessarily
accepting a smaller payout until age 84, but only (on average) until her
husband (or she) passes away shy of age 78. And, that bigger
paycheck that the husband waited until age 70 to get? Half the time it
will keep coming to one of them for 19 years or more.
If one works out the figures, and if the household is typical (with the
male being the higher wage-earner in the family), in all cases it pays
for the higher wage-earner to wait to get his benefits and for the lower
wage-earner to collect earlier. The total Social Security payout that a
higher-earning husband and his wife would get in present dollars,
assuming average life expectancies, is greater than if both waited until
their retirement age of 66 to begin collecting benefits. And, if the wife
is younger than the husband, which is common, the benefits of this
split strategy are even larger.
Note: In the case of a wife who hasn’t worked outside the home, she
can collect “spousal” benefits, but only when her husband either draws
his own Social Security check or reaches full retirement age. You’ll
remember that spousal benefits are reduced at age 62. But unlike
worker benefits, they don’t grow if they are delayed beyond age 66.
That used to be a disincentive for a husband in a one-earner family to
delay claiming Social Security. But in 2000, Congress added a
provision allowing a worker to file for Social Security at age 66, so his
spouse could collect, and then “suspend” his own benefits. The result
is a bigger delayed retirement check for himself and, very likely, his
widow.
Timing the Social Security Take
A 62-year-old couple, with average life expectancy, would get
(net present value):
earliest age allowed, take those benefits. But, given Americans’
increasing life expectancy, the question is whether they should wait
until age 66, or even longer, to file a claim for Social Security benefits
since the monthly benefit will be larger.
Married couples who have a typical wage-earning structure (where the
male is the higher wage-earner) will want to take a strong look at the
strategy of one spouse claiming benefits between age 62 and 66 while
the other spouse waits until a later age, say age 70, to begin taking
benefits. Due to some ambiguous Social Security rules and some
facts about life expectancy, this strategy pays off.
To explain, when one claims Social Security benefits at age 62, that
person gets just 75% of their full retirement benefits. For each year a
person waits after age 66, an 8% increase kicks in (plus an inflation
adjustment) for a total benefit equal to 132% of the full benefit payout.
The payout system has been set up in this way on the basis that if
you live to an average life expectancy, you get the same amount of
money (in total) whether you started collecting at age 62 or age 70.
But, it works differently for married couples because, should one die,
the survivor can take the dead spouse’s benefits (if they’re higher) and
drop his or her own benefits. In this fashion, the higher benefit
“continues on.”
So, here’s the strategy: if possible, the higher wage-earning spouse
(typically the male) should delay taking Social Security benefits until
a later age, hopefully 70, in order to maximize the Social Security
benefits. Doing this also sets up the lower wage-earner (typically the
female) to take a much higher benefit should the high wage-earner
pass away.
But what if the lower wage-earner decides to continue working after
age 62? It’s true that retirees can lose a portion of their Social
Security benefits if they earn too much, but also keep in mind that
once someone reaches their full retirement age (age 66 for those born
between 1943 and 1954), that person will not incur a penalty for
working. So, it’s a matter of mathematics: see if the amount of Social
Security benefits lost will be more than made up because the higher
wage-earner delayed taking Social Security benefits.
Why does this strategy work? Because of joint mortality. Here’s an
example: let’s say both the husband and wife were born on January 1,
1950. At age 62, the wife will have a projected life expectancy of 84
years and 8 months. That roughly means there’s a 50% chance that
she’ll live that long (roughly because the median life span is not
necessarily the average life span). On the other hand, the husband’s
life expectancy will be 81 years and 10 months. But, according to the
Government Accountability Office, there’s a 50% chance that one
spouse will die before age 78 and a 50% chance that the second
spouse will hold on until almost 89 years of age. So, in effect, a
woman who takes Social Security at age 62 isn’t necessarily
accepting a smaller payout until age 84, but only (on average) until her
husband (or she) passes away shy of age 78. And, that bigger
paycheck that the husband waited until age 70 to get? Half the time it
will keep coming to one of them for 19 years or more.
If one works out the figures, and if the household is typical (with the
male being the higher wage-earner in the family), in all cases it pays
for the higher wage-earner to wait to get his benefits and for the lower
wage-earner to collect earlier. The total Social Security payout that a
higher-earning husband and his wife would get in present dollars,
assuming average life expectancies, is greater than if both waited until
their retirement age of 66 to begin collecting benefits. And, if the wife
is younger than the husband, which is common, the benefits of this
split strategy are even larger.
Note: In the case of a wife who hasn’t worked outside the home, she
can collect “spousal” benefits, but only when her husband either draws
his own Social Security check or reaches full retirement age. You’ll
remember that spousal benefits are reduced at age 62. But unlike
worker benefits, they don’t grow if they are delayed beyond age 66.
That used to be a disincentive for a husband in a one-earner family to
delay claiming Social Security. But in 2000, Congress added a
provision allowing a worker to file for Social Security at age 66, so his
spouse could collect, and then “suspend” his own benefits. The result
is a bigger delayed retirement check for himself and, very likely, his
widow.
Timing the Social Security Take
A 62-year-old couple, with average life expectancy, would get
(net present value):
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