Another analysis: Why Early Social Security Provides the Greatest Spousal Benefit

[marko]

SS is included in MAGI for those who are thinking of subsidies and health insurance before 65...this is a biggie for when we ER.

Not everyone is ACA eligible. In our case, we were faced with a $24K per year HI hit for 12+ years (DW is 6 years younger) until we both reached 65. We were too FI apparently.

SS at 62 helped soften the blow a bit.

 

[pacergal]

Good article, author is a member of the forum if I remember correctly, but I don't think he has posted in a long while.

DH and I had fairly close incomes and our SS is very similar, mine a a bit higher.
I studied and ran calculators and had CFP run their calculators. In the end, there wasn't much difference in the "end of life" totals (maybe $200,000 at most, I would have to go dig out the paperwork to be sure).
We each have 100% survivor pensions from work also.
We decided to take at 62. It was our choice and we feel a good one for us.
That is really all that matters.

 

[24601NoMore]

Isn't the increase in SS benefits 8% every year you wait beyond FRA?

I'll take a 8% guaranteed (plus COLA increases) over market risk every single time.

To that point, it's too often said that the market "returns 8% a year, on average". Possibly true, if you go way back to 1900'ish and average returns since then. But as we've all just seen, we've had two years where the market has gone all but nowhere - especially not 8+% a year. And there are many other periods in market history (some spanning many years) that are similar. Lastly, there can also be a bad sequence of returns where the investor is down 30, 40, 50 or even more % before getting back to "even" 5-10 years down the road..

 

[pb4uski]

Isn't the increase in SS benefits 8% every year you wait beyond FRA?

I'll take a 8% guaranteed (plus COLA increases) over market risk every single time.

To that point, it's too often said that the market "returns 8% a year, on average". Possibly true, if you go way back to 1900'ish and average returns since then. But as we've all just seen, we've had two years where the market has gone all but nowhere - especially not 8+% a year. And there are many other periods in market history (some spanning many years) that are similar. Lastly, there can also be a bad sequence of returns where the investor is down 30, 40, 50 or even more % before getting back to "even" 5-10 years down the road..

The increase is 8% per year after your FRA but is NOT compounded... so if your PIA at your FRA of 67 is $100, then your age 70 benefit would be $124... an added 3 years of increase at 8%.

You can't really compare the 8% increase in benefit to a market rate of return. They are two different animals.

 

[pb4uski]

Does the SS you would get at 70 make any difference to the amount you would get at 62 if you end up broke and having to go into LTC?

Honest question. If you have $40,000 income from SS at 75 and no other assets, how does that compare with someone who is 75 and has $30,000 in SS and no other assets, if they both end up needing LTC?

edit: I guess what I mean is that if LTC costs X, and you have Y or Z but both are less than X, does it make any difference in the care you will get?

My understanding is that in the scenario that you describe if they both had no assets other than SS and went into Medicaid LTC that since LTC costs more than $40k a year that they would each get a small portion of their SS and the rest of their SS would go to Medicaid. It would not make any difference in the care that you get since in both cases the annual cost of LTC exceeds the SS.

If someone has no assets and is on Medicaid LTC, how much of their social security benefits do they get to keep for their personal spending?

The amount of Social Security benefits someone on Medicaid LTC gets to keep for personal spending depends on several factors:

• State of Residence: Every state sets its own Personal Needs Allowance (PNA) amount, which is the minimum monthly income Medicaid residents can keep for personal expenses. While the federal minimum is $30, states can choose to go higher, with some reaching up to $200 per month. You'll need to check your specific state's PNA amount.
• Marital Status: If the Medicaid recipient is married and their spouse lives at home, they may be entitled to a higher "spousal impoverishment protection" allowance. This protects the non-institutionalized spouse from falling into poverty.
• Income from other sources: If the recipient has any other income apart from Social Security, that amount will be considered alongside their Social Security and affect how much they get to keep for personal spending.

In general, assuming no other income and a married individual not receiving spousal impoverishment protection, the Medicaid recipient would keep their entire PNA amount from their Social Security benefits. Any remaining income beyond the PNA would go towards covering the cost of their long-term care services under Medicaid.

 

[24601NoMore]

You can't really compare the 8% increase in benefit to a market rate of return. They are two different animals.

I don't follow..if i can "guaranteed" get 8%, or get some random percentage (quite possibly less at current sky-high valuations - Vanguard, for example is forecasting something 4.2 - 6.2% nominal for this decade in their recent 2024 forecast), I'm gonna take the guaranteed 8% every single time.

