Modeling Social Security with Spousal Benefits

[Romer]

I believe I have this modeled correctly and it shows to me assuming we both live a long time that taking SS a 67 with my wife taking the spousal benefit then is the better option

My wife’s SS benefit is lower because she has been a homemaker only working a few years out of the home AND VERY HARD at home while raising our kids

As I understand it, to maximize the spousal benefit she can’t take SS until age 67.

If I wait until age 70 she can take her own at 67 and then switch to spousal once I take it at age 70. At 70, her benefit is the same 50% of my value at 67 FRA. Waiting 3 years only benefits my payout and then her benefit if I die before her. Doing the 70 year route it takes until age 88 to break even per the attached table. That is because we are so far ahead starting at 67 with a combined SS of $59K for 3 years

The downside of taking both at 67, is that if I precede her the payout she gets is $9K less. Doing the math assuming I die right after staring the benefit at 70 we are already $150K ahead and it would take her until age 86 for that $9K to break even

So the evaluation for my circumstances shows I should take SS at age 67 and she then takes the spousal support at 50% of my value

Have I missed anything?

I wasn't aware of the Spousal benefit until recently. I talked to a friend who just retired and neither had he. Hopefully this helps others

 

[zaqxsw]

Lots of posts on this...

It all depends. I guess I'm in the same camp as you, except I had my low earning DW take her benefit at 62. It saved us from withdrawing from investments for 5 years. Yep, her spousal benefit gets cut, but I think we benefited.

From "Ask Larry", here's the impact:

https://maximizemysocialsecurity.com/ask-larry

"Your wife’s Spousal Benefit (in the situation you proposed) will be based upon the 50% rate, but her total benefit will not be equal to 50% of your Primary Insurance Amount (PIA). This is due to the way the Spousal Benefit is calculated, which is a differential between her PIA and 50% of your PIA.

So if she started collecting at age 62 and her benefit is $909, then her PIA was roughly $1,205 (probably not exactly, but close). When you reach age 66, if your PIA is $2,200, then half of that ($1,100) is less than her PIA, so there would be no Spousal Benefit payable.

Just to draw the example out further, if your PIA was $2,800, then the Spousal Benefit would be calculated as $1,400 (50% of $2,800) minus $1,205, resulting in $195. This would be added to her own benefit of $909 for a total of $1,104 in monthly benefits. (Of course, cost of living increases would change these figures, but hopefully this explains it for you.)"


The logic for taking my DW's early, and then mine after FRA (until she reached FRA) is:

After your spouse has reached FRA, their benefit will never go up by you delaying because it is based on your PIA, except if you die and they claim a survivor benefit. So, you forgo all of those years of the additional spousal benefit. Break even for us was 20 years down the road...

I just applied earlier this month for SS benefits to start in Oct. at age 67 1/2 because DW will be at her FRA. They are really backlogged, so if you're going to apply, apply early!

 

[Romer]

Lots of posts I agree. I read the posts and put it into data for my situation, isnt that one of the perks of this site to implement what you learn and look for comments?

If I have her take SS at 62 then her payout would be 50% less then if she waits until 67. That is $10K a year which she would make up in 3 years by waiting until 67 looking at the rules on the government site for 60 months

A spouse can choose to retire as early as age 62, but doing so may result in a benefit as little as 32.5 percent of the worker's primary insurance amount. A spousal benefit is reduced 25/36 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For a spouse who is not entitled to benefits on his or her own earnings record, this reduction factor is applied to the base spousal benefit, which is 50 percent of the worker's primary insurance amount. For example, if the worker's primary insurance amount is $1,600 and the worker's spouse chooses to begin receiving benefits 36 months before his or her normal retirement age, we first take 50 percent of $1,600 to get an $800 base spousal benefit. Then we compute the reduction factor, which is 36 times 25/36 of one percent, or 25 percent. Applying a 25 percent reduction to the $800 amount gives a spousal benefit of $600. Thus, in this case, the final spousal benefit is 37.5 percent of the primary insurance amount.

 

[zaqxsw]

I guess my point is that she shouldn't take spousal benefits until her FRA. I don't know your age difference, or even a clue when you should take yours. It sounds like you are three years apart.

Fine, take at 70 and she is at 67, her FRA.

 

[Romer]

ahh, we are the same age, 36 days apart

 

[Romer]

@zaqxsw I appreciate the comment. Age is a big factor. Re-reading your post, I should also mention we don't need her SS at 62. I am lucky enough to have a pension so waiting until its optimum doesn't hurt us

 

[pb4uski]

Similar situation here... DW is SAHM and her SS based on her work record is 30% of mine. Same birth year. We decided to have DW wait to FRA and I'll defer to 70. She get benefits based on her work record (about 30% of my PIA) between her FRA and when I file at 70 and 50% of my PIA once I file.


Have you checked out opensocialsecurity.com?

 

[Romer]

Similar situation here... DW is SAHM and her SS based on her work record is 30% of mine. Same birth year. We decided to have DW wait to FRA and I'll defer to 70. h
Have you checked out opensocialsecurity.com?

I have checked it out, but not lately. At the time it recommended her at 62 and me at 70 with no mention of factor for the spousal benefit. I will go back and see if that is an option I missed

 

[explanade]

Saw the headlines, SSA said they will run out before previously forecasted.

