Help Understanding SS and Retirement Choices

[DJRR]

So I thought I had some more time, but I ran open social security and it thinks my best claiming option is for my wife to claim right now and me to wait until 70. I need to understand how this relates to Fire Calc and one of us dying because it is a big difference if calculated incorrectly.

Me: 59 next month PIA $3,593
Wife: 62 and 8 months PIA $1,008
Portfolio: Fluctuating but assume $1.4M 95% taxable
Income ~ $200k, savings ~ $45k/year
Fire Calc says 100% chance of $85k income today but need $2M portfolio to get to 100% of my preferred income, which is consistent with my thinking.

I do not plan to stop work until my wife reaches Medicare due to some specific health issues and wanting to transition from insurance to Medicare with her current specialists who do not take "new" Medicare patients plus my kids being not quite 26.

I thought she would claim at her FRA and I would claim whenever I needed the money or 70 but now rethinking.

As I understand it, wife can claim now for ~ 73% of her benefit and get my FRA benefit if I die before claiming if she waits until she is FRA. That leaves her exposed to me dying between now and when she turns 67, so 4 years. 2 years are covered by my existing $1M life insurance and I need to cover 2 years somehow.

According to the opensocialsecurity.com website:

Wife claims today - we get $8,870 of which 85% is taxable. I can put most of it into her spousal IRA or into my deferred comp plan since I don't really need it to live on.

When I get to 70 I get $53,191 plus her $8,870 plus her spousal increase of $9,468 = $71,530.

If she claims today and I die tomorrow she keeps her reduced $8,870 and she can either immediately claim 73% of my $43,128 FRA as a death benefit or wait until her FRA and end up with 100% for a total benefit of $53,191.

My last question is how does Fire Calc handle this when I put in both of our SS#s and the date? I want to work on the timing but the extra $18k ($71k- $53k) per year in income will greatly increase my success rate and income, but when one of us dies we won't have it. Do people model the minimum amount or take some account of the benefit if we both live past 70?

Hopefully this makes sense, but a lot more complicated than I was thinking.

 

[qwerty3656]

I don't have answers to your firecalc questions, but it seems alot of this questioning was driven by opensocialsecurity having your wife take SS early. I think you will find that when your wife takes SS really doesn't matter - taking it say at 65, is likely withing 99% of taking it at 62.

 

[Midpack]

This may be a tangent to your question, and I think opensocialsecurity is a great tool - but should you/have you explored the additional input options? Makes a huge difference for us, we both have much longer longevity (mortality table options) than opensocialsecurity defaults to. We input assumed ages at death that are even more than their mortality options because our parents and immediate family live much longer than average. If not mortality, any of the others like still working, etc.? Just something to consider before you take this step. Might be applicable to other readers as well. Best of luck.

 

[Al18]

I’ve resolved your solution down to one sentence:
“I can put most of it into her spousal IRA or into my deferred comp plan since I don't really need it to live on.”

Run the numbers next year. In my opinion the simple solution, without solving for maximum money, is for you and your wife to file between 65 and 67.

 

[N02L84ER]

If she claims today and I die tomorrow she keeps her reduced $8,870 and she can either immediately claim 73% of my $43,128 FRA as a death benefit or wait until her FRA and end up with 100% for a total benefit of $53,191.

I believe a surviving spouse can only get the deceased spouse's delayed retirement credits if the deceased spouse lived past their FRA. So, if you die tomorrow, the maximum survivor benefit is your PIA or $43,128.

 

[Exchme]

I believe a surviving spouse can only get the deceased spouse's delayed retirement credits if the deceased spouse lived past their FRA. So, if you die tomorrow, the maximum survivor benefit is your PIA or $43,128.

Yes, so this would be the worst case for income and taxes and so should be part of a "disaster plan". If OP passes tomorrow, his wife can still claim on her record right now and then at age 66 and 8 months, would switch to survivor benefits and get OP's full PIA instead. As you say, you can't get deferred retirement credits beyond your lifespan.

OP should make sure that he has made his own estimates for taxes, FireCalc is assuming they are included as part of the expenses. That should include taxes on RMDs from tax deferred accounts.

 

[DJRR]

I believe a surviving spouse can only get the deceased spouse's delayed retirement credits if the deceased spouse lived past their FRA. So, if you die tomorrow, the maximum survivor benefit is your PIA or $43,128.

That is one thing that was not clear to me in the surviving spouse thread. The website output I looked at clearly showed that my spouse would get my FRA plus her reduced benefit amount (total equal to my individual benefit) if I die after starting benefits at 70. I do not understand if she gets penalized if I die prior to my FRA or claiming my benefit. I always lose the extra $18k per year whenever one of us dies, but not sure if we could lose more.

 

[DJRR]

Yes, so this would be the worst case for income and taxes and so should be part of a "disaster plan". If OP passes tomorrow, his wife can still claim on her record right now and then at age 66 and 8 months, would switch to survivor benefits and get OP's full PIA instead. As you say, you can't get deferred retirement credits beyond your lifespan.

So if I understand correctly if I plan on taking SS at 70, but die before then my wife only gets my current PIA at my FRA when I die, if she claims survivor benefits at her FRA - the worst possible case. If I make it to 70 and get the higher benefit and then die she gets the higher benefit. Is that right? Amazed how confusing this can be and I am financially literate

 

[latexman]

So if I understand correctly if I plan on taking SS at 70, but die before then my wife only gets my current PIA at my FRA when I die, if she claims survivor benefits at her FRA - the worst possible case. If I make it to 70 and get the higher benefit and then die she gets the higher benefit. Is that right? Amazed how confusing this can be and I am financially literate

If you die before 70 (before starting SS) she gets whatever you are due on the day you die.