Return is return, IMHO, whether it comes from the market or from guaranteed increases in an income source such as SS.

 

[Murf2]

Often overlooked is that if you die after FRA but before you claim, your spouse gets 100% of your benefit instead of just 50%.

Could you go into more detail on this? I don’t understand what you’re saying.

Thanks,
Murf

 

[djsander]

I read these threads every time they come up here, at bogleheads and the different articles on the internet. It’s mostly the same with the same reasoning for early at 62 or at 70 or somewhere in between. A few variations on the reasons. Everybody has their own justification and that’s good for them. I still read through all these as I always learn something as we haven’t made a decision on mine yet. It’s personal and to me there is no right or wrong. Just what’s right for the individual.

 

[athena53]

It’s personal and to me there is no right or wrong. Just what’s right for the individual.

Or the couple, is in the story. What impressed me was that they were thinking ahead and making a plan that allowed the survivor to live comfortably. I've seen a few widows blindsided by the loss of SS (from 150% to a Survivor benefit of 100%) after the loss of a spouse.

 

[djsander]

Or the couple, is in the story. What impressed me was that they were thinking ahead and making a plan that allowed the survivor to live comfortably. I've seen a few widows blindsided by the loss of SS (from 150% to a Survivor benefit of 100%) after the loss of a spouse.

Very true. It’s the planning to me that is important as well. I probably should have stated couple or individual. As a couples decision we know that either one of us can live comfortably whether I take SS now or at 70 when one of us passes. She took hers at 62. I’m younger so it’s now a matter of what makes the best sense for us in when I take it.

 

[pb4uski]

I don't follow..if i can "guaranteed" get 8%, or get some random percentage (quite possibly less at current sky-high valuations - Vanguard, for example is forecasting something 4.2 - 6.2% nominal for this decade in their recent 2024 forecast), I'm gonna take the guaranteed 8% every single time.

Return is return, IMHO, whether it comes from the market or from guaranteed increases in an income source such as SS.

Let me use an example. Let's say that your FRA is 67 and you delay SS until 70 and get 24% more than you would if you had collected at 67 and your PIA is $1,000/month

If you die at 72 your "return" is negative... if you claim at 67 you would have collected $72k but if you claim at 70 you will only have collected $44,640.

At age 82 you will have collected $180,000 if you claimed at 67 ($12,000*(82-67)) and $178,560 if you claimed at 70 ($12,000*124%*(82-70)) so even then your "return" would stil be negative.

After the breakeven point (when the return turns positive) the return increases the more the longer that you live. Below is a table of the financial return of delaying from 67 to 70 with no COLA (no COLA is easier to understand).

	Claim at 67	Claim at 70	Difference	IRRs
67	12,000		-12,000	N/A
68	12,000		-12,000	N/A
69	12,000		-12,000	N/A
70	12,000	14,880	2,880	N/A
71	12,000	14,880	2,880	N/A
72	12,000	14,880	2,880	N/A
73	12,000	14,880	2,880	N/A
74	12,000	14,880	2,880	N/A
75	12,000	14,880	2,880	N/A
76	12,000	14,880	2,880	-10.58%
77	12,000	14,880	2,880	-7.56%
78	12,000	14,880	2,880	-5.19%
79	12,000	14,880	2,880	-3.31%
80	12,000	14,880	2,880	-1.79%
81	12,000	14,880	2,880	-0.54%
82	12,000	14,880	2,880	0.49%
83	12,000	14,880	2,880	1.36%
84	12,000	14,880	2,880	2.09%
85	12,000	14,880	2,880	2.71%
86	12,000	14,880	2,880	3.25%
87	12,000	14,880	2,880	3.70%
88	12,000	14,880	2,880	4.10%
89	12,000	14,880	2,880	4.45%
90	12,000	14,880	2,880	4.75%
91	12,000	14,880	2,880	5.02%
92	12,000	14,880	2,880	5.26%
93	12,000	14,880	2,880	5.46%
94	12,000	14,880	2,880	5.65%
95	12,000	14,880	2,880	5.82%
96	12,000	14,880	2,880	5.96%
97	12,000	14,880	2,880	6.09%
98	12,000	14,880	2,880	6.21%
99	12,000	14,880	2,880	6.32%
100	12,000	14,880	2,880	6.42%

 

[GrayHare]

That 8% is not a return, it's a suckers bet. For example, imagine you loan a friend $1000, and he's to pay it back $500 per year for two years. Late in the first year he tells you, "Hey, instead of paying you $500 this year, I'll pay you $1000 next year. You'll double your money!" The illusory 8% is merely the same total spread over less time.

