SS Benefits with a Twist

[Brdofpray]

My DW and I need some advice. Now before you dismiss this as just another, “When should I take my SS benefits?” thread, please read further.

The DW and I both receive pensions that total more than our yearly expenses. The extra is funneled into our portfolio. With the SS decision looming, we need to decide whether 62, 66, or 70 is the route to go.

I know our benefits increase the longer you wait to claim SS. However, here is the kicker. Through my working life I paid into both my company’s pension fund, and SS. DW paid only into her schools pension fund, not into SS. Therefore, she will not be eligible for her own SS benefits, nor will she be eligible for mine as a surviving spouse, due to the “Government Pension Offset Provision”. This act basically says that since her current pension benefits are more than her surviving widower benefits would be, (when I check out ) she is not eligible.

So here is the question. Since she can’t collect any SS benefits from my untimely demise, should we take my benefits as early as I can? Since these benefits are not needed for daily expenses, they would all go directly into our portfolio. Our rationale is that she will be better able to benefit, in the long term, from my reduced SS benefits at 62.

I have run several projections. If I begin benefits at 62, we will have collected almost 100K before age 66. We will have just over 160K before age 70 (not adjusted for inflation). By the ages of 75 to 79, the total benefits from all options converge.

Talk about gambling, if I check out before 75 years , DW wins , so to speak . If I live passed 80, we both missed out on potential SS benefits.

What say you? Am I missing something here? Is this logical?

 

[REWahoo]

More info needed: When will you die?

Kidding aside, in your circumstances I would take SS at 62 and invest the money if not needed. Reducing the withdrawals from your portfolio by the amount of SS income effectively invest your SS benefit, so no need to take the deposits and move them to an investment account...

 

[Alan]

That sounds about right. Life itself is a gamble. If you take the money at 62 and make it to 80, are you really going to be sad that you made it to 80?

Just make a choice, even if it means flipping a coin, then forget about it.

 

[73ss454]

Since the pensions cover all your expenses and more, I don't see much of a gamble either way. I'd take it at 62 and stash it.

 

[donheff]

DW and I are in a similar situation (I have the non-SS pension she has SS). She plans to take SS at 62.

 

[jdw_fire]

if you and/or your wife have considerable assets in tax deferred accounts (401ks/TIRAs) that will produce large RMDs once you hit your 70s then you should consider how much you will be losing to taxes. maybe, if you delay SS, you can convert a significant portion of the tax deferred accounts to Roths at lower tax rates, saving considerable money and making a delay in SS the more profitable way to go. since you didnt say anything about tax deferred accounts nor taxes all i can suggest is that you run the numbers and see if that makes a difference.

 

[Midpack]

The best responses are above.

No one can predict their longevity, but some people can make a good guess based on family history. Both my parents are 90 and still going, and I am in very good health, so I think I need to plan that I may well last into my 90's as well. That might make starting the benefit later more attractive.

OTOH, if benefits are reduced directly or via tax policy many, many years from now, that might favor sooner. I think most view changes in Soc Sec for anyone over 55 highly unlikely, but no one can know for sure.

 

[chemist]

if you and/or your wife have considerable assets in tax deferred accounts (401ks/TIRAs) that will produce large RMDs once you hit your 70s then you should consider how much you will be losing to taxes. maybe, if you delay SS, you can convert a significant portion of the tax deferred accounts to Roths at lower tax rates, saving considerable money and making a delay in SS the more profitable way to go. since you didnt say anything about tax deferred accounts nor taxes all i can suggest is that you run the numbers and see if that makes a difference.

+1

Look at i-ORP (Google it) and run some scenarios there.

Remember SS payments are never more than 85% taxable whereas 401(k) withdrawals are 100% taxable. I would seriously consider delaying SS and doing some Roth Conversions while you can - then start SS around the time RMD's kick in.

 

[W2R]

OK, I just HAVE to offer my opinion too, y'know.

I say that if you don't need it, wait a while to take it. As I understand it, your case is just like a single person's situation due to your wife's GPO. If you are going to gamble, why not gamble that you will live longer than the SS administration's actuarial statistics say? After all, your payout at various ages is based on those statistics. Their statistics include people with known fatal diseases, bums, drug dealers/users, and others whose shortened life expectancy would be less than yours. So, you would benefit from taking your SS as late as is possible/comfortable.

However, if nearly everyone in your family has died before age 80, I'd ignore the above paragraph.

if you and/or your wife have considerable assets in tax deferred accounts (401ks/TIRAs) that will produce large RMDs once you hit your 70s then you should consider how much you will be losing to taxes. maybe, if you delay SS, you can convert a significant portion of the tax deferred accounts to Roths at lower tax rates, saving considerable money and making a delay in SS the more profitable way to go. since you didnt say anything about tax deferred accounts nor taxes all i can suggest is that you run the numbers and see if that makes a difference.

