Social Security - Spousal and Survivors Benefits

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Social Security - Spousal and Survivors Benefits

Postby larmewar » Sat Mar 30, 2013 12:39 pm

I have a SS question for which I don't find a clear and consistent answer. Situation will be this:

Wife has no earnings record and is 5 years younger than myself
I plan to delay taking SS until 70
My benefit $2,400 at FRA
I file and suspend and wife files for spousal benefit at 62 (?)
I delay SS to 70 (4 yr past FRA); benefit = $2,400 x 1.32 = $3,168
I die at 70+ y.o. and wife is past her FRA
Only significant retirement risk is wife running out of $$ if she lives too much longer than myself.

What is my wife's survivor's benefit? Will taking spousal benefit reduce her survivor benefit?

Lar
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Re: Social Security - Spousal and Survivors Benefits

Postby ObliviousInvestor » Sat Mar 30, 2013 10:13 pm

If you wait until 70 to claim your retirement benefit, and you then die, and your wife claims her benefit as your widow after having reached her full retirement age, and she has no retirement benefit of her own, the amount she will get as a widow's benefit is the amount that you were getting (i.e, 132% of your PIA).
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Re: Social Security - Spousal and Survivors Benefits

Postby sscritic » Sat Mar 30, 2013 10:50 pm

In support of Mike, the answer to your second question is no.
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Re: Social Security - Spousal and Survivors Benefits

Postby Bill M » Sun Mar 31, 2013 11:39 am

The other risk, certainly significant to you, maybe financially significant and maybe not, is if you die before age 70. That would stop the delayed retirement credits, and sets a lower widow benefit.
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Re: Social Security - Spousal and Survivors Benefits

Postby sscritic » Sun Mar 31, 2013 11:42 am

but still higher than if he took the benefit before he died (assuming before 70).
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Re: Social Security - Spousal and Survivors Benefits

Postby larmewar » Sun Mar 31, 2013 2:55 pm

Thanks for the replies. The additional income between FRA and 70 will be welcome, and make it that much easier to wait till 70.

Lar
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Re: Social Security - Spousal and Survivors Benefits

Postby MathWizard » Mon Apr 01, 2013 11:50 am

larmewar wrote:I have a SS question for which I don't find a clear and consistent answer. Situation will be this:

Wife has no earnings record and is 5 years younger than myself
I plan to delay taking SS until 70
My benefit $2,400 at FRA
I file and suspend and wife files for spousal benefit at 62 (?)
I delay SS to 70 (4 yr past FRA); benefit = $2,400 x 1.32 = $3,168
I die at 70+ y.o. and wife is past her FRA
Only significant retirement risk is wife running out of $$ if she lives too much longer than myself.

What is my wife's survivor's benefit? Will taking spousal benefit reduce her survivor benefit?

Lar


Question: Is the 5 years younger relevant, or is it just younger that is important?
That is, can we say that the optimal strategy with
* a younger spouse
* whose benefit even at 70 will be less than 1/2 of higher earner's benefit at FRA (i.e. max spousal benefit)
is (assuming both live beyond age 70):
1) older person files and suspends at FRA
2) younger spouse takes spousal benefits at age 62 or your FRA whichever is higher, which will be max spousal benefit?
3) older person takes delayed SS at age 70
4) if older person dies first, younger spouse takes survivor's benefits which are 132% of the older person's benefit at FRA.

If so, should this go into the wiki, it seems to be a common enough question.
If not, please correct my understanding.

Thanks
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Re: Social Security - Spousal and Survivors Benefits

Postby ObliviousInvestor » Mon Apr 01, 2013 3:21 pm

MathWizard wrote: Question: Is the 5 years younger relevant, or is it just younger that is important?
That is, can we say that the optimal strategy with
* a younger spouse
* whose benefit even at 70 will be less than 1/2 of higher earner's benefit at FRA (i.e. max spousal benefit)
is (assuming both live beyond age 70):
1) older person files and suspends at FRA
2) younger spouse takes spousal benefits at age 62 or your FRA whichever is higher, which will be max spousal benefit?
3) older person takes delayed SS at age 70
4) if older person dies first, younger spouse takes survivor's benefits which are 132% of the older person's benefit at FRA.

If so, should this go into the wiki, it seems to be a common enough question.
If not, please correct my understanding.

Thanks

Whether or not that's optimal depends on each spouse's life expectancy. It also depends on what rate of return they think they can get on investments if they take benefits early.

And the size of the age gap does matter. For example, if the younger spouse is 10 years younger, there's no point in the older spouse filing and suspending at FRA, because that doesn't really free up any options, given that the younger spouse is just 56-57 at that point and therefore cannot (usually) claim spousal benefits anyway.

Also, just to be clear, in your #4, the surviving spouse only gets 132% of the deceased spouse's PIA if a) the deceased spouse had made it all the way to 70 without dying (or claiming retirement benefits) and b) the surviving spouse has reached FRA by the time he/she claims survivor benefits. (This is not in contradiction to anything you wrote. Just making sure everybody is clear on the requirements that would have to be satisfied.)
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Re: Social Security - Spousal and Survivors Benefits

Postby MathWizard » Mon Apr 01, 2013 4:48 pm

ObliviousInvestor wrote:
MathWizard wrote: Question: Is the 5 years younger relevant, or is it just younger that is important?
That is, can we say that the optimal strategy with
* a younger spouse
* whose benefit even at 70 will be less than 1/2 of higher earner's benefit at FRA (i.e. max spousal benefit)
is (assuming both live beyond age 70):
1) older person files and suspends at FRA
2) younger spouse takes spousal benefits at age 62 or your FRA whichever is higher, which will be max spousal benefit?
3) older person takes delayed SS at age 70
4) if older person dies first, younger spouse takes survivor's benefits which are 132% of the older person's benefit at FRA.

