Why am I struggling? - Social Security Question

[daylatedollarshort]

I'll chime in from a different viewpoint. Like most on here, I've been very frugal my whole life and had a hard time blowing that dough (RobbieB) thanks! But once we started getting our SS check (we took one at 64 and letting the other grow) I've been able to loosen up on being so fretty about spending. We had the savings, so no worries on meeting our expenses as we had no debt. But I seem to have a clear mental distinction between withdrawing our hard saved funds and that big ole SS check that comes each month. We do a happy dance every third Weds, its like free money and I check Robbie B's posts to see how I can blow it each month. We've got one SS growing, so that's insurance for us. But each month, every month, we get play money. It's mental freedom, just like having no debt.

We get 2 Social Security and 3 pension deposits each month and it always feels like happy dance, free money time. Those deposits (plus a little hobby income) more than cover all of our regular expenses, which leaves the portfolio for savings or fun money. There isn't a lot more we want or need for fun money but it sure is nice to know it is there.

We ran the numbers every which way and for us and our goals, taking both SS at 62 and pensions at 55 worked best.

 

[Sunset]

Conventional wisdom for married couples seems to be for one spouse to take at 62, and the other to delay. My wife's benefit is slightly larger than mine, but we decided to wait until we are both 62 next year and then calculate who should file first.

SS gives you a report each year, unless someone is working, the relationship as to which spouse gets more SS won't change.

We are definitely waiting until 70 for the high SS spouse. It's spousal insurance.

 

[PandaBear]

Yes, actuarially it is a wash in aggregate. But there are some relatively rare circumstances where the math is clear. In my case, the young wife was a public school teacher for 30 years and never paid into social security. So she is not eligible for social security on her own record. Since she gets a government pension as a consequence of her teaching, she is also subject to the GPO (government pension offset). That means that she does not get a spousal benefit based on my record and, crucially, that she will not get a survivor benefit after I die. So when I cease, the social security input to our household budget ceases.



Since she is younger and female, from a relatively long lived family, it is likely that she will survive me, only to face a sudden loss of about 25% of our current income. Under those circumstances, it makes more sense for me to take social security at 62 to preserve our nest-egg for her use after I'm gone.

We made the same decision. Dh is 3 1/2 years older than I am and I have a public school teachers pension. He did the math and discovered that he is “ahead” until age 80. So he took his SS at 62 as well. I was in agreement.

 

[bobbyr]

After three years of retirement, I have a better handle on our retirement expenses. So I will more likely based when I take SS, in terms of the coverage it adds for our expenses.

I'm 2+ years into retirement and am on the same page about having a better handle on expenses (ours being less than anticipated, some COVID impact I suspect). It's certainly better (for us) to be spending less, than over spending. Thank goodness for a frugal wife.

 

[LRDave]

The GPO is what prevents her from getting a spousal benefit or a survivor benefit. And for that I see no justification.

GPO does not necessarily prevent a spousal or survivor benefit, but it certainly will reduce it - and quite a bit. Earlier in this thread (and responding to my post) Gumby presented his rock-solid case for taking SS early due to GPO.

DW has a public school pension and also has some years of contribution to SS. I re-ran opensocialsecurity.com and it still suggests we wait to take my SS at 70 and suggests DW take hers at 68.

I can make sense of that.

1) Taking later still provides ME longevity insurance - the best available.

2) If I pass first, DW will still get SOME survivor benefit. That SOME will grow faster as it approaches the payment from deferring to age 70, since the SS payment will grow faster than DW's (COLA'd) pension.

I still have pause for thought. Deferring reduces the nest egg. I try to weigh what is best for DW. If I pass early, I should've taken SS early. If we both live long, the longevity insurance of deferring is mighty compelling. I can't insure against both scenarios. (Well, except for making the nest egg bigger and that ship has happily sailed.)

 

[Gumby]

GPO does not necessarily prevent a spousal or survivor benefit, but it certainly will reduce it - and quite a bit....

You are quite correct. My point was mainly that it is not the WEP that does this, but the GPO. WEP is a separate issue entirely.

 

[Dogman]

You are quite correct. My point was mainly that it is not the WEP that does this, but the GPO. WEP is a separate issue entirely.

I wonder if it is possible to tell the California Teachers pension of which my wife receiveds about $1,000.00 per month to just cease payment. Then request from SS that the pension has stopped and that she wants to take a spousal benefit of half of my SS of $2,900.00 ($1,450) but would include cola for the rest of her life as well as survivor benefit if I die before her?

 

[Gumby]

I wonder if it is possible to tell the California Teachers pension of which my wife receiveds about $1,000.00 per month to just cease payment. Then request from SS that the pension has stopped and that she wants to take a spousal benefit of half of my SS of $2,900.00 ($1,450) but would include cola for the rest of her life as well as survivor benefit if I die before her?

This article seems to indicate that you can https://www.kitces.com/blog/governm...on-covered-pension-spousal-survivor-benefits/ ).

But I wouldn't do it in any event because she will end up with less income. To see why, let's view the net change if it is indeed possible to do what you suggest.

