None of us have a crystal ball, so if married or previously married, we have no idea who will be the remaining spouse. To be honest, we probably wouldn’t want to know. But, we can all make reasonable assumptions about our life expectancy. We can use an online calculator, we can look at our parent’s situation, or simply rely on our gut feeling; but in order to make a BEST decision about Social Security benefits you need to put a stake in the ground about the age at which you think we will die.
I don’t like writing about this issue, but it is at the core of helping our clients make a plan to maximize their benefits during their lifetime and for the survivor when one dies. Why you may ask? Well, that is not an easy question to answer because Congress through the Bi-Partisan Budget Act of 2015 put people in categories based on ages. Sometimes couples have one spouse in one category and the other spouse in another – they live by different rules and regulations regarding their benefits. Benefits can be close to the same amount, or as far as the east is to the west in $$$ amount – this brings on another set of circumstances that need to be reviewed. A valid point is that nobody’s Social Security situation is the same – taking advice from friends about what they did is of no value to you – their situation is not the same as yours and will probably cost you dearly. Each situation is unique – no playbook here.
The reason we need to know who will live longer is to try and capitalize on that benefit amount for a greater Survivor Benefit for the couple. Let’s use an example of John and Susan;
They are both age 62, so past the age of utilizing claiming strategies (if you turned age 62 by January 1, 2016 you can use a Restricted Application or might be eligible for a Spousal Boost to improve your situation).
John is the higher earner and his Full Retirement Age (FRA) benefit is $2000 per month. Susan’s benefit at FRA is $1200 per month. John thinks her will live to 75 based on family history and current health issues, but Susan believes she will live to a ripe old age of 95, based on family history and good health so far.
If they both decide to take their benefit at age 66, they will draw a combined benefit amount of $3200 per month, less Medicare premiums and taxes if they choose to take from their benefit amount, until John dies at age 75. Now the only check Susan will receive will be the $2000 per month that John was drawing.
But, if John had waited to draw at age 70, Susan would receive $2640 per month for the rest of her life. If she lives until 95 as estimated, her lifetime benefit would have grown to $153,600 more than the previous scenario.
The best Social Security strategy for your cumulative lifetime benefits with income protection should you live longer than you expect – or live long enough to exhaust your savings. This is known as “longevity risk”. Judiciously choosing when to begin your benefits can add years to the longevity of your savings. Getting more from your Social Security benefits means that you will have to withdraw less from your savings over the retirement years.
Yes, readers it is a balancing act – one that should not be taken lightly.
Pillars LLC is in the Corinth, MS area but service all 50 states. Roy and Diane are both National Social Security Advisors and Roy is a former CPA of over 40 years. You may contact them at firstname.lastname@example.org, on their website at www.pillarsllc.com or call at 601-954-0699. KNOW before you GO!!