Social Security planning

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Social Security planning

Post by richard »

I'd like to see if my understanding is correct:

Husband and wife, one is a couple of years older and social security benefits at full retirement age would be about 5% higher.

The plan is when both reach full retirement age, the older files and suspends and the younger starts spousal benefits, which would be 50% of the older's benefits. If both are not still alive, the survivor would start survivor's benefits at FRA, which would be 50% of the other's benefits.

When each reach 70, each would start own benefits.

Is this correct? Would there be a better strategy for spousal or survivor benefits?
dbr
Posts: 33872
Joined: Sun Mar 04, 2007 9:50 am

Re: Social Security planning

Post by dbr »

Richard, I went ahead and risked the $20 on this site which in my opinion delivered a very helpful analysis:

https://www.socialsecuritysolutions.com ... lution.php

I got the recommendation for them from some other thread that was posted here some time ago.
vested1
Posts: 2264
Joined: Wed Jan 04, 2012 4:20 pm

Re: Social Security planning

Post by vested1 »

I posted a topic about this yesterday and was straightened out by sscritic. The answer is it depends on your situation. In your case with only a 5% difference at PIA your strategy appears to be sound. Take the larger spousal benefit and allow both to increase by 32% from ages 66 to 70, while drawing a slightly higher spousal benefit. If you don't need the money it's the best strategy to increase your combined gross SS at 70.

I attended a SS planning seminar last night which verified the viability of my own personal plan. Doing so could be beneficial to you.
sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Social Security planning

Post by sscritic »

richard wrote:I'd like to see if my understanding is correct:

Husband and wife, one is a couple of years older and social security benefits at full retirement age would be about 5% higher.

The plan is when both reach full retirement age, the older files and suspends and the younger starts spousal benefits, which would be 50% of the older's benefits. If both are not still alive, the survivor would start survivor's benefits at FRA, which would be 50% of the other's benefits.

When each reach 70, each would start own benefits.

Is this correct?
No.

1) It depends on what the word benefits mean.
"which would be 50% of the older's benefits" computed as of the older's FRA with COLAs added, although by the time the younger reaches FRA the older is older.

2) Who is the survivor? If both are dead, then it is not one of them. Will they be survived by a child under 18? The surviving child gets 75% of the benefit of the deceased with the larger FRA benefit. If you meant to write if one of them dies, the survivor applying at FRA would get 100% of the deceased benefit as of the deceased's FRA if the death is before FRA and calculated as of the day of death (I think that's right; it gets tricky because you have to know how many months after FRA the person died to determine the delayed retirement credits), if the death is after FRA.
Topic Author
richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Social Security planning

Post by richard »

sscritic wrote:1) It depends on what the word benefits mean.
"which would be 50% of the older's benefits" computed as of the older's FRA with COLAs added, although by the time the younger reaches FRA the older is older.
By the "older's benefits" I meant the amount the older would be entitled to collect at the time they start the process. As you say, the older's FRA with COLAs added.

Yesterday you replied to vested1 that "[younger wife] can make a restricted application for husband's benefits only at [wife's] FRA." In other words, you can't do this (one files & suspends, the other starts to collect spousal benefits) at the younger's FRA?
sscritic wrote:2) Who is the survivor? If both are dead, then it is not one of them. Will they be survived by a child under 18? The surviving child gets 75% of the benefit of the deceased with the larger FRA benefit. If you meant to write if one of them dies, the survivor applying at FRA would get 100% of the deceased benefit as of the deceased's FRA if the death is before FRA and calculated as of the day of death (I think that's right; it gets tricky because you have to know how many months after FRA the person died to determine the delayed retirement credits), if the death is after FRA.
I meant if one of them dies and the other survives. Your response answers the question.

In every case, once benefits start, they would increase each year by COLA?
User avatar
ObliviousInvestor
Posts: 3795
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Social Security planning

Post by ObliviousInvestor »

I find that it's often clearest to speak in terms of primary insurance amounts (PIAs) -- your PIA being the amount you would receive as a retirement benefit if you claimed it at full retirement age.

If Spouse B claims a spousal benefit at his/her FRA (and he/she is not receiving a retirement benefit as well), that spousal benefit will be calculated as 50% of Spouse A's PIA.

COLAs start adjusting your PIA once you reach age 62, regardless of when anybody claims anything. (Note that this affects not only your own retirement benefit, but also any other benefits based on your PIA -- such as your spouse's benefit as your spouse.)

You cannot file a restricted application (i.e., an application for just spousal benefits) or do the "suspend" part of "file and suspend" until you have reached your FRA.
Mike Piper | Roth is a name, not an acronym.
Topic Author
richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Social Security planning

Post by richard »

Rephrasing using PIA:

1) Both Spouse A and Spouse B must reach their FRAs for one spouse to file & suspend and the other to collect spousal benefits.

2) The spouse collecting will receive 50% of the other spouse's PIA (including COLA).

3) If the non-collecting spouse dies, 50% is increased to 100%.

4) If the collecting spouse dies, the other can receive spousal benefits equal to 100% of of the dead spouse's PIA (including COLA).