 

[pb4uski]

Often overlooked is that if you die after FRA but before you claim, your spouse gets 100% of your benefit instead of just 50%.

Could you go into more detail on this? I don’t understand what you’re saying.

Thanks,
Murf

Could you go into more detail on this? I don’t understand what you’re saying.

Thanks,
Murf

Once I claim at 70 and am receiving my age 70 benefit, if I die my wife continues to receive my age 70 benefit for as long as she lives... her benefit is no longer paid because it is the lower of our two benefits.

https://www.ssa.gov/benefits/survivors/ifyou.html#h6

Survivors Benefit Amount

We base your survivors benefit amount on the earnings of the person who died. The more they paid into Social Security, the higher your benefits would be.

These are examples of the benefits that survivors may receive:

• Surviving spouse, full retirement age or older — 100% of the deceased worker's benefit amount.
• Surviving spouse, age 60 — through full retirement age — 71½ to 99% of the deceased worker's basic amount.

 

[pb4uski]

That 8% is not a return, it's a suckers bet. For example, imagine you loan a friend $1000, and he's to pay it back $500 per year for two years. Late in the first year he tells you, "Hey, instead of paying you $500 this year, I'll pay you $1000 next year. You'll double your money!" The illusory 8% is merely the same total spread over less time.

True, however with COLA it is a real increase since the COLAs are on a larger base. Below is what I posted above but with a 3% annual COLA... it moves the breakeven point to between 79 and 80 and the returns on the differential cash flows are more attractive.

	Claim at 67	Claim at 70	Difference	IRRs
67	12,000		-12,000	N/A
68	12,360		-12,360	N/A
69	12,731		-12,731	N/A
70	13,113	16,260	3,147	N/A
71	13,506	16,748	3,241	N/A
72	13,911	17,250	3,339	N/A
73	14,329	17,767	3,439	N/A
74	14,758	18,301	3,542	N/A
75	15,201	18,850	3,648	N/A
76	15,657	19,415	3,758	-7.90%
77	16,127	19,997	3,870	-4.78%
78	16,611	20,597	3,987	-2.35%
79	17,109	21,215	4,106	-0.41%
80	17,622	21,852	4,229	1.16%
81	18,151	22,507	4,356	2.44%
82	18,696	23,183	4,487	3.51%
83	19,256	23,878	4,622	4.40%
84	19,834	24,594	4,760	5.15%
85	20,429	25,332	4,903	5.79%
86	21,042	26,092	5,050	6.34%
87	21,673	26,875	5,202	6.82%
88	22,324	27,681	5,358	7.23%
89	22,993	28,512	5,518	7.58%
90	23,683	29,367	5,684	7.90%
91	24,394	30,248	5,854	8.17%
92	25,125	31,155	6,030	8.41%
93	25,879	32,090	6,211	8.63%
94	26,655	33,053	6,397	8.82%
95	27,455	34,044	6,589	8.99%
96	28,279	35,066	6,787	9.14%
97	29,127	36,118	6,991	9.28%
98	30,001	37,201	7,200	9.40%
99	30,901	38,317	7,416	9.51%
100	31,828	39,467	7,639	9.61%

 

[AudiDudi]

Once I claim at 70 and am receiving my age 70 benefit, if I die my wife continues to receive my age 70 benefit for as long as she lives... her benefit is no longer paid because it is the lower of our two benefits.

https://www.ssa.gov/benefits/survivors/ifyou.html#h6

^^^ This^^^. DW insisted on taking hers at 62 (she's about a yr older). I chose the option at my FRA of 66 of filing a restricted application for spousal (the option is no longer available) so even though she filed at 62, I got 50% of what she would have received at her FRA (66) which worked out to about 75% of her then current benefit. Over the 4 yrs, I received an "extra" $50k+ while waiting to take my own benefit. At 70 I filed to received my own benefit which she will switch to if I preceed her in death.

 

[GrayHare]

True, however with COLA it is a real increase since the COLAs are on a larger base.

Let me be sure I understand. You're saying that by waiting to claim SS, one receives slightly more because COLA is applied to a larger amount. OK, that makes sense.

 

[Murf2]

Once I claim at 70 and am receiving my age 70 benefit, if I die my wife continues to receive my age 70 benefit for as long as she lives... her benefit is no longer paid because it is the lower of our two benefits.

https://www.ssa.gov/benefits/survivors/ifyou.html#h6

pb4uski, I understand what you posted in reply, I think. I’m not understanding what the poster I quoted is saying. Maybe I’m just dense.

