SS Planner Brilliant or Too Clever by Half?

[tsplinter]

I have received conflicting advice on our best claiming strategy from three online social security optimizers: Maximize My Social Security, Social Security Solutions, and Social Security Income Planner.

The basic facts: My wife is about to be 66; I am two years younger; my PIA is $2,400; hers is $900.

MMSS and SSS recommend:
My wife files for retirement benefits at 66. (2013)
I file for spousal benefits at 66. (2015)
I file for retirement benefits at 70. (2019)
My wife takes spousal benefit when I turn 70. (2019)

SSIP recommends:
My wife files and suspends at 66. (2103)
I file for spousal benefits at 66. (2015)
My wife files for retirement benefits at 70. (2017)
I filed for retirement benefits at 70. (2019)
My wife takes spousal benefit when I turn 70. (2019.)

The appeal of SSIP’s plan is that it projects $300/mo more from 2019 onward. Since our goal is to maximize social security benefits as longevity insurance, this is great, but I want to be sure the SSIP plan will work.

The extra $300 comes from the generous excess spousal benefit that SSIP adds to my wife’s benefit starting when I turn 70. SSIP calculates the excess spousal benefit as one-half my PIA minus my wife’s PIA or (.5 x 2400) – 900 = $300. When added to her own benefit with delayed retirement credit (1.32 x 900 = 1188), her total benefit comes out to $1,488, which is, of course, well above half my PIA. Neat trick if it works.

I wrote to SSIP, showed them the discrepancy between their advice and the other optmizers', and asked if they stood behind their projection. I received this confident response: “We confirm that SSIP Plan works. Your wife can file for 132% of her benefit at age 70 and start receiving a spousal at age 72 when you turn 70 & file for your benefits.”

I have two concerns:

1. Is SSIP analyzing the excess spousal benefit available to my wife at age 72 correctly? On a PBS website, Laurence Kotlikoff (one of the authors of MMSS)says: “If you have earned your own retirement benefit and have filed for it, your spousal benefit is actually something called your ‘excess spousal benefit.’ The excess spousal benefit begins as half of your partner's primary insurance amount, as the Social Security website suggests. But your own primary insurance amount, augmented by any delayed retirement credits, is deducted from it.” If Kotlikoff is right, the correct amount of the excess spousal benefit would be (.5 x 2499) – (900 x 1.32) = $12/mo. In other words, in 2019, my wife’s benefit would rise from $1188 to $1200 – exactly half my PIA.

2. Can the spouse who files and suspends ever collect a spousal benefit? Another social security pundit, Jim Blankenship, say “no” on a Forbes website (11/28/2011): “Spousal benefits are not available if you have filed and suspended your own benefit.” This is just an isolated bullet point but it suggests that not even the $12 increase would be available if my wife were to file and suspend at age 66.

I still want to believe in the extra $300/month. Is SSIP's plan brilliant or too clever by half?

[JW Nearly Retired]

SSIP calculation smells fishy. Sscritic is needed.
JW

[gerntz]

"My wife files and suspends at 66. (2103)
I file for spousal benefits at 66. (2015)
My wife files for retirement benefits at 70. (2017)
I filed for retirement benefits at 70. (2019)
My wife takes spousal benefit when I turn 70. (2019.)"

If you wife takes your spousal benefit when you are 70, then what she collects on her own account occurs before you are 70 & she is 72. Net, is what she collects from 70 to 72 more than she collects from 66 to 72 plus the time value of money from her being 66 to 70? I have no doubt, but could be proven wrong, that she collects more from 66 to 72. BTW, the latter is what we are doing but in our case she is just 10 months older. Our respective numbers aren't much different than yours.

[tsplinter]

"My wife files and suspends at 66. (2103)
I file for spousal benefits at 66. (2015)
My wife files for retirement benefits at 70. (2017)
I filed for retirement benefits at 70. (2019)
My wife takes spousal benefit when I turn 70. (2019.)"

If you wife takes your spousal benefit when you are 70, then what she collects on her own account occurs before you are 70 & she is 72. Net, is what she collects from 70 to 72 more than she collects from 66 to 72 plus the time value of money from her being 66 to 70? I have no doubt, but could be proven wrong, that she collects more from 66 to 72. BTW, the latter is what we are doing but in our case she is just 10 months older. Our respective numbers aren't much different than yours.