5) You can't both collect spousal benefits and benefits in your own right.

6) Only one spouse can collect spousal benefits at any one time.
User avatar
ObliviousInvestor
Posts: 3795
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Social Security planning

Post by ObliviousInvestor »

richard wrote:1) Both Spouse A and Spouse B must reach their FRAs for one spouse to file & suspend and the other to collect spousal benefits.
If the spouse collecting spousal benefits wants to only collect spousal benefits (as opposed to being "deemed" to have filed for his/her own retirement benefit as well), yes.
richard wrote:2) The spouse collecting will receive 50% of the other spouse's PIA (including COLA).
Yes. Also, there's no need to mention "including COLA." (I say this not to nitpick, but just to make sure we're clear that the PIA itself is what is adjusted for inflation. That is, the PIA already includes COLAs.)
richard wrote:3) If the non-collecting spouse dies, 50% is increased to 100%.
Checking to see if I understand your scenario: Spouse A and Spouse B have both reached their FRA. Spouse B has filed and suspended. Spouse A has filed a restricted application for just spousal benefits (based on Spouse B's work record). Spouse B dies?

If Spouse A chooses to file for a survivor benefit, Spouse A would receive an amount equal to Spouse B's PIA, adjusted to include any "delayed retirement credits" that Spouse B had earned via suspending past FRA.
richard wrote:4) If the collecting spouse dies, the other can receive spousal benefits equal to 100% of of the dead spouse's PIA (including COLA).
So, same scenario as above, except Spouse A dies? In that case, Spouse B could file for a survivor benefit equal to Spouse A's PIA, adjusted to include any "delayed retirement credits" that Spouse A had earned as a result of not yet filing for his/her retirement benefit.
richard wrote:5) You can't both collect spousal benefits and benefits in your own right.
Well, you can, but in the event that you're collecting both, the calculation for a spousal benefit is different. Specifically, it would be:
[(50% of your spouse's PIA) - Your PIA] x any reduction factor that applies in the event that you claimed your spousal benefit prior to your FRA.
richard wrote:6) Only one spouse can collect spousal benefits at any one time.
Correct.
Mike Piper | Roth is a name, not an acronym.
Topic Author
richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Social Security planning

Post by richard »

ObliviousInvestor wrote:
richard wrote:1) Both Spouse A and Spouse B must reach their FRAs for one spouse to file & suspend and the other to collect spousal benefits.
If the spouse collecting spousal benefits wants to only collect spousal benefits (as opposed to being "deemed" to have filed for his/her own retirement benefit as well), yes.

The main part of the question was the age issue.
Our situation is two spouses with similar PIAs, so for us it is not possible to collect both spousal benefits and benefits due to one's own account. For others, this could be important
richard wrote:2) The spouse collecting will receive 50% of the other spouse's PIA (including COLA).
Yes. Also, there's no need to mention "including COLA." (I say this not to nitpick, but just to make sure we're clear that the PIA itself is what is adjusted for inflation. That is, the PIA already includes COLAs.)

Accuracy is important, therefore nitpicking is good
richard wrote:3) If the non-collecting spouse dies, 50% is increased to 100%.
Checking to see if I understand your scenario: Spouse A and Spouse B have both reached their FRA. Spouse B has filed and suspended. Spouse A has filed a restricted application for just spousal benefits (based on Spouse B's work record). Spouse B dies?
Yes
If Spouse A chooses to file for a survivor benefit, Spouse A would receive an amount equal to Spouse B's PIA, adjusted to include any "delayed retirement credits" that Spouse B had earned via suspending past FRA.
Therefore, Spouse A would go from 50% to 100% plus an increase due to the delay from FRA to death?
richard wrote:4) If the collecting spouse dies, the other can receive spousal benefits equal to 100% of of the dead spouse's PIA (including COLA).
So, same scenario as above, except Spouse A dies? In that case, Spouse B could file for a survivor benefit equal to Spouse A's PIA, adjusted to include any "delayed retirement credits" that Spouse A had earned as a result of not yet filing for his/her retirement benefit.
richard wrote:5) You can't both collect spousal benefits and benefits in your own right.
Well, you can, but in the event that you're collecting both, the calculation for a spousal benefit is different. Specifically, it would be:
[(50% of your spouse's PIA) - Your PIA] x any reduction factor that applies in the event that you claimed your spousal benefit prior to your FRA.
This only matters if the relevant spouse's PIA is more than double the other's PIA?
richard wrote:6) Only one spouse can collect spousal benefits at any one time.
Correct.
User avatar
ObliviousInvestor
Posts: 3795
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Social Security planning

Post by ObliviousInvestor »

richard wrote:
ObliviousInvestor wrote: Checking to see if I understand your scenario: Spouse A and Spouse B have both reached their FRA. Spouse B has filed and suspended. Spouse A has filed a restricted application for just spousal benefits (based on Spouse B's work record). Spouse B dies?
Yes
If Spouse A chooses to file for a survivor benefit, Spouse A would receive an amount equal to Spouse B's PIA, adjusted to include any "delayed retirement credits" that Spouse B had earned via suspending past FRA.
Therefore, Spouse A would go from 50% to 100% plus an increase due to the delay from FRA to death?
If Spouse A files for a survivor benefit, Spouse A would get the amount that Spouse B would have received if he/she unsuspended on his/her date of death (so, 100% of Spouse B's PIA, plus any applicable delayed retirement credits).

