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Deciding when to begin taking Social Security benefits can be complicated. Making the wrong choice can result in tens of thousands of dollars in missed benefits. According to some experts, there can be up to 81 different ways for married couples to take their Social Security income benefits.
Complicating matters, many of these strategies involve major assumptions: how long you will live, how long your spouse will live, inflation and COLA adjustments, and how alternative investments like stocks might perform -- to name a few.
The amount of your Social Security benefit is based, in part, on your Full Retirement Age (FRA). If you take benefits before FRA, you receive a reduced benefit of up to 25%. If you delay the start of Social Security your benefit increases by 8% a year.
If you delay benefits until age 70 you will receive more money each month and possibly more money over your lifetime. However, if you die early, well clearly, that was the wrong strategy.
Likewise, if you take what you can get as soon as you can get it, but then live to your 90’s, you will experience a permanently reduced monthly benefit and much lower lifetime benefit than if you had delayed receiving Social Security to age 70.
Even if delaying Social Security benefits until age 70 makes sense, you won't start to come out ahead until age 80 or so, leaving many people to feel like taking benefits early is the way to go.
What’s the right strategy for you?
As the saying goes, “The only things in life that are certain are death and taxes." If you’re wondering, the average man who makes it to age 65 will live to see their 81st birthday. 65-year old women, can expect a couple more years on this planet. Married couples have a 50% chance of one of them living to their mid-90’s.
Many experts feel that you and your spouse will put more money in your pockets each month and more over your lifetimes, by delaying the start of your Social Security benefits.
Hedge your bets.
Unless you have significant health issues, you and your spouse will likely live a long life – or at least as long as the average person. For that reason, most financial advisors and Social Security experts recommend delaying Social Security benefits to age 70, if possible.
Since no one knows how much time they have on Earth, it might make sense to hedge your bets.
For most couples, I generally recommend the higher earning spouse delay Social Security benefits to age 70 for the reason mentioned above. However, I also recommend the lower earning spouse begin taking benefits when they stop working or reach Full Retirement Age.
I recommend this strategy for three reasons:
- We know benefits will be larger if you delay receiving them to age 70.
- Survivor benefits. When one spouse dies, the surviving spouse gets the higher of the two benefits, not both. By delaying benefits for the higher earning spouse, the survivor receives the highest possible benefit.
- Starting benefits for the lower earning spouse early allows a married couple to pocket some money until the higher earning spouse’s larger benefit kicks in and helps protect against the risk of one spouse dying early.
Like many of the decisions a married couple must make, this strategy is a compromise. If both spouses live to their 80’s or older, delaying benefits for one makes sense because it allows the largest benefit to grow to its maximum potential. Starting benefits early for the lower earning spouse helps address the inherent risks of one spouse dying earlier than expected.
This strategy isn’t the best option for all married couples. Apparently, there are 80 other strategies a married couple could consider regarding their Social Security benefits. The absolute best strategy for you and your spouse will depend on a number of factors. However, considering the unknowable variables involved, delaying benefits for the higher earning spouse while the other spouse starts benefits at Full Retirement Age or earlier is a reasonable compromise that works well much of the time.
To discuss any of the topics in this blog or to learn more about how we can help you Cross The Bridge To A Confident Retirement, please contact me through my web site mikebranch.net, call me directly at 651-379-3935 or email me at mpbranch@focusfinancial.com.