If so, should this go into the wiki, it seems to be a common enough question.
If not, please correct my understanding.

Thanks

Whether or not that's optimal depends on each spouse's life expectancy. It also depends on what rate of return they think they can get on investments if they take benefits early.

And the size of the age gap does matter. For example, if the younger spouse is 10 years younger, there's no point in the older spouse filing and suspending at FRA, because that doesn't really free up any options, given that the younger spouse is just 56-57 at that point and therefore cannot (usually) claim spousal benefits anyway.

Also, just to be clear, in your #4, the surviving spouse only gets 132% of the deceased spouse's PIA if a) the deceased spouse had made it all the way to 70 without dying (or claiming retirement benefits) and b) the surviving spouse has reached FRA by the time he/she claims survivor benefits. (This is not in contradiction to anything you wrote. Just making sure everybody is clear on the requirements that would have to be satisfied.)


OK, assumptions are then:
A) both you and spouse live beyond 70, and expect a long retirement
B) spouse's PIA is such that 1.32*PIA < 1/2 your PIA
C) spouse is younger
D) Couple believes that due to higher survivor benefits/"longevity insurance", you should defer to age 70 to take SS
(this implicitly assumes that you do not believe you can get a better return by taking SS early)
Then
1) if spouse is less than 8 years younger, you should file and suspend at FRA,
2) spouse should take spousal benefits at age 62 (getting max spousal benefit of 1/2 your PIA), even if you have not yet started taking benefits
3) you take SS at age 70 getting 132% of your PIA
4) after you or your spouse passes, the survivor gets a single SS benefit of 132% of your PIA. (Either you get it or
your spouse gets it as a survivor's benefit).

So for a spouse less than 8 years younger

1) At your FRA: you file and suspended, 0% SS
2) Spouse turns 62: spouse files and gets spousal benefits 50% of your PIA
3) You turn 70: you file or unsuspend, couple gets 50% + 132% of your PIA = 182% of your PIA
4) first of spouses passes: only one benefit is recieved which is 132% of your PIA in either case.

For a spouse 8 years or more younger:

1) At your FRA: 0% SS, no need to file and suspend, just don't file
2) You turn 70: you file, gettomg 132% of your PIA
3) spouse turns 62: spouse files for spousal benefits getting 50% of your PIA, total is 182% of your PIA
4) first of spouses passes: only one benefit is recieved which is 132% of your PIA in either case.

Have I gotten this correct, now?
Thanks
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Re: Social Security - Spousal and Survivors Benefits

Postby Bill M » Mon Apr 01, 2013 5:55 pm

MathWizard wrote:Question: Is the 5 years younger relevant, or is it just younger that is important?
That is, can we say that the optimal strategy with
* a younger spouse
* whose benefit even at 70 will be less than 1/2 of higher earner's benefit at FRA (i.e. max spousal benefit)
is (assuming both live beyond age 70):
1) older person files and suspends at FRA
2) younger spouse takes spousal benefits at age 62 or your FRA whichever is higher, which will be max spousal benefit?
3) older person takes delayed SS at age 70
4) if older person dies first, younger spouse takes survivor's benefits which are 132% of the older person's benefit at FRA.

If so, should this go into the wiki, it seems to be a common enough question.
If not, please correct my understanding.

Thanks

I'm not sure about step #2, whether it is best to take the spousal benefits at 62, or to wait until FRA. Taking the benefit at 62 means a reduced payment for life, while waiting until FRA gets the full 50%. I think optimal depends more on availability of other cash sources making it feasible to delay, and longevity expectations. In any case, I don't think this is a "one size fits all".
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Re: Social Security - Spousal and Survivors Benefits

Postby Epsilon Delta » Mon Apr 01, 2013 6:19 pm

MathWizard wrote:
B) spouse's PIA is such that 1.32*PIA < 1/2 your PIA
Then
1) if spouse is less than 8 years younger, you should file and suspend at FRA,
2) spouse should take spousal benefits at age 62 (getting max spousal benefit of 1/2 your PIA), even if you have not yet started taking benefits

So for a spouse less than 8 years younger
2) Spouse turns 62: spouse files and gets spousal benefits 50% of your PIA

For a spouse 8 years or more younger:

3) spouse turns 62: spouse files for spousal benefits getting 50% of your PIA, total is 182% of your

Have I gotten this correct, now?
Thanks

Theres a few details wrong. First the reduction in benefits for filing early depends on your year of birth and also is different for spousal and primary benefit.

http://www.ssa.gov/oact/quickcalc/earlyretire.html

For somebody born from 1943 to 1954 FRA is 66. If they file at age 62 spousal benefits are reduced by 30% and primary benefits are reduced by 25%. So your "spouse gets 50% of your PIA" should be "spouse gets 35% of your PIA.

Second for a spouse less than 8 years younger if she files at 62 and husband does a limited filing for spousal benefit at FRA the total benefit is (using a FRA of 66):
75% Her PIA + 50% Her PIA = 125% of her PIA

If he files and suspends the total benefit is
75% Her PIA + 70% ((His PIA)/2 - Her PIA)

Breakeven
50% Her = 70%((His)/2 - Her)
120%Her = 35%His
343% Her = His

So they get more by claiming on his record (he files and suspends) only if his benefit is more than 3.43 times hers. Otherwise they are better off claiming on her record (he does a limited filing).
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