ObliviousInvestor wrote:
richard wrote:5) You can't both collect spousal benefits and benefits in your own right.
Well, you can, but in the event that you're collecting both, the calculation for a spousal benefit is different. Specifically, it would be:
[(50% of your spouse's PIA) - Your PIA] x any reduction factor that applies in the event that you claimed your spousal benefit prior to your FRA.
richard wrote:This only matters if the relevant spouse's PIA is more than double the other's PIA?
Yes. One of the requirements to receive a benefit as a spouse is that you are not "entitled" to a retirement benefit based on a PIA that is more than 50% of your spouse's PIA. (Note that to be "entitled" to a benefit, you have to have filed for that benefit.) In other words, if you have filed for your retirement benefit, and your PIA is more than 50% of your spouse's PIA, you cannot receive a spousal benefit.
Mike Piper | Roth is a name, not an acronym.
sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: Social Security planning

Post by sscritic »

ObliviousInvestor wrote: Yes. One of the requirements to receive a benefit as a spouse is that you are not "entitled" to a retirement benefit based on a PIA that is more than 50% of your spouse's PIA. (Note that to be "entitled" to a benefit, you have to have filed for that benefit.) In other words, if you have filed for your retirement benefit, and your PIA is more than 50% of your spouse's PIA, you cannot receive a spousal benefit.
Reminder to others (Mike knows this cold). If you file and suspend, you have filed, and you are entitled. If you weren't entitled, your spouse couldn't be your spouse (this is another requirement), e.g., your husband could not collect husband's benefits on your record, no matter how small his PIA, if you aren't entitled. [Now if he divorces you after 10 years of marriage and 2 years have passed since the divorce, he can.]

This is what keeps both from filing and suspending and both collecting as spouses. At least one, if not both of you, have PIAs at least half of the other's and can't be a spouse. If both of you file and suspend and both have PIAs at least half the other's, neither can be a spouse.
Billionaire
Posts: 339
Joined: Sat Jan 04, 2014 3:05 pm

Re: Social Security planning

Post by Billionaire »

Keep in mind, the government wants you to delay collecting SS. Collecting a lower amount at a younger age yields the same total amount as collecting a larger amount at an older age. Your life expectancy doesn't change, therefore the total amount you collect ends up being the same.
Topic Author
richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Social Security planning

Post by richard »

Billionaire wrote:Keep in mind, the government wants you to delay collecting SS.
Where do they say that?
Billionaire wrote:Collecting a lower amount at a younger age yields the same total amount as collecting a larger amount at an older age. Your life expectancy doesn't change, therefore the total amount you collect ends up being the same.
Social Security is actuarially neutral, that is, based on the assumptions (life expectancy and discount rate), the present value of payments will be the same whether you start early or late. At interest rates above zero, present value and total amount will be different. Whether you will end up better off depends on how your actual lifespan compares to the assumed life expectancy. Note that they use the same life expectancy for men and women. Note also that current interest rates are below the assumed discount rate.

Some prefer delaying Social Security to serve as "longevity insurance," that is, guarding against living longer than they had expected. Some need the money as soon as possible, so they start earlier.

For more, see this thread I started a few years ago http://www.bogleheads.org/forum/viewtopic.php?p=942720
User avatar
ObliviousInvestor
Posts: 3795
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Social Security planning

Post by ObliviousInvestor »

richard wrote:
Billionaire wrote:Collecting a lower amount at a younger age yields the same total amount as collecting a larger amount at an older age. Your life expectancy doesn't change, therefore the total amount you collect ends up being the same.
Social Security is actuarially neutral, that is, based on the assumptions (life expectancy and discount rate), the present value of payments will be the same whether you start early or late. At interest rates above zero, present value and total amount will be different. Whether you will end up better off depends on how your actual lifespan compares to the assumed life expectancy. Note that they use the same life expectancy for men and women. Note also that current interest rates are below the assumed discount rate.

Some prefer delaying Social Security to serve as "longevity insurance," that is, guarding against living longer than they had expected. Some need the money as soon as possible, so they start earlier.

For more, see this thread I started a few years ago http://www.bogleheads.org/forum/viewtopic.php?p=942720
In addition, in the case of a married couple (such as we've been discussing here), it's only very rarely going to be actuarially neutral for either spouse, given that having the spouse with the higher PIA delay increases the amount the couple receives as long as either spouse is still alive, whereas having the spouse with the lower PIA delay only increases the amount the couple receives as long as both spouses are still alive.

Using the program-level actuarial neutrality of Social Security to make your personal Social Security decisions is akin to using the average effective tax rate paid by households in the U.S. to make your personal tax planning decisions.
Mike Piper | Roth is a name, not an acronym.
Post Reply