 

[qwerty3656]

If you die before 70 (before starting SS) she gets whatever you are due on the day you die.

I think if he dies before 67 (FRA) she can wait til 67 and get his FRA, she just cant get more by waiting til 70.

 

[pb4uski]

I think the OP is overanalyzing it.

For FIRECalc I keep it simple. I ignore DW's current benefits based on her own work record, which she is collecting. For FIRECalc I start her at 50% of my PIA and me at my age 70 benefit in the year after I turn 70 (since my birthday is in November).

There is no need to be any more precise about it... adding in her benefits before mine start isn't going to change the result enough to matter... it would get lost in rounding.

I also do a "run" with my benefit as if I died today (I am past my FRA so delayed retirement credits would stop when I die).

When I use FIRECalc rather than use success rate I use the Investigate tab and have FIRECalc solve for spending at 95% success and then compare that to our spending.

 

[N02L84ER]

So if I understand correctly if I plan on taking SS at 70, but die before then my wife only gets my current PIA at my FRA when I die, if she claims survivor benefits at her FRA - the worst possible case. If I make it to 70 and get the higher benefit and then die she gets the higher benefit. Is that right? Amazed how confusing this can be and I am financially literate

Yes, this is how I understand it works.

 

[Exchme]

So if I understand correctly if I plan on taking SS at 70, but die before then my wife only gets my current PIA at my FRA when I die, if she claims survivor benefits at her FRA - the worst possible case. If I make it to 70 and get the higher benefit and then die she gets the higher benefit. Is that right? Amazed how confusing this can be and I am financially literate

Yes, they use the baseline of the PIA amount for survivor benefits. If you make it past your FRA without claiming, then you earn deferred retirement credits, which is what increases your benefit up to age 70. You can't earn deferred retirement credits if you are gone.

If your brain doesn't hurt yet, then consider that if you die prior to FRA and your lower earning spouse claims on your record early, there is a different derating scheme than the one used for regular benefits and different than used for spousal benefits. For instance, your spouse can get your PIA amount at age 66 and 8 months, instead of 67.

All this crazy complexity is why the simplest and best way to understand is to go to opensocialsecurity.com. I saw a story over on Bogleheads.org a few months ago where someone was talking to a Social Security employee and the employee referred them to the opensocialsecurity site and said they don't have a tool that looks to optimize the combination of benefits like that!

 

[Rianne]

I took SS at 65, DH has not taken yet. My current SS benefit is over $1000 yr than my FRA amount. Open social security doesn’t compute that amount. It keeps my earnings less than what I’m actually earning. My FRA is 66.5 yrs old. How do I plug in what I’m actually earning?

 

[Exchme]

I took SS at 65, DH has not taken yet. My current SS benefit is over $1000 yr than my FRA amount. Open social security doesn’t compute that amount. It keeps my earnings less than what I’m actually earning. My FRA is 66.5 yrs old. How do I plug in what I’m actually earning?

What's confusing the calculation is the COLA since you claimed. If you claim 36 months or less below your FRA, the amount is reduced by 5/9% of your PIA per month. So let's say you claimed on your 65th birthday, that would be 18 months early since your FRA was 66 and 6 months.

So your benefit was reduced by 18 months * 5/9/100 = 0.1, or 10% vs. your PIA, meaning you got 90% of your PIA. That 90% factor will be with you always, regardless of inflation adjustments. So take your current benefit and divide by 0.9, that is the PIA.

 

[DJRR]

I think the OP is overanalyzing it.

There is no need to be any more precise about it... adding in her benefits before mine start isn't going to change the result enough to matter... it would get lost in rounding.

Probably. It does matter to me. If I knew that both of us would live past 70 then I could receive an additional $18k in income per year inflation adjusted. That is equivalent to ~ $450k portfolio, so I could safely retire today. If one of us dies then our income is reduced and the reduction in portfolio prior to me reaching 70 leaves one of us with a much lower income.

I guess the safer calculation is to model based on our own PIA and then keep the big increase my wife would receive in survivor benefits as an upside.

 

[pb4uski]

Probably. It does matter to me. If I knew that both of us would live past 70 then I could receive an additional $18k in income per year inflation adjusted. That is equivalent to ~ $450k portfolio, so I could safely retire today. If one of us dies then our income is reduced and the reduction in portfolio prior to me reaching 70 leaves one of us with a much lower income.



I guess the safer calculation is to model based on our own PIA and then keep the big increase my wife would receive in survivor benefits as an upside.

Well, while you can never "know" if both of you will live past 70 you can assess the likelihood of both of you living past 70 using the Society of Actuaries Longevity Calculator.

According to that tool, assuming that you never smoked and are of average health there is a 89% chance that you will live to be 70 and a 98% chance that you DW will.

Age	Him	Her
65	95%	N/A
70	89%	98%
75	82%	92%
80	70%	82%
85	54%	66%
90	34%	45%
95	16%	22%
100	5%	8%

 

[Markola]

^^^^^ I realize actuaries are looking at population-level data but it’s still interesting to me that the calculator doesn’t ask for weight, exercise, meat consumption, alcohol use, sleep quality or any other details we Americans drive ourselves crazy over, only tobacco use and a generalized health estimation.

 

[pb4uski]

^^^ True, but what is your point?

All you are saying is that you would like to see a more refined judgement of health. Fair enough. But at the same time it is unlikely to change the conclusion that it is more likely than not that a 59yo male in average health that has never smoked and a 68yo female in average health that has never smoked will live beyond 70.

 

[Markola]

I don’t have to have to have a point. I commented about what I found interesting.