No matter what age I take benefits at, the survivor will get 100 percent of that amount if she is over FRA, won’t she?

I’m not understanding where the 50% but is coming from? I’m missing something. I just don’t know what. ��

The only way I can see the 50% statement making sense is if we both had the same dollar benefit separate. Then when I died the total benefit would be 50% of what it was. I’m sure that’s not what GrayHare is saying though.

Thanks, Murf

Thanks

 

[Dtail]

SS is included in MAGI for those who are thinking of subsidies and health insurance before 65...this is a biggie for when we ER.

This was the biggest factor for me along with the no Roth conversion decision.
Including my dependent brother, savings of 23k yearly.
Lump sum pension will be next year at 65.
So earliest taking SS is at 66.

 

[GrayHare]

"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." from https://www.ssa.gov/OACT/quickcalc/spouse.html

 

[Montecfo]

All the calculators don't matter. What matters is your personal guess as to health and family longevity history correct?

DH's uncle died at 70 before collecting. He was an early retiree and single but who knew he'd die at 70? My uncle died recently at 74. He collected at 62. If he started at 70, it wouldn't have been as much as 62.

So situationally you have to make your own educated guess correct?

Yes. Averages do not matter. You will draw till you die, not until the average person does.

 

[pb4uski]

pb4uski, I understand what you posted in reply, I think. I’m not understanding what the poster I quoted is saying. Maybe I’m just dense.

No matter what age I take benefits at, the survivor will get 100 percent of that amount if she is over FRA, won’t she?

I’m not understanding where the 50% but is coming from? I’m missing something. I just don’t know what. ��

The only way I can see the 50% statement making sense is if we both had the same dollar benefit separate. Then when I died the total benefit would be 50% of what it was. I’m sure that’s not what GrayHare is saying though.

Thanks, Murf

Thanks

I interpreted the 50% as the spousal benefit where the spouse's PIA based on their own work record is less than 50% of their spouses PIA. For example, my DW was a SAHM and worked some but my PIA is much higher than hers... so much so that 50% of my PIA exceeds her benefit based on her work record. We're the same birth year.

She started SS at her FRA and is currently receiving her PIA.

When I file at 70, her benefit will increase to 50% of my PIA. Meanwhile, my age 70 benefit will be 129% of my PIA. So together, we'll collect 179% of my PIA until one of us dies, and then the surviving spouse will collect 129% of my PIA for the rest of their life.

 

[cyber888]

I have no choice but to take social security at 62, because my wife is more than 10 years older than me. She'll be beyond maximum SS age when I take mine, in her mid-70s. She has never worked, so she'll depend on my SS.

 

[Murf2]

Thanks GrayHare! I didn’t realize you were referring to spouses who can’t draw on their own record.

 

[FI_RElater]

Your confusing "survivor benefit" with "spousal benefit"

pb4uski, I understand what you posted in reply, I think. I’m not understanding what the poster I quoted is saying. Maybe I’m just dense.

No matter what age I take benefits at, the survivor will get 100 percent of that amount if she is over FRA, won’t she?

I’m not understanding where the 50% but is coming from? I’m missing something. I just don’t know what. ��

The only way I can see the 50% statement making sense is if we both had the same dollar benefit separate. Then when I died the total benefit would be 50% of what it was. I’m sure that’s not what GrayHare is saying though.

Thanks, Murf

Thanks

As per title: you are confusing "spousal benefit" - which IS a max of 50% of the higher PIA spouse's benefit (both are still alive), assuming the lower PIA is below half, otherwise they just get their own (they are "deemed" to have filed for the higher benefit if they file for any SS {"deemed filing"} and, for ex CAN'T just file for spousal and wait while theirs increases --- previously called "file and suspend" which was eliminated a number of years ago)

with "survivors benefits" -- which is when one of them passes, the surviving spouse is eligible for 100% of the spouse-that-passed SS at the time they passed, as long as the claiming/surviving spouse is at least their FRA, otherwise it is reduced (you would need to look at the SS site; there's also a minimum percentage ("widows limit") but that starts to get more complicated).
It is possible, if the conditions occurred (spouse passes and survivor never started SS) that the survivor could claim survivor benefit and then when their benefit is larger than the survivor benefit they could switch to their own benefit. They don't get to claim both.... either in this case or if they had both already claimed and one passes... only the larger benefit is maintained and the smaller one stops.

 

[Murf2]

Yes, you are correct. The original quote threw me when it mentioned “ after I am gone.”
That’s not really spousal is it?
It would seem that the delaying of SS by the primary would still be a benefit “after he is gone”.
Anyway, thanks for the in depth explanation!