The answer to your question is no, what she collects in SSIP's scenario from 70 to 72 is 26 months of 1,188 (1.32 x her PIA of 900) = $30,888. This would compare 74 months from 66 to 72: 72 x 900 = $64,800. But the difference, according to SSIP, is $1,188 - 900 = $288/mo for the rest of our joint lives. Ignoring COLAs and time value of money and all that, the breakeven would be 10 years out, shorter than our life expectancies, AND, as I mentioned, we don't care about early money; we care about running out of money. For us, social security is the best longevity insurance money can buy, so comparing the payout in two scenarios before I am 70 is not relevant to us.

If you have different goals, you may wish to pursue a different strategy. I just plunk in 100 for our ages at death to make sure all of the optimizers are optimizing for long life. Actually, they didn't come up with different strategies when I entered 85.

Thanks for sharing your thoughts.

[tsplinter]

"This would compare 74 months from 66 to 72: 72 x 900 = $64,800." shoulda been: "This would compare to 74 months for 66 to 72: 74 x 900 = $66,000." By the way, the extra two months come from the fact that she was born in March and I was born in May, so we are not exactly 2 years apart.

[Jordana]

I thought only one spouse can take a spousal benefit.

[JW Nearly Retired]

What I think is fishy is the extra $300/month. I think at 72 she gets $1188 or $1200 and that's it.
i.e., your calculation in (1) is correct.

Her two numbers are so close the deciding factor is going to be how much you collect before you both get to your final monthly amounts.
JW

[tsplinter]

I thought only one spouse can take a spousal benefit.

No. One spouse at a time. All three optimizers agree that we can both take spousal benefits ... in different time frames.

What I think is fishy is the extra $300/month. I think at 72 she gets $1188 or $1200 and that's it.
i.e., your calculation in (1) is correct.

Her two numbers are so close the deciding factor is going to be how much you collect before you both get to your final monthly amounts.
JW

You may be right. But ... I can't find the definitive answer as to how the excess spousal benefit is calculated on the SSA website, and, so far, I haven't found it anywhere other than in Professor Kotlikoff's column. It may be buried somewhere in the Procedure Operations Manual, but I have found that tough sledding.

[JW Nearly Retired]

I thought only one spouse can take a spousal benefit.

No. One spouse at a time. All three optimizers agree that we can both take spousal benefits ... in different time frames.

What I think is fishy is the extra $300/month. I think at 72 she gets $1188 or $1200 and that's it.
i.e., your calculation in (1) is correct.

Her two numbers are so close the deciding factor is going to be how much you collect before you both get to your final monthly amounts.
JW

You may be right. But ... I can't find the definitive answer as to how the excess spousal benefit is calculated on the SSA website, and, so far, I haven't found it anywhere other than in Professor Kotlikoff's column. It may be buried somewhere in the Procedure Operations Manual, but I have found that tough sledding.

We all clearly need SScritic to weigh in.
JW

[englishgirl]

SSIP recommends:
My wife files and suspends at 66. (2013) [Date edited by me]
I file for spousal benefits at 66. (2015)

Ignoring all the other considerations and questions, I just don't get why you would do this part of the SSIP suggestion. What is the point of your wife filing and suspending in 2013 and then doing nothing about it for 2 years? If the plan is that you wouldn't take any money until 2015, why wouldn't she wait until she was 68, and then file and suspend so you can get spousal benefit?

No doubt my lack of understanding is due to my own ignorance - can someone explain? Or is this screwy?

[Penguin]

RS 00202.025 Spouse's Benefits - Simultaneous Entitlement

A. Policy

A person entitled to spouses benefits and another benefit does not receive both benefits.
1. Spouse's benefits and RIB or DIB

A spouse entitled to RIB or DIB receives his or her own RIB or DIB plus the difference between that benefit and the spouse's benefit.
You said:

The extra $300 comes from the generous excess spousal benefit that SSIP adds to my wife’s benefit starting when I turn 70. SSIP calculates the excess spousal benefit as one-half my PIA minus my wife’s PIA or (.5 x 2400) – 900 = $300). When added to her own benefit with delayed retirement credit (1.32 x 900 = 1188), her total benefit comes out to $1,488, which is, of course, well above half my PIA. Neat trick if it works.

