Facts on SS spousal benefits

[pb4uski]

There is no doubt that the taxation aspect is unfair compared to other retirement savings vehicles, like an annuity. If you made the same contributions as you do to SS to a deferred annuity with after-tax money then a portion of the annuity benefits received would be exempt from tax because it is a return of your own after-tax money. SS is essentially after-tax but the retirement benefits are subject to tax but at least currently a portion of the retirement benefits are not taxed. To me, the 15% was just a convenient proxy to try to exclude something.

 

[youbet]

People aren't taking SS early to "lock in their benefit". They are taking it early because there is no net financial reason to prefer one age to any other age -- so no reason to _not_ file early -- and because it is more convenient to them to start early.

+1

There are various reasons to start SS early beyond break-even point calculations or a desire to "lock in" benefits.

I started at 62 because DW is impacted by GPO, cannot collect SS as my survivor, and I wanted to protect her. By collecting and investing SS starting at 62, I've built up a pretty decent stash we wouldn't have otherwise had if I had chosen to delay to FRA or 70. If I predecease her, she'll have that extra stash whereas if I'd delayed SS and died before collecting, she'd have nothing. In fact, because the past 6 years (I'm 68) have been favorable in the markets, the SS stash is large enough that I consider myself a winner in the "SS early or late sweepstakes."

Other folks might have their own logical reasons for starting early, at FRA or at 70. It's situational and the outcome cannot be known beforehand. How long you live and the investment returns on the dollars collected early will tell the story. I started SS early and, 6 years in, seem to have won if I assume conservative, positive investment returns going forward.

 

[NW-Bound]

^^^^ A perfect example of doing what fits your situation, even though SS rules may be actuarially neutral. The term "neutral" is only applicable to the entire populace, but in your particular case, you may have reasons to choose a certain way.

Whatever I eventually choose to do, I would like to know all the options. I hate to later say "woulda, shoulda" because I did not spend time to study the issues.

 

[pb4uski]

^^^^ A perfect example of doing what fits your situation, even though SS rules may be actuarially neutral. The term "neutral" is only applicable to the entire populace, but in your particular case, you may have reasons to choose a certain way. ....

+2

 

[Rothman]

+3

I also was looking more this weekend on managing myself to ACA subsidy and in that case it's probably best to differ to leave more room for Roth conversions below the ACA cliff. So then my chose is wife's benefits at 65 and then spousal at 67 our FRA, and mine at 70. I'm still not sure if her spousal at 67 is reduced since she takes her benefit at 65? If yes then I need to look at the cross over age to decide.


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[rayvt]

My point to rayvt was that since it is unprecedented for benefits for retirees or those near retirement to change that his concern about the deal being changed wasn't really relevant to the decision on claiming strategies.

What happened in the past is interesting, but what is important is what will happen in the future. When you see cracks in the dam face, you can't say, "Well this dam has never collapsed in the past, so we don't need to worry now."

When the SSA warns that things are in danger, it is rather silly to insist that nothing will ever change. Trustees Report Summary
"Neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequence."

"Social Security’s Disability Insurance (DI) program ... faces the most immediate financing shortfall ... Lawmakers need to act soon to avoid automatic reductions in payments to DI beneficiaries in late 2016" True, we are talking about OASI and not DI, but the point remains, that a benefit is in risk.

"the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period."

"The OASI Trust Fund has a projected reserve depletion date of 2034.
After the depletion of reserves, continuing tax income would be sufficient to pay 77 percent of scheduled benefits in 2033."


There you have it. SSA warns that without changes the benefits will be cut by 23% in 18 years. So there is a definite risk, and that risk needs to be taken into account.


---------------
One way or another, something is going to change. Either the SSA's inflow has got to rise or the outflow has to drop.

It strikes me that an easy argument to be made is "Warren Buffett & Bill Gates have oodles of money, so they don't need SS." Boom, means test. Regardless of your own politics, you could write the TV soundbites.

Not income test , means test. The more money you have, the more likely it will be that your SS benefit will be reduced. Ma & Pa living on their SS check won't be affected. Financially independent early retired people are a different category.
​

 

[ERD50]

Since my ER plan is not counting on SS benefits I have not done a lot of research on this topic. I'm pretty sure they will change the rules and the amount of benefits by the time we get to FRA. However I did come across this tool (link below). Has anyone tried this SS tool? Not sure how accurate it is, but it is easy to use. SSAnalyze - Bedrock Capital Management

I just tried that one - it looked good to me (but what do I know?).

I set the COLA and real return to zero to keep everything in today's numbers.

It threw me off at first, the SS numbers are monthly, not annual.

DW and I are close in age, she is just over a year younger than I am. Her FRA SS will likely be just about 1/2 my FRA SS. It told me:

1) I should F&S at FRA.