In a married couple, you get either your own social security or the spousal benefit (1/2 of other spouse), whichever is larger. So, assuming you could do what you propose, her own SS would go up from $400 to $940 due to elimination of the WEP. Her spousal benefit is not currently completely wiped out by the GPO. Rather, it is reduced by 2/3 of the non-covered pension amount. So, right now, she could collect a spousal benefit of (1/2 x 2900) - (2/3 x 1000) = 784. And she probably should, since it is more than her WEP-reduced social security. If she could escape the GPO, the spousal benefit would be $1450 (1/2 of yours), which is larger than her own, so she would take that. So, assuming she switches from her own SS (400) to spousal (784), her current income is spousal SS + teacher pension = 784 + 1000 = 1784. Assuming she could disclaim her teacher pension, her income would be just full spousal SS = $1450, because she would be giving up her teacher pension. So she would be losing $334 per month, net.

Now let's look at survivor benefits, which are your full amount or her own SS, whichever is greater. As things stand now, her own SS is $400, but would be $940 if disclaiming her pension could avoid the WEP. If you died tomorrow, her GPO reduced survivor benefit would be your benefit minus 2/3 of her teacher pension = 2900 - 667 = $2233 per month. So she would obviously take her survivor benefit and give up her own SS, WEP or no WEP. Then her income as a widow would be the $2233 GPO reduced survivor benefit plus $1000 teacher pension or $3233/mo. If, as you propose, she had disclaimed her pension to avoid the GPO, she would get full survivor benefit of $2900 but would not have her $1000 teacher pension. So she would lose $323/mo., net.

Bad for her now and bad in the future. The only complicating factor might possibly be if the teacher pension is not COLA'd, but you'd have to run the numbers.


Edit to add: One last thing - if she has a survivor provision in her pension, you will lose that income if she dies first and has disclaimed her pension as you propose.

 

[youbet]

Great analysis Gumby! There is much confusion regarding WEP and GPO and it’s refreshing to read a post where the writer has done his homework and understands how they work.

I agree with you that WEP makes some sense while GPO doesn’t.

Our situation is similar to yours (as we’ve discussed on other threads) and I started SS at 62 for the same reasons.

 

[jollystomper]

For most of us here, deciding on when to take SS is just one more in a relatively long list of 1st world problems. I'm thankful for such "problems." YMMV

+1

The worst case of a lot of these "problems" is leaving only $4,000,000 to ones heirs instead of $4,100,000. That is just a horrid thing to do them .

 

[Out of Steam]

SS gives you a report each year, unless someone is working, the relationship as to which spouse gets more SS won't change.

We are definitely waiting until 70 for the high SS spouse. It's spousal insurance.

My wife is doing some part-time work. The major question is whether the job will continue and, if so, will she work enough hours to reduce her benefit. If she stops working, we probably should file for one SS benefit within a year.

 

[euro]

My ability to draw from SS is still a number of years away, but for me the longer I wait the more my wife will get should I pass before she does. A calculator I used showed it's beneficial to have her draw at 62, keeping our assets earning. Me waiting until 70. With life expectancy for her to be more than me she draws my benefit, which is significantly higher than hers, after my passing. Each case is different, but something to consider.

Exactly our situation as well. If I were single, I'd take SS at FRA or earlier

 

[DayVee B]

All depends on how long you expect to live. If I live to be 99, taking at FRA vs 62 is a $200k difference. If I only live to 80 it's like a $20K difference. I'd rather take the $$ from SS early and keep my nest egg growing rather than spend down and be dependent with the govt in control of a larger portion of my income.

 

[daylatedollarshort]

All depends on how long you expect to live. If I live to be 99, taking at FRA vs 62 is a $200k difference. If I only live to 80 it's like a $20K difference. I'd rather take the $$ from SS early and keep my nest egg growing rather than spend down and be dependent with the govt in control of a larger portion of my income.

That was one of our reasons.

 

[imnontrad]

I volunteer as an admin for a Facebook group called "Social Security Intelligence" and we answer SS questions literally every day.

Sign up for Medicare Part A about 3 months before you turn 65. If you are covered by company provided health insurance, you can delay signing up for Part B. Or you may be able to negotiate a raise or something if you choose to go off the company health insurance and totally on Medicare. You may also need supplemental Medicare policies. In addition to Part D (drugs), since there is no cap to the Medicare co-pay, a policy that will kick in to pay the co-pay after a certain amount might be a good idea. I have "Tricare for Life" so I do not need the supplemental policies but if I did, I would give the company "Boomer Benefits" a call. they only deal with Medicare supplemental policies. They also have a fb page called "Medicare Q & A" to answer Medicare questions.

Now about SS. There are several factors to decide when to file. The biggest factors is how much you have saved for retirement, if you are still working, and if you are married and your spouse has a lower SS benefit. (and yes, you will get that COLA - your estimated benefit will be larger).