This is not correct.
As required by RS 00202.025 above, your wife's benefit when she is 72 is her own benefit (RIB, or $1188) plus the difference between that benefit and the spouse's benefit (the spouse's benefit is $1200, the difference between $1200 and $1188 is $12, so at age 72 your wife gets $1200). If your wife applied for spouse benefit at age 66 (you would have to be entitled to social security when she applied) then her spouse benefit would be her own RIB (in this case $900) plus the difference between that benefit and the spouse's benefit ($1200-$900=$300. So at age 66 your wife also gets $1200. As you see the spouse's benefit does not change. The retirement income benefit of your wife (RIB) goes up and the difference between that benefit and the spouse's benefit goes down. I see nothing in the social security website about "excess spousal benefit", which I guess is someone's phrase to represent the changing difference between the RIB and the spouse benefit.

[jjustice]

tsplinter,
I note that SSIP did not defend its projection in responding to you. What they said was true, but irrelevant: " Your wife can file for 132% of her benefit at age 70 and start receiving a spousal at age 72 when you turn 7O and file for benefits." Everyone agrees about this. What is in question is their unique and mysterious excess after she begins spousal benefits.
John

[englishgirl]

SSIP recommends:
My wife files and suspends at 66. (2013) [Date edited by me]
I file for spousal benefits at 66. (2015)

Ignoring all the other considerations and questions, I just don't get why you would do this part of the SSIP suggestion. What is the point of your wife filing and suspending in 2013 and then doing nothing about it for 2 years? If the plan is that you wouldn't take any money until 2015, why wouldn't she wait until she was 68, and then file and suspend so you can get spousal benefit?

No doubt my lack of understanding is due to my own ignorance - can someone explain? Or is this screwy?

Attempting to answer my own question:

1. If wife files and suspends at age 66 (or, in the other scenarios, if the wife collects her benefit at 66), husband could collect spousal benefits from age 64 instead of waiting to 66. Instead of collecting $450 (half of wife's PIA of $900), if husband collects 24 months early, the reduction factor would be 24*25/36 of one percent = 16.66%, so he gets $374.98. Up to age 70, instead of collecting $450/month for 4 years = $21,600, he collects $374.98/month for 6 years = $26,998.56.

2. If wife files and suspends at 68, although delayed retirement credits are NOT applied to the calculation of spousal benefits, IF (and I realize this is a big if) she continues to work, wouldn't the extra 2 years of earnings potentially be used to increase her PIA? [If she earned enough for those two years to be counted as two of her highest 35 years of earnings.] So, the husband's spousal benefit could potentially be slightly higher for his years 66-70.

Again, seems screwy to me. Why have the wife file and suspend at 66 and do nothing for 2 years?

[JW Nearly Retired]

englishgirl,
Husband can't get spousal at 64, he has to wait until FRA (66) to claim spousal only. Before FRA any claim triggers his own benefits.

Since spousal benefit from husband is the max benefit wife can ever get ($1200), wife looks best to take her own $900 benefit at 66. Husband then files and suspends at his age 66 (her age 68) and she switches to the $1200/mo spousal at that time. Husband delays his own to 70. This ends up with what OP wanted, which is the highest final benefit.
Call this Option 1.
Let's see.... this way they collect 2x12x900 + 4x12x1200 = $79,200 in the 6 yrs between her age 66 and his age 70.

Option 2
If they do it the other way.... she files and suspends at 66 (or 68), and he gets spousal from his age 66 to 70. She ends up with 1188/month by delaying to age 70, which she collects for 2 yrs before he is 70 and claims on his own account. At that time she can increase the 1188 to the 1200/mo spousal.

Up to his age 70 they collect 4 x 12 x 450 + 2 x 12 x 1188 = $50112. At his age 70 she switches to spousal of 1200, same as the final option 1 amount. So Option 1 wins by a lot .

I could certainly have made a math error. Somebody please check it.
JW

[jjustice]

JW,
Your strategy is inferior to the one advised by MMSS and SSS. If the husband takes spousal benefits until age 70, they will get $1350 per month, rather than $1200. These two companies gave good advice to tsplinter.
John

[tsplinter]

Penguin has pointed to the exact provision in SSA's Program Operations Manual that exposes SSIP's error. That is exactly what I needed to see. RS 00202.025: "A spouse entitled to a [Retirement Insurance Benefit] ... receives his or her own [Retirement Insurance Benefit] ... plus the difference between that benefit and the spouse's benefit." SSIP assumed my wife would be entitled to her own RIB (PIA x 1.32) plus the difference between her PIA and the spouse's benefit. That was, indeed, too good to be true and my hat is off to Penguin for diving deep enough into the POM to come up with the answer. And, as Penguin points out, the term "excess spousal benefit" is not to be found on the social security website or in the POM. It appeared in Kotlikoff's column on the PBS website (google "Social Security Secrets You Need to Know Now") where he explains:

Are there are two different formulas for spousal benefits depending on whether the spouse is collecting his/her own retirement benefit? It sure seems that way because when the spouse is collecting a retirement benefit, the excess spousal benefit (potentially reduced for taking spousal benefits early) comes into play. And when the spouse isn't collecting a retirement benefit, the spousal benefit equals half of the worker's full retirement benefit. (Note, the spouse has to collect a retirement benefit before full retirement age if she applies for her spousal benefit.) The answer, in fact, is no. There is only one formula. The formula for the spousal benefit is always the excess benefit formula. But here's what happens to the application of that formula if the spouse is not collecting a retirement benefit. In that case, the spouse's full retirement benefit (also called the Primary Insurance Amount) is set to zero in calculating the excess spousal benefit. The reason, according to Social Security, is that a worker's Primary Insurance does not exist (i.e., equals zero) if the worker has not applied for a retirement benefit (and either suspended its collection or started to receive it). In other words, your Primary Insurance Amount is viewed as non-existent until you apply for a retirement benefit. This construct - the primary insurance amount doesn't exist until it's triggered by a retirement benefit application -- lets Social Security claim to have one formula for spousal benefits. But there are, in effect, two spousal benefit formulas and which one you -- the person who will collect a spousal benefit -- faces will depend on whether or not you take your retirement benefit early.

Well, I'm not sure of all this, but Professor Kotlikoff's program (Maximize My Social Security) and Professor Reichenstein's program (Social Security Solutions) apparently got the right answer to our optimal claiming strategy and SSIP did not. Too bad, because we could have used the extra $300/month and, in other ways, I like it better than the other two programs. It provides an analysis of breakeven dates for numerous strategies compared with the "optimal" one so you can easily grasp their relative merits. It also provides the clearest printout of projected payments, down to the month. On the other hand, the first obligation of any optimizer is to provide the correct answer. And, John, your are quite right that SSIP did not actually defend its projection. I'm going to have another round with them and, hopefully, they will address this head on.

Attempting to answer my own question:

1. If wife files and suspends at age 66 (or, in the other scenarios, if the wife collects her benefit at 66), husband could collect spousal benefits from age 64 instead of waiting to 66. Instead of collecting $450 (half of wife's PIA of $900), if husband collects 24 months early, the reduction factor would be 24*25/36 of one percent = 16.66%, so he gets $374.98. Up to age 70, instead of collecting $450/month for 4 years = $21,600, he collects $374.98/month for 6 years = $26,998.56.

2. If wife files and suspends at 68, although delayed retirement credits are NOT applied to the calculation of spousal benefits, IF (and I realize this is a big if) she continues to work, wouldn't the extra 2 years of earnings potentially be used to increase her PIA? [If she earned enough for those two years to be counted as two of her highest 35 years of earnings.] So, the husband's spousal benefit could potentially be slightly higher for his years 66-70.

Again, seems screwy to me. Why have the wife file and suspend at 66 and do nothing for 2 years?

Englishgirl, yes, it would be pointless for wife to file and suspend at 66 as opposed to 68, but that doesn't go to the merits of SSIP's plan, just the timing of her visit to the SSA. I assumed that this was an artifact of computer-generated recommendations and took it to mean SSIP wanted her to file and before I reach 66. As for first hypothetical, if I were to claim any benefits at 64, they would be wiped out because of my continued earnings. This problem will go away when I reach 66, which is why all three programs said I should claim spousal benefits at 66. I don't really know the answer to your second question.

JW Nearly Retired: Option 1 is not as good as the plan MMSS and SSS came up with because my spousal benefit from age 66 to 70 will be $450/month, which is greater than the $300 differential between my wife's own benefit ($900) and her spousal benefit ($1200). So if she were to step up to her spousal benefit at age 68, we'd lose $150/mo for four years.

[JW Nearly Retired]

JW Nearly Retired: Option 1 is not as good as the plan MMSS and SSS came up with because my spousal benefit from age 66 to 70 will be $450/month, which is greater than the $300 differential between my wife's own benefit ($900) and her spousal benefit ($1200). So if she were to step up to her spousal benefit at age 68, we'd lose $150/mo for four years.

