3 Social Security scenarios show vastly different results
Q: I'm 66 in November and my wife will be 64 in July. We need advice on when to collect Social Security. If my wife collects at 64 or 66 or 70, her amounts would be $1,400, $1,618 and $2,136 per month respectively. My amounts would be at 66 $2,299.00 or at 70 $3,035.00
We have been retired for nine years and live off of investments. Our health is good and we expect to live until mid-80s or even 90s.
Should my wife collect now and I take half hers until I'm 70 and then switch to my own. Or should I wait until she is 66 then she collects and I take half until I am 70 and then switch to my own. Or should I wait until I am 70 and she collect half of mine until she is 70 and then to switch to her own. — Darryl Cross, Gold Beach, Ore.
A: Here is our expert's recommendations, summed up visually. The chart below shows the approximate value of your lifetime cumulative benefits over your life expectancy if you choose to take benefits early, at Full Retirement Age and at the optimal scenario we have created for you. The Short Life Span row illustrates the amount if each of you lives 10 years less than you plan. The Projected Life Span row illustrates the amount if each of you lives to the age you provided. The Long Life Span row is the amount you could expect to collect if each of you lives 10 years longer than expected.
And this is what our expert has to say about the plan:
We’ll have to make some assumptions: that you don’t have children eligible for benefits; that neither you nor your wife has or will have a pension from a job not covered by Social Security; that neither you nor your wife was born on the first of the month; and that you have a life expectancy of 85 and your wife 90.
Assuming all that, William Reichenstein, a principal with Social Security Solutions and a professor at Baylor University, says the primary strategy, the strategy that maximizes your household’s expected lifetime benefits and minimizes longevity risk, would be as follows:
Your wife claims her Social Security benefit of $1,438 per month at 64 and four months and, at that time, you file a restricted application for spousal benefits. You’ll get an estimated $809 per month. Then, at 70, you claim Social Security benefits based on your earnings record; the estimated benefit is $3,035. If you should then predecease your wife, she would receive an estimated $3,035 in survivor’s benefits, according to Reichenstein.
According to Reichenstein, this strategy may not be your best choice if either of you live significantly longer or shorter than projected, or if you continue to work and are younger than full retirement age. But it will pay about $1,155,737 in benefits over your remaining life expectancy.
Another strategy to consider: You begin your benefit at 70 and your wife files for a spousal benefit at that time. Then, at 70, your wife switches to her own retirement benefits.
Reichenstein says the primary strategy beats the second strategy by a small amount if you and your wife live to precise life expectancies. But if you live to at least 87 and your wife lives to at least 89 then the latter strategy has a slight advantage. Then the cumulative benefit would be $1.692 million for the primary strategy vs. $1.774 million for the latter strategy
“Hopefully, this input will put you and your wife in a position to make an informed decision,” says Reichenstein. “That is, you see the tradeoffs, and the lifetime maximizing strategy varies with how long each spouse lives. No they still do not know their precise life expectancies, but they see the tradeoff.”
Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Emailrpowell@allthingsretirement.com.