Does that change the calculus as to when to take it?

 

[whatnot]

Romer- I really like your detailed schedule. Especially the cumulative amounts, It clearly shows the break even age.

 

[levindb]

While BREAKEVEN is one measure, you may also want to consider where you get your monthly spending money, and what do you do with the funds you get from SSA. By taking money out of your investments, or not investing the SSA funds you receive, there may be an impact to your overall wealth.
In addition, you can look at the tax implications, and Roth conversion options.
This can be much more complex than just a breakeven calculation.

 

[Romer]

While BREAKEVEN is one measure, you may also want to consider where you get your monthly spending money, and what do you do with the funds you get from SSA. By taking money out of your investments, or not investing the SSA funds you receive, there may be an impact to your overall wealth.
In addition, you can look at the tax implications, and Roth conversion options.
This can be much more complex than just a breakeven calculation.

Totally agree its based on your situation. I had originally eliminated SS at 62 before I knew about the spousal benefit and hadn't relooked at it. I appreciate your post as it is making me relook at it again from a total financial picture and first look does show it is worth digging into. Looks like the best option until age 85. then 67 surpasses it based on my situation with a pension. It does leave less SS for my spouse in the event I pass first

I am going to relook at 62, 65 and 67 with spousal benefits. SS increases at 62 by $7k/yr with spousal benefits. Thanks for the comment. This is an awesome site!

 

[pb4uski]

Saw the headlines, SSA said they will run out before previously forecasted.

Does that change the calculus as to when to take it?

Just noting that opensocialsecurity.com has options to run analysis without a haircut or with a haircut where you can specify the begin year and haircut %.

For those concerned with the time value of money, the tool also allows you to input a real interest rate return. The author advocate the 20 year TIP yield... I prefer an assumed real investment yield on the funds that would be used if one defers SS.

 

[Romer]

I ran it or the optimum strategy and it came back with on the site you listed
Recommended Strategy
Your spouse files for his/her retirement benefit to begin 10/2026, at age 65 and 6 months.
You file for your retirement benefit to begin 6/2031, at age 70 and 0 months.
Your spouse files for his/her spousal benefit to begin 6/2031, at age 70 and 2 months. The present value of this proposed solution would be $1,222,701

I then ran it at 65 for both and it came back with a present value of $1,090,650

I then ran it at 67 for both and it came back with a present value of $1,154,965

The tool calculates maximizing benefit. I saw options to reduce SS. It doesnt really tell me which is the best for me based on my spending and pension

when I do the first cut model for my situation in my spreadsheet, I get SS@62 is best till 76 years old and then SS@65 is better until 89 where SS@#67 is better.
EDIT: The difference at 100 years old between 62 and 67 is $300K and I still have over $1.4M without counting the house at 100 even at SS@62

I need to go through my spreadsheet and recheck the calculations

They all work and the later the age in the model the more variability it is so cant really use it that far out. I do need to also look at what it does for my wife if I pass first. I had modeled my SS@67&70 and both work for her with reduced pension and single tax rates

Looks like I will need to ponder with a whiskey and cigar and revaluate how to look at this more complex scenario

I keep thinking I have it nailed and the members let me know I haven't considered everything. I think that is awesome and really appreciate it

 

[SecondCor521]

I have checked it out, but not lately. At the time it recommended her at 62 and me at 70 with no mention of factor for the spousal benefit. I will go back and see if that is an option I missed

I'm fairly certain that if you provide spousal information it automatically includes spousal benefits in its evaluation and recommendation.

It knows about and models a great deal of the SS rules, and spousal benefits are one of the most obvious and relatively simple to add into the analysis.

I know lately they've enhanced the tool a bit so you can not only see the recommended claiming scenario but also compare it to alternative scenarios with an easy-to-understand and fairly intuitive heat map / graph. This feature in particular may be helpful to you and may not have been there the last time you used it.

 

[Romer]

I'm fairly certain that if you provide spousal information it automatically includes spousal benefits in its evaluation and recommendation.

It knows about and models a great deal of the SS rules, and spousal benefits are one of the most obvious and relatively simple to add into the analysis.

I know lately they've enhanced the tool a bit so you can not only see the recommended claiming scenario but also compare it to alternative scenarios with an easy-to-understand and fairly intuitive heat map / graph. This feature in particular may be helpful to you and may not have been there the last time you used it.

I saw them there when I reran it. I must of missed it last time. The updated results are in my post above. We posted the same time

 

[SecondCor521]

The thing I like about opensocialsecurity is that it calculates all the numbers for you for each year of the rest of your and your spouses life, and then applies a probability factor on whether you or your spouse or both are alive to collect said benefit, and then sums the result of all of that.

So it's really doing a more comprehensive and sophisticated calculation for you beyond just your "hmm, what if I take SS at 67 and she takes it at 62, or what if I take it at 70 and she takes it at 63, or..."

Oh, and it also accounts in the analysis for all the probabilities of you passing first, and her passing first, and at all the different ages at which each of you could pass away. *And* it adjusts the benefit the survivor would receive in those scenarios.

So really, as far as all of the math on who might die first and how long each of you may live, I think the calculator takes all of that into account.

It still doesn't account for interactions with other stuff, like taxes and your stash and RMDs.