2) DW will file and "restrict her application" to her spousal benefit at FRA; she receives 50% of my FRA benefit.

3) I file for my own benefit the month after I turn 70; get 132% of my FRA benefit.

That is as I expected, based on limited looking into this. But #4 is what I hadn't realized...

4) DW will file for her own benefit the month after she turns 70 and receive 130.66% of her FRA benefit (not 132%, she crosses over a different FRA line from me).

5) If/when widowed DW will receive 132% of my FRA benefit.

Sound right? I think so. In today's numbers, should be ~ $14K for a few years, ~ $51K for a few years, ~ $55K when both are age 70, and ~ $37K survivor benefit to her for life (assuming she survives me).

-ERD50

 

[Tadpole]

I am offering this just for historic perspective of the ups and downs of the SS Trust Fund since people are discussing 2033.


Trust Fund Data

 

[Animorph]

I just tried that one - it looked good to me (but what do I know?).

I set the COLA and real return to zero to keep everything in today's numbers.

It threw me off at first, the SS numbers are monthly, not annual.

DW and I are close in age, she is just over a year younger than I am. Her FRA SS will likely be just about 1/2 my FRA SS. It told me:

1) I should F&S at FRA.

2) DW will file and "restrict her application" to her spousal benefit at FRA; she receives 50% of my FRA benefit.

3) I file for my own benefit the month after I turn 70; get 132% of my FRA benefit.

That is as I expected, based on limited looking into this. But #4 is what I hadn't realized...

4) DW will file for her own benefit the month after she turns 70 and receive 130.66% of her FRA benefit (not 132%, she crosses over a different FRA line from me).

5) If/when widowed DW will receive 132% of my FRA benefit.

Sound right? I think so. In today's numbers, should be ~ $14K for a few years, ~ $51K for a few years, ~ $55K when both are age 70, and ~ $37K survivor benefit to her for life (assuming she survives me).

-ERD50

Pretty much our plan as well. I've got 5 years on DW so I won't need to F&S, just file by age 70. And her FRA is 67, so only three years of spousal benefits and 124% of her FRA benefit.

 

[Disappointed]

Read through this thread but did not find the answer to my question. I will be 62 in January 2016. I am planning to take early benefit which will be about $2,002 a month. My wife will also be 62 in May of 2016.

1. Can she file for spousal benefit in 2016 or will she have to wait till 66?
2. Will she receive 50% of my benefit or a reduced amount less than 50% as she is taking it before FRA?

Mp


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Mp

 

[pb4uski]

Is your Google not working? Google "when can i file for spousal social security benefits" pops up after you type the first few words.

Retirement Planner: Benefits For You As A Spouse

Even if you have never worked under Social Security, you may be able to get spouse’s retirement benefits if you are at least 62 years of age and your spouse is receiving retirement or disability benefits.

I suspect she'll get roughly half of your reduced benefit.

 

[Disappointed]

Thanks PB4
I did read the publication you linked to, however the paragraph below confused me.

between age 62 and your full retirement age, the amount will be permanently reduced by a percentage based on the number of months up to your full retirement age.
at your full retirement age, your benefit as a spouse can be equal to one-half of your spouse’s full retirement amount.


If she filed before her FRA will she get 50%?





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Mp

 

[NW-Bound]

If she filed before her FRA will she get 50%?

No, she will not. She will get a reduced amount. And if she waits past her FRA, she will not get more.

For married couples, the following criteria must be met:

• The individual claiming spousal benefits must be age 62 or older.
• His or her spouse must be eligible to receive Social Security retirement benefits.
• His or her spouse must have already filed to receive those benefits.

The last item in the above list can be met by "file-and-suspend" if you like to go that way.

And from a Web site:

Divorcees don’t have to wait for former spouses to file for Social Security benefits. As long as they were married 10 years and have been divorced at least two years, they can file for spousal benefits at age 62, regardless of their spouse’s filing status. However, their former spouse must also be at least age 62. As with married couples, filing for spousal benefits before full retirement age can result in a reduced monthly amount.

 

[pb4uski]

+1 in the post #85 you said that you both intend to file at 62, you first in Jan 2016 and then her in May 2016. That is why I said that she will get 50% of your reduced benefit.

So let's say that your FRA benefit would be 100 and at 62 it is 75. If she wited until her FRA she would receive 50% of your FRA benefit , or 50, but since she is filing at 62 she'll only get 75% of the 50 or 38 or 50% of your reduced benefit of 75.

So if your early benefit at age 62 is $2,002/month I think she'll get about $1,001/month. And if you pass first then she will "inherit" your $2,002/month benefit and lose her $1,001/month benefit.

