SS for mother

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Xpe
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Joined: Wed Sep 17, 2014 7:24 am

SS for mother

Post by Xpe »

Hey all -

So I wanted to to run this past you guys because I think maybe I'm not seeing this clearly.

My mother is asking me for advice on how to handle her SS benefits, and I thought I knew the right approach, but then running the numbers I'm not so sure.

She is 62 and eligible for her own benefits, and/or for my father's survivor benefits.
If she took hers now, she would get $635/month.
If she took his now, she would get $2100/month.
If she takes his at age 66, she would get $2500/month.

She has a decent retirement fund, but not so large that she can be worry-free at her standard of living.

My initial thought was to take his at 66, and take hers in the meantime. This, I think would be the traditional approach.

But if she does this, over the next 4 years she'll receive $70,800 less in SS than if she took my father's immediately, and then she'll lose that advantage $400 per month for 177 months (15 years). And for the 19 years from now until that break even point, that extra money will be invested.

So I'm pretty conflicted on what to do here, am I missing something important?
The Wizard
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Re: SS for mother

Post by The Wizard »

I'm not an expert on survivors benefits, but the usual mantra here is to delay taking the higher benefit, usually your own, as long as you can, up to age 70, assuming your health remains good.
But that also assumes your finances allow you to live OK off your assets while delaying.
If not, then claim earlier...
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The Wizard
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Re: SS for mother

Post by The Wizard »

Also, your numbers seem off.
Her normal retirement age is 66, so claiming at 62.0 gets the only 75% of the PIA.
Thus $1875/mo if age 66 amount is $2500/mo.
That's unless the formula for survivors benefits differs from normal benefits...
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Penguin
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Re: SS for mother

Post by Penguin »

I think she should recheck her numbers. If she is entitled to $2500 at age 66 then she would be entitled to $2025 at age 62. This is $475 per month difference. Perhaps this would make you more comfortable with delaying claiming the survivor benefit. She would only need $66,720 to break even. That would only take 140 months after age 66. For the rest of her life she would be protected from running out of money better with your "traditional approach".
Your Full Retirement Age For Survivors Benefits Is 66

Remember, the earliest a widow or widower can start receiving Social Security survivors benefits based on age will remain age 60.

If you start receiving survivors benefits at age

60, you will get 71.5% of the monthly benefit because you will be getting benefits for an additional 72 months.
62, you will get 81.0% of the monthly benefit because you will be getting benefits for an additional 48 months.
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whaleknives
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Re: SS for mother

Post by whaleknives »

It looks like your mother's maximum benefit would be survivor's at 66:

Social Security Benefit Amounts For The Surviving Spouse By Year Of Birth
  • "Widows or widowers benefits based on age can start any time between age 60 and full retirement age as a survivor. If the benefits start at an earlier age, they are reduced a fraction of a percent for each month before full retirement age."
She could apply for her own, lower benefit between 62 and 66, then switch to a higher survivor's:

Survivors Planner: If You Are The Worker's Widow Or Widower
  • "If you already receive retirement benefits, you can only apply for benefits as a widow or widower if the retirement benefit you receive is less than the benefits you would receive as a survivor."
You should ask if filing for her own benefits earlier than FRA reduces the later survivor's benefit.
As they say, "The rules are complicated and vary depending on the situation, so talk to a Social Security representative about the options available." They don't let you apply for survivor's benefits online.
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dodecahedron
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Re: SS for mother

Post by dodecahedron »

The Wizard wrote:Also, your numbers seem off.
Her normal retirement age is 66, so claiming at 62.0 gets the only 75% of the PIA.
Thus $1875/mo if age 66 amount is $2500/mo.
That's unless the formula for survivors benefits differs from normal benefits...
Yes, the formula for survivors who claim early is different.

Survivors born between 1945 and 1956 get 81% of their FRA (age 66) benefit if they claim at 62.

http://www.ssa.gov/planners/survivors/s ... rtred.html

81% 0f 2500 is 2025, as penguin calculated above.
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dodecahedron
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Re: SS for mother

Post by dodecahedron »

Xpe wrote: So I'm pretty conflicted on what to do here, am I missing something important?
The big thing you are missing is the effect of COLA on your mother's SS benefits. By the time your mother reaches 66, the $475 difference between her age 62 benefits and her delayed till FRA benefits will have grown by the compounded rate of inflation between now and then. And that difference will continue to grow each year into the future by the inflation rate used for the COLA.