How is Option 1 $79k not more than the Option 2 $50k? Please tell me where the arithmetic I posted that counts all that up is wrong? Or do you have an option 3?

The difference is she gets 4 years of 1200 spousal when you are 66-70, versus just 2 years of her own 1188 in the same time period. You need to count up the SS received over a 6 year period. All of it between her age 66 and his age 70. After that the amount per month doesn't change.

Option 1 2x12x900 + 4x12x1200 = $79,200 in the 6 yrs between her age 66 and his age 70.
Option 2 4 x12x450 + 2x12x1188 = $50,112 in the 6 yrs between her age 66 and his age 70.
JW

[tsplinter]

JW Nearly Retired: Option 1 is not as good as the plan MMSS and SSS came up with because my spousal benefit from age 66 to 70 will be $450/month, which is greater than the $300 differential between my wife's own benefit ($900) and her spousal benefit ($1200). So if she were to step up to her spousal benefit at age 68, we'd lose $150/mo for four years.

How is Option 1 $79k not more than the Option 2 $50k? Please tell me where the arithmetic I posted that counts all that up is wrong? Or do you have an option 3?

The difference is she gets 4 years of 1200 spousal when you are 66-70, versus just 2 years of her own 1188 in the same time period. You need to count up the SS received over a 6 year period. All of it between her age 66 and his age 70. After that the amount per month doesn't change.

Option 1 2x12x900 + 4x12x1200 = $79,200 in the 6 yrs between her age 66 and his age 70.
Option 2 4 x12x450 + 2x12x1188 = $50,112 in the 6 yrs between her age 66 and his age 70.
JW

Option 1 beats Option 2, but Option 2 is not what MMSS and SSS proposed. Let's call it "Option 3."

Option 3: 4 x 12 x 450 + 6 x 12 x 1188 = $107,136 in the 6 years between her age 66 and his age 70.
Since Options 1 and 3 both have the same benefits after his age 70, Option 3 is the winner.

Option 2 seems to be a variation on SSIP's plan, but without the $300/month bonus after his age 70, which is the thing which made it attractive. Naturally, if you take away the SSIP plan's later advantage, there is no point in giving up earlier benefits to get it. So, yes, Option 1 beats Option 2, but Option 2 is not the option to beat.

[JW Nearly Retired]

Option 3: 4 x 12 x 450 + 6 x 12 x 1188 = $107,136 in the 6 years between her age 66 and his age 70.
Since Options 1 and 3 both have the same benefits after his age 70, Option 3 is the winner.

Sorry, she doesn't get 1188 for 6 years. If she starts her benefits at age 66 she only gets her FRA amount of 900 for the 6 years (until he claims at 70 and she can switch to spousal).

Option 3: 4x12x450 + 6x12x900 = $86,400
Option 1: $79,200

But you are absolutely correct in that option 3 is the winner.
JW

[JW Nearly Retired]

MMSS and SSS recommend:
My wife files for retirement benefits at 66. (2013)
I file for spousal benefits at 66. (2015)
I file for retirement benefits at 70. (2019)
My wife takes spousal benefit when I turn 70. (2019)

The winning Option 3 is what MMSS and SSS recommended!
JW

[tsplinter]

Yes, JW. Thanks for the correction. I've written SSIP another query and will report back if they have anything interesting to say.

[ThePrune]

This was a great posting stream to read. No changes / corrections to make. But I thought for the sake of "completeness" it might be useful to add in another P.O.M.S. reference than the one Penguin cited which also leads to the same conclusion.

RS 00615.694 DRCs in Dual-Entitlement Cases

A. Policy If a beneficiary is entitled to his/her own RIB with DRCs and to benefits as an auxiliary/survivor, the combined payment amount is computed without consideration of the DRCs. The DRCs are then added to the RIB and that amount is subtracted from the combined payment amount to determine the amount payable as an auxiliary/survivor. See RS 00615.240 for reduced B benefits prior to A benefits

The referenced page lays out in detail the exact computational procedure to use. There is also a nice numerical example worked out.

Vocabulary:
RIB = Retirement Insurance Benefit
DRC = Delayed Retirement Credit
"benefits as an auxilary" = apply to spousal benefits for this posting stream