 

[43WorkYears]

The link below will explain:

http://www.ssa.gov/planners/retire/1943.html


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[pb4uski]

Great link. So if his reduced benefit is $2,002, her age 62 benefit will be $934 ($2,002/75%*35%). It is interesting that her benefit ends up being less than half of his as the discount for s spouse is a bit more for taking it earlier than for the wage earner. Learn something new every day.

 

[jimnjana]

I've been searching for a ss calculator that could handle the 10 yr age difference for DW and I and that was flexible in calculating multiple scenarios. This is the best free one I could find.

SSAnalyze - Bedrock Capital Management


The best strategy for us is for me to claim a spousal benefit at FRA, and my own at 70. When DW begins her benefit does not impact our results as significantly. So it is more likely that she will begin drawing after we complete retirement plan conversions to ROTH IRAs rather than waiting until age 70 to max our combined benefits.

 

[rayvt]

... SSAnalyze - Bedrock Capital Management ...
Sound right? I think so. In today's numbers, should be ~ $14K for a few years, ~ $51K for a few years, ~ $55K when both are age 70, and ~ $37K survivor benefit to her for life (assuming she survives me).

Just look closely at the details that they show. I ran a lot of scenarios trying to understand how all the things worked together, and there were a few runs where is would say "she files ..." at an early age, but then showed her receiving $0, which was wrong. I suspect that these were cases where their was a bug in their code that got triggered when I over-rode their recommended ages. I would suspect that it's pretty accurate for their recommendation cases.

To be pedantic, your #5 is a slight mis-statement. It's not that she'll get 132% of your FRA. It's that she'll step into your shoes and take over your benefit stream -- whatever that happens to be. The spouse gets to choose whether to keep their own benefit or take over the decedent's benefit; but they can't get both -- it's one or the other.

 

[ERD50]

.. SSAnalyze - Bedrock Capital Management ... I suspect that these were cases where their was a bug in their code that got triggered when I over-rode their recommended ages. I would suspect that it's pretty accurate for their recommendation cases.

To be pedantic, your #5 is a slight mis-statement. It's not that she'll get 132% of your FRA. It's that she'll step into your shoes and take over your benefit stream -- whatever that happens to be. The spouse gets to choose whether to keep their own benefit or take over the decedent's benefit; but they can't get both -- it's one or the other.

Yes, could be some bugs. So far, it seems right for my case, which is pretty straightforward. But I only have general knowledge, I've been kind of avoiding this until I get closer, but I wanted to review it for planning for RMDs and taxes.

Yes, on my #5 it would have been clearer to say she can take over my 132% of my FRA stream, but loses hers which is what I meant). Next I'll take a look at her taxes with the lower total SS, but filing single.

-ERD50

 

[pb4uski]

.....To be pedantic, your #5 is a slight mis-statement. It's not that she'll get 132% of your FRA. It's that she'll step into your shoes and take over your benefit stream -- whatever that happens to be. The spouse gets to choose whether to keep their own benefit or take over the decedent's benefit; but they can't get both -- it's one or the other.

He had already said in #3 that he would file at 70 and get 132% of his FRA benefit and before that that her benefit would be substantially less than his.

So if he later passes on she will step into his shoes and get his benefit, which is 132% of his FRA.

I think you are wrong that she has a choice... once the SSA receives notification of his death they will automatically start paying her the higher of her benefit or his... at least that is the way it happened with my mother when my dad died. But you are correct that if his benefit is higher that she would no longer receive her benefit but I suspect that he didn't mention that because it is common knowledge.

 

[Disappointed]

The link below will explain:

Full Retirement Age: If You Were Born Between 1943 And 1954


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Thanks 43WORKYEARS, that was the info I was looking for.

 

[43WorkYears]

Thanks. This is good information for all of us as we approach the age when decisions need to be made or explored more seriously. All responses are great as we learn and gain knowledge from each other. Best to all and keep in going.


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[NW-Bound]

Since my ER plan is not counting on SS benefits I have not done a lot of research on this topic. I'm pretty sure they will change the rules and the amount of benefits by the time we get to FRA. However I did come across this tool (link below). Has anyone tried this SS tool? Not sure how accurate it is, but it is easy to use. SSAnalyze - Bedrock Capital Management

I tested this calculator by using the average life expectancy for both of us. It suggested what I already thought I was going to do using Black Rock's strategy that seemed to fit us.

Then, I started playing with our life span, shortening mine in particular (no point in lengthening it, as I already know that it would not change the SS strategy).

At one point, the calculator said that I should claim SS at 68. Not FRA or 70, but 68. It appears that they run an exhaustive search through all combinations of starting age for a couple to file. This is all very nice, if you know exactly when you and your wife are going to die.

Hmm... I wonder if I now play with FIRECalc using the shortened lifespans along with this SS info, it would not tell me I could withdraw 7% or something. That's mucho money to spend. If a candle is going to burn short, it might as well burn bright.