If your mother is in good health and can afford to wait, I would recommend she claim on her own record now and claim survivor benefits at FRA.

My situation is somewhat similar to your mother's and that is what I am doing.
Enkidu
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Re: SS for mother

Post by Enkidu »

I would also recommend that your mother take her own benefit at 62 and delay the survivor benefit until 66 if she is in good health, has at least average longevity expectations, and she has sufficient savings to fund the 4 year delay.

Things to consider-

If she invests the money in a low risk investment like TIPs the returns will match inflation, but not much more. If she invests in stocks, she introduces additional risk- she may, or may not get higher returns and consumption. At today's near zero interest rates, delaying is financially advantageous for most widows.

Delaying is the equivalent of using $70,800 (your figures) to buy an inflation adjusted annuity that pays $400/month for the rest of her life, starting at age 66. If you are making comparisons, I would suggest getting quotes for inflation adjusted annuities rather than comparing to expected returns in the market.

Breakeven analysis gives zero weight to the period after breakeven year. Will she live longer than that? If she is in good health, and has average or better longevity expectations she probably will. If your mother has limited assets she can use $70,800 of those assets to provide $400/ month income for life at low risk. I am not a fan of using breakeven analysis as the only metric for decision making.
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ObliviousInvestor
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Re: SS for mother

Post by ObliviousInvestor »

Penguin wrote:I think she should recheck her numbers. If she is entitled to $2500 at age 66 then she would be entitled to $2025 at age 62. This is $475 per month difference. Perhaps this would make you more comfortable with delaying claiming the survivor benefit. She would only need $66,720 to break even. That would only take 140 months after age 66. For the rest of her life she would be protected from running out of money better with your "traditional approach".
My math matches Penguin's math.
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Enkidu
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Re: SS for mother

Post by Enkidu »

ObliviousInvestor wrote:
Penguin wrote:I think she should recheck her numbers. If she is entitled to $2500 at age 66 then she would be entitled to $2025 at age 62. This is $475 per month difference. Perhaps this would make you more comfortable with delaying claiming the survivor benefit. She would only need $66,720 to break even. That would only take 140 months after age 66. For the rest of her life she would be protected from running out of money better with your "traditional approach".
My math matches Penguin's math.
Would the 82.5% floor for survivors come into play here? Not sure, but if so, I get $2,062. Perhaps OP was rounding numbers to simplify calculations?
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ObliviousInvestor
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Re: SS for mother

Post by ObliviousInvestor »

Enkidu wrote:
ObliviousInvestor wrote:
Penguin wrote:I think she should recheck her numbers. If she is entitled to $2500 at age 66 then she would be entitled to $2025 at age 62. This is $475 per month difference. Perhaps this would make you more comfortable with delaying claiming the survivor benefit. She would only need $66,720 to break even. That would only take 140 months after age 66. For the rest of her life she would be protected from running out of money better with your "traditional approach".
My math matches Penguin's math.
Would the 82.5% floor for survivors come into play here? Not sure, but if so, I get $2,062. Perhaps OP was rounding numbers to simplify calculations?
Great question.

The 82.5% floor is only relevant with regard to calculating the "full widow's benefit" (i.e., the amount the widow would receive if he/she claimed widow's benefits at full retirement age). Said differently, it only comes into play as a result of the deceased spouse claiming early. If the surviving spouse claims survivor benefits early it's possible to get less than 82.5% of the deceased spouse's PIA.

Relevant Code sections in case you're interested:
http://www.ssa.gov/OP_Home/cfr20/404/404-0338.htm (This is where the 82.5% floor comes from.)
http://www.ssa.gov/OP_Home/cfr20/404/404-0410.htm (This section discusses the reduction due to claiming widow's benefits early.*)

*Bonus fact: The example in this Code section uses a "Ms. Bogle."
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Topic Author
Xpe
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Re: SS for mother

Post by Xpe »

Oh god I hope she wasn't rounding, but it did seem awfully suspicious that the his-now and his-66 numbers were both even hundreds...

Anyways TY all for the responses, they've been really helpful.
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