Bogleheads

FrugalInvestor · Joined: 07 Nov 2008 Posts: 542

Following is a statement made by Bill Bernstein during the Q&A session at BH8:

"There is another approach described by Alan Klein. The higher earner in the family files for Social Security at the age of 62 and then immediately declines. The lower earner then receives a half of that amount. At the age of 70 they make another change. This is a complex strategy, but it works well for couples."

Can others who may be aware this strategy expound on it a bit? It's the first I've heard of it and it sounds intriguing.
_________________
"Complexity is easy; Simplicity is hard." -Edmund Keane

pshonore · Joined: 28 Jun 2009 Posts: 352

I don't think you can "file and suspend" (if thats what he is describing) unless you are FRA (Full Retiement Age) which is 66 for anyone born from 1943 to 1954.

LifeIsGood · Joined: 11 Feb 2008 Posts: 49

I tried to do exactly that and was also told that you have to be full retirement age.

nisiprius · Posted: Wed Nov 04, 2009 8:14 am Post subject:

Your mileage may vary, but I've pretty much given up trying to optimize this stuff. It's all calculated to be "actuarially fair" meaning on the average you get the same number of dollars out of Social Security no matter what you do, so what the heck.

I credit user Ole' Meph for pushing me in this direction, by the way. He said something like "claim it when you need it and don't worry about it" and I took it to heart.

Yes, I understand there are meaningful differences, but the complexity of the way all the various rules interact is truly mindboggling.

What really got to me is the way authorities disagree, the fact that there are no simple rules of thumb that tell you what to do--just avenues you could explore if you had a bunch of spare time and a copy of ESPlanner or something. I've also been impressed by the way academics seem to keep coming out with new papers constantly making new discoveries about the fascinating previously unsuspected consequences of the way all these things interact.

Now I personally (uh-oh... thin ice...) think Social Security is not shaky, that the problems are fixable and will probably be fixed, and that even if they weren't the consequences would not be catastrophic. A 1/4 cut if nothing at all is done, something like that. Despite all that, I'm not sure that I would care to delay claiming for any very long time on the basis of any precise calculations that assume nothing about Social Security will change.

Social Security changes? Heck, my own financial circumstances have changed so much one way and another over the last few years that if I were trying to optimize this stuff, I'd be spending all my time entering new data into ESPlanner (no, I don't have it--there's no Mac version for starters) and replanning everything yet again from scratch.

If you must know, the constant drumbeat of publicity on the advantages of delaying claiming makes me a little nervous. (Just the way the constant drumbeat of "buy stocks" over the last several decades made me nervous). Sales resistance is a point of principle with me, and I'm starting to get the feeling someone's trying to sell me something. Calculations, schmalculations, there's something to be said for "get it while the gettings good."
_________________
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Independent · Joined: 22 Sep 2009 Posts: 23

dbr · Joined: 04 Mar 2007 Posts: 3455

earlyout · Joined: 20 Feb 2007 Posts: 272

Puakinekine · Joined: 14 Apr 2007 Posts: 324

sscritic · Joined: 06 Sep 2007 Posts: 2177

Puakinekine · Joined: 14 Apr 2007 Posts: 324

Thank you sscritic for clearing that up for me.

JW Nearly Retired · Joined: 16 Dec 2007 Posts: 905

pshonore · Joined: 28 Jun 2009 Posts: 352

sscritic · Joined: 06 Sep 2007 Posts: 2177

JW Nearly Retired · Joined: 16 Dec 2007 Posts: 905

retcaveman · Joined: 21 Oct 2009 Posts: 95

Here is a really good paper on Social Security. http://www.prudential.com/medi....tegies.pdf

I have done a fair amount of research on this and for many (not all), the "best" approach is for the lower earning spouse to start receiving benefits at 62 and the higher earning spouse to file at 69.

I took it early not because I think it won't be there, but because I think the rules might change. It would be very upsetting if f I were to wait, thinking I will collect a higher benefit, especially if I waited beyond my FRA of 66 to 70 (8% more per yr x4) and then find I won't get that. My biggest fear is that the way things are going, our benefits will be "means tested" in order to save money for those who really "need it." As it is, the amount of benefit taxed for high income earners has increased over time to 85%. How long before they are taxed 100%?

JW Nearly Retired · Joined: 16 Dec 2007 Posts: 905

retcaveman · Joined: 21 Oct 2009 Posts: 95

Alicia Munnell and Mauricio Soto of Boston College's Center for Retirement Research have done a lot of work on this subject. From an article titled, "How Couples Can Maximize Social Security,"

"A husband who delays benefits until age 69 is actually helping his wife --
in the long run -- by increasing the value of her survivor benefit. (This
assumes the husband earned more than the wife during their working years, which is often the case.)

The wife, meanwhile, by claiming benefits at age 62, is bringing Social
Security dollars into the home for the longest period possible."

In another article titled, "Make the Most of Social Security - Couples can maximize benefits if the wife collects early and the husband delays,

"Married women generally are better off claiming benefits at the early-retirement age of 62, while their husbands generally should wait until 69"

(To be thorough, they list three different scenarios involving earning and age differences.)

But to answer your specific question, I don't know why they say 69. My guess is they are being very technical ie your are supposed to apply for benefits 3 mos ahead of when you want benefits to start. So I am assuming they mean APPLY at 69 in order to RECEIVE benefits at 70. But that's a guess.

Thanks.

Added Edit:

Best ages for married people to claim Social Security:

I tried to copy the chart which shows the various age and wage differences of husbands and wives but when I previewed it, it was scrambled. The article that contains that chart is, "The Best Age to Start Social Security." http://moneycentral.msn.com/co....143306.asp
_________________
"The wants of mortals are containers that can never be filled." (Socrates)

sscritic · Joined: 06 Sep 2007 Posts: 2177

Why 69? I won't speak for the authors of the papers quoted, but there is always a trade off between taking benefits early and waiting (lower benefits for more years vs higher benefits for fewer years). On an expected present value basis, you have to consider a discount rate and life tables showing you how long a person might live. For single people, a man might be better off taking at 64 and a woman at 68 because the woman is likely to live longer and benefits more from waiting than a man would. For a married couple, it is entirely conceivable that the couple is better off if the man starts at 69 instead of 70.

Remember, although it is common to speak of an 8% a year increase for waiting past 66, that is 8% of your age 66 benefit, so doesn't apply to your age 69 benefit. At 69, you get 124% of your PIA; at 70, you get 132%. The increase from 124 to 132 is a 6.45% increase, not an 8% increase. The longer you wait, the smaller the value of waiting an extra year. Thus, it wouldn't surprise me that 69 is better than 70 for a married couple.