Much has been written about why you should wait until age 70 to start collecting your Social Security benefits. In the correct situation, that is a true statement, but everyone’s situation is different. I’ve always said there are as many good reasons as there are bad reasons to wait to collect Social Security benefits.
It is especially important for a couple to determine their claim strategy using joint life expectancy. The claim strategy of a couple should never be considered individually. One of the main reasons a couple waits until 70 is a high-earner-oriented strategy. By delaying receipt of benefits, the higher income person can provide a lower income spouse with the higher survivor benefit when the high income person dies. So as a couple, if you are the higher earner, it may make a lot of sense for you to wait until age 70 to start your benefits in order to provide your spouse with a significantly higher survivor benefit.
Keep in mind that using this strategy of delaying benefits complements your overall retirement planning. Social Security benefits are a very important part of retirement planning. With most couples, that’s roughly a $1,500,000 lifetime annuity. Activating your Social Security benefits is a very important piece of the retirement planning puzzle. When making your claim strategy decision, other issues to consider are your health, cash flow, how long you plan to work, and many other factors and decisions.
Let’s look at two situations in which you can decide, as a high earner, not to wait until age 70 and to receive your Social Security benefits sooner.
Let’s first look at a couple of the same age (67) in 2023 and at their full retirement age with an adopted child.
At full retirement age, the couple is not subject to the annual earnings limitations. The high income earner has a full retirement age benefit of $3,000. Children under the age of 18 or 19 (if still in high school) are entitled to receive a benefit equal to 50% of the parent’s full retirement age benefit. The father, as the child’s representative, will receive a monthly benefit of $1,500 per month for the next 18 years or more. By filing for benefits at full retirement age of 67 instead of waiting until age 70, the couple will receive $47,000 more in general lifetime benefits by filing earlier at full retirement age of 67 instead of waiting until Over 70. Overall lifetime benefits are higher if you apply early, but cash flow is also higher, and the child’s benefits can be used to pay for a college education. Even if the child is 10 when the parents reach their full retirement age, you should consider filing sooner rather than later for a child under 19. This example may be a bit out of the ordinary, but it provides great context for the multitude of life variables and situations happening today, and more often.
Here is our second example: where the husband works within the Social Security system and the wife does not.
The wife has minimal income under the Social Security system but teaches in a state that does not contribute to Social Security. The wife has what is called an uncovered pension. When the wife retires, she will receive a state teacher’s pension of $4,200 a month. This pension payment will be subject to both the Windfall Profit Elimination Provision (WEP) and the Government Pension Compensation (GPO). The wife’s own Social Security benefit will be very small, and the spouse’s or survivor’s benefit will be offset by $2,800 of Government Pension Offset due to the State teacher’s pension. ($4,200 X 67%). Time is of the essence here as the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) do not take effect until the uncovered pension kicks in. Although introducing at age 70 produced a slightly higher overall lifetime benefit for this couple, it wasn’t enough to offset her desire to use up-front cash flow for travel. The other aspects of making this decision were that the break-even year for early vs. later filing was 2039, the wife was experiencing some health-related issues, and the State teachers pension was determined to be adequate for flow requirements. wife’s cash, along with her other assets to support her lifestyle when her husband dies.
We just can’t forget: Taking the wrong profit, at the wrong time, means always smaller and forever!
You need to formalize a specific Social Security claim strategy for your situation.