You need to not only look at the SS benefit for the rest of your life but also that of your spouse if their earned benefit is smaller. Most likely your spouse will outlive you and a larger SS benefit will provide more fixed income that may be needed in later years. The general rule of thumb is for the lower earning spouse to file for SS early (for income) and the higher earner to wait until age 70 to file, if possible. this ensures no matter which spouse dies first, the surviving spouse has the highest amount of benefit possible. This recommendation to wait until 70 has other factors like what any spousal benefit would be (can only get this after the spouse has filed), health, and other assets

If you choose to start SS at age 65, your benefit will be reduced for life. in addition, you will have an income ceiling - if you exceed that ceiling, your SS benefit will be reduced further. Plus, most likely 85% of that SS will also be subject to income tax.

Some people choose to delay filing for SS so their benefit will grow larger. (I consider it to be an "annuity-like asset" with a guaranteed payout as long as I am alive - and spousal benefit too). They use this time until then to draw down assets in a pre-tax retirement accounts. This reduced the possibility of a tax increase and possible Medicare premium increases later on, especially when RMDs start and after one spouse dies (the "step" for the Medicare surcharge is cut in half).

Yes, you may be "attached" to that money in the retirement account because you have saved so long for it. But it can be a "tax bomb" if that balance is not drawn down soon enough and it is the worst thing for a non-spouse heir to inherit because there is no tax advantage and may even make the family ineligible for things like college grants and scholarships or certain programs if disabled.

And lastly, studies have shown that based on the life expectancy of someone who makes it to age 60, you will get more SS benefit over your lifetime if you wait until age 70 to file. And chances are that for married couples, at least one spouse wil live into their 90's.

 

[daylatedollarshort]

And lastly, studies have shown that based on the life expectancy of someone who makes it to age 60, you will get more SS benefit over your lifetime if you wait until age 70 to file. And chances are that for married couples, at least one spouse wil live into their 90's.

Just curious if you have a link to those studies? What life expectancy are you using for a 60 year old? What odds are there of one or both of a couple living to 90?

 

[reneeh63]

Yeah after all I'll be really ticked off if I take it at 70 and die before I break even.

But will you, really? Or will you be thinking of your spouse, your kids, the joys of your life?

 

[MRG]

But will you, really? Or will you be thinking of your spouse, your kids, the joys of your life?

Don't know. I'll be dead.[emoji4]

 

[RobbieB]

Yeah, dead people do not think -

 

[jldavid47]

It isn't "just math" because you don't know when you are going to die. If you knew that, then it would be just math. What it becomes is a risk assessment problem. If you think you are going to live long (don't almost all of us think that at some time?), then the math says wait. If not, then take it early. If you live to your actuarial expected age it doesn't matter. If you have a DW then it becomes more complicated. I was going to wait until 70 to take SS because my wife is 3 years younger than me and likely to need my larger check if I go first (which is likely). I ended up taking it at 66.5 so that she could take an early retirement package (2 years sooner than planned). The extra two years of being able to do things together was worth more than the extra money from waiting until 70.


At the other end, I took a lump sum from my defined benefit pension 6 years ago because my wife would only have gotten 50% of the benefit after my death and it was not indexed for inflation. By taking it early, she is better off if I die sooner rather than later. I think of that action as taking anti-longevity insurance.


No matter what you decide, don't fret about it. The decision is actually more complicated than you think and depends on factors that have nothing to do with Social Security itself. People get hung up on maximizing their benefits over their remaining lifetime, but it's an impossible calculation unless you know the date of your demise. Look at it as a piece of a much larger puzzle and the decision becomes easier.

 

[RetiredHappy]

Yeah, dead people do not think -

... but they can roll over in their grave.

 

[camfused]

All depends on how long you expect to live. If I live to be 99, taking at FRA vs 62 is a $200k difference. If I only live to 80 it's like a $20K difference. I'd rather take the $$ from SS early and keep my nest egg growing rather than spend down and be dependent with the govt in control of a larger portion of my income.

While I always make sure I will have "enough" money at age 100, I always judge various scenarios at age 90. I think that age, these days and especially with future medicine advancements, is fairly likely, for an average worse-case (you screw up and live that long) scenario.

 

[Broland]

Probably will take at 67 assuming we're both still around since, IIRC, spousal benefit doesn't increase past FRA.

Same idea. The ~8% yearly increase for my spouse (since she didn't work outside the home) stops at my FRA (66y4m for me). So 66-4 is it for me!

 

[NXR7]

I did not read all the responses so I'll just tell you a mistake I made.

When you fill out the application you're asked when you want your SS benefits to begin. I wanted my first check in June so I selected June.

Somehow I missed that SS is paid one month in arrears so my first check did not come until July.

So whatever month you want the first check, select the previous month as when you want SS benefits to begin. That mistake cost me an entire check I needed.

One other thing to consider is that any COLA is percentage-based and we all get the same percentage. If you wait to take SS then your COLA dollar increase will be bigger than if you took SS earlier.

Ray

 

[MissMolly]

Same idea. The ~8% yearly increase for my spouse (since she didn't work outside the home) stops at my FRA (66y4m for me). So 66-4 is it for me!

I don't think this is 100% true. You are correct that her spousal amount will never be more than 50% of your full PIA. But if you wait until 70 to claim and then predecease her, she will get bumped up to your full amount as survivor.