+1

 

[ejman]

My DW and I need some advice. Now before you dismiss this as just another, “When should I take my SS benefits?” thread, please read further.

The DW and I both receive pensions that total more than our yearly expenses. The extra is funneled into our portfolio. With the SS decision looming, we need to decide whether 62, 66, or 70 is the route to go.

I know our benefits increase the longer you wait to claim SS. However, here is the kicker. Through my working life I paid into both my company’s pension fund, and SS. DW paid only into her schools pension fund, not into SS. Therefore, she will not be eligible for her own SS benefits, nor will she be eligible for mine as a surviving spouse, due to the “Government Pension Offset Provision”. This act basically says that since her current pension benefits are more than her surviving widower benefits would be, (when I check out ) she is not eligible.

So here is the question. Since she can’t collect any SS benefits from my untimely demise, should we take my benefits as early as I can? Since these benefits are not needed for daily expenses, they would all go directly into our portfolio. Our rationale is that she will be better able to benefit, in the long term, from my reduced SS benefits at 62.

I have run several projections. If I begin benefits at 62, we will have collected almost 100K before age 66. We will have just over 160K before age 70 (not adjusted for inflation). By the ages of 75 to 79, the total benefits from all options converge.

Talk about gambling, if I check out before 75 years , DW wins , so to speak . If I live passed 80, we both missed out on potential SS benefits.

What say you? Am I missing something here? Is this logical?

I think that the part that you are missing is that $160K in benefits before age 70 doesn't just sit there, it is effectively invested because if you used the SS money at all before age 70, whatever you didn't take out of your investments is effectively invested at whatever rate of return your portfolio allocation generates. In the calculations I've run myself (as well as the sample calculations from others) if you are able to generate a rate of return out of your investments of at least 5-7 % the cumulative totals will point toward an age 62 start of SS as being the option that generates the larger overall $$$. A generally unmentioned additional benefit of this approach is a larger estate which has a benefit in my case with a son who is disabled vet.

 

[MooreBonds]

One other item: are your pensions adjusted for CPI (or some portion thereof), and how much over-and-above your starting budget are your pensions?

If your pensions are fixed, and annual budgets exceed your pensions in year 5 due to inflation, then it definitely makes sense to delay SS to get at least some 'longevity/inflation insurance'. Like others have said, your own personal health and family health history is just as big of a big factor.

Also, who is the payor of your pension, and what's the current funding level? Is your pension plan on rock solid footing, or is there a small chance it would get taken over by PBGC and have your/DW's pension reduced?

 

[donheff]

I say that if you don't need it, wait a while to take it. As I understand it, your case is just like a single person's situation due to your wife's GPO. If you are going to gamble, why not gamble that you will live longer than the SS administration's actuarial statistics say?

The reason I don't like this approach is that you are not single, you are married. So your decision to wait means spend more of your joint portfolio now. If you die at, say 70, just as SS begins your now wife's portfolio is out all of the money and growth it could have accrued over the last 8 years. Your potential gain if you live a long time is her potential loss if you don't.

 

[Walt34]

It all comes down to "how lucky do you feel".

Just had to throw in a little melodrama there.

 

[ronocnikral]

every year I go through the exercise of shopping around for new auto insurance. I always ask for the highest deductible possible. To which the agent always explains how much more out of pocket I will have to pay. And I respond, "We don't plan on having an accident."

I also don't plan to die early. Your safety net if you kick the bucket seems to be in place regardless of when you elect to take SS. Your wife is in an enviable position being subject to the GPO. There is more to life than maximizing your social security benefits.

 

[Brdofpray]

Thanks for the comments. Many interesting points of view. I am running the figures on the tax angle, had not thought of that.

One other item: are your pensions adjusted for CPI (or some portion thereof), and how much over-and-above your starting budget are your pensions?

If your pensions are fixed, and annual budgets exceed your pensions in year 5 due to inflation, then it definitely makes sense to delay SS to get at least some 'longevity/inflation insurance'. Like others have said, your own personal health and family health history is just as big of a big factor.

Also, who is the payor of your pension, and what's the current funding level? Is your pension plan on rock solid footing, or is there a small chance it would get taken over by PBGC and have your/DW's pension reduced?

Couple of points, both our pensions have inflation protection included. Our current annual spending is right around 60K to 70K. This has been consistent for the last 3 years. With our current level of spending, we still manage to save 25K each year. My pension is very well funded, DW not so much. We are watching that very closely. We have, however, run our numbers through Fire Calc many different ways. Even with a complete elimination of her pension, we still hit 100% success.

As far as,

More info needed: When will you die?

That is the $64,000 question.

 

[Moemg]

Unfortunately woman usually outlive men so I would take the SS now .