Suspending social security & 10-year age gap strategy

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shermanpie
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Joined: Fri Feb 10, 2017 7:00 pm

Suspending social security & 10-year age gap strategy

Post by shermanpie » Sat Jul 15, 2017 7:55 pm

Two part question. The context is my parents are 57 and 67 years old and have enough saved to retire today (they don't believe it, but that's another story).

What's the ideal strategy for a 10-year age gap with similar PIAs? From playing with http://www.bedrockcapital.com/ssanalyze/it looks like the best strategy is for the older spouse to claim at 70 and the younger to claim at 62. The main benefit being that there's a good chance the older spouse dies first, and then the younger spouse collects a high spousal survivor benefit. (Related, does anybody know of a good SS calculator that doesn't require hard-coded ages and instead can use mortality rates?)

Now this is slightly complicated because my father started benefits when he was 62 (I didn't know about it then). He then continued working and had a good part of the benefits withheld due to the earnings test. So the 25% early filing penalty is about 15% instead. If he suspends now he can increase his benefit by ~24 percentage points of his PIA, right? So at 70 he would start collecting ~109% of his PIA? I think even with this hiccup the above 70/62 strategy still makes sense. Does anybody see a reason why I shouldn't convince him to suspend benefits?
Last edited by shermanpie on Sun Jul 16, 2017 1:57 pm, edited 2 times in total.

vested1
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Re: Suspending social security & 10-year age gap strategy

Post by vested1 » Sun Jul 16, 2017 11:09 am

If he turned 67 today and got this request approved immediately he could theoretically increase his current payment by 24%. The increase is monthly at 2/3 of a percent beyond FRA. It may be a hard sell to your father since he will feel the loss of income is he agrees to suspend. It will have no immediate benefit to your mother, even if she were at FRA because of the rules change om 1/1/16. The survivor benefit would be increased by the same amount of the increase due to the suspension if your father died first however.

I don't know where you got the 109% increase over PIA, as the PIA amount is now moot for your father since he filed originally at age 62, and assume you are subtracting what you identified as a 15% reduction (rather than a 25% reduction) from 124%. Actually, because of the earnings test, your father had a greater reduction than 25% because he continued to surpass the earnings limit from ages 62 through 67.

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BL
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Re: Suspending social security & 10-year age gap strategy

Post by BL » Sun Jul 16, 2017 11:21 am

You might check SOCIAL SECURITY MADE SIMPLE
Book by Mike Piper
to get the up-to-date facts on SS with changes in '15-'16.

I think it is possible to suspend at FRA to get the increase until age 70. Not sure what the starting point is now.
There is value in increasing survivor benefits, assuming they have enough reserves/income to get by until age 70.
it looks like the best strategy is for the older spouse to claim at 70 and the younger to claim at 62.
I believe the assumption is that this is the higher income person of the couple, which is often true, but not necessarily so. So it is the higher income person who would delay until age 70 guaranteeing that the survivor would receive the higher SS; the lower income person may or may not choose to do so as well.

shermanpie
Posts: 9
Joined: Fri Feb 10, 2017 7:00 pm

Re: Suspending social security & 10-year age gap strategy

Post by shermanpie » Sun Jul 16, 2017 2:17 pm

vested1 wrote:I don't know where you got the 109% increase over PIA, as the PIA amount is now moot for your father since he filed originally at age 62, and assume you are subtracting what you identified as a 15% reduction (rather than a 25% reduction) from 124%. Actually, because of the earnings test, your father had a greater reduction than 25% because he continued to surpass the earnings limit from ages 62 through 67.
I believe that the PIA never changes (edit: I mean early/late credit don't change it, except when it's recalculated once at FRA. Earnings will also always continue to affect it) and is the basis for all calculations. So it is still relevant because the delayed retirement credits are 8% of the PIA, not 8% of the current benefit.


The earnings test seems to be the least understood part of social security. From what I can tell for every full month of benefits withheld, you earn back 1 month's early filling penalty. At full-retirement age your benefit is recalculated using these credits.

The early-filling penalty is 5/9%/month for the first 36 months, and 5/12%/month for the last 12 months.
36 * (5/9) + 12 * (5/12) = 25% penalty

If you have 1 year 10 months of benefits witheld due to the earnings test, you at FRA you'll get 10% of the reduction back.
10 * (5/9) + 12 * (5/12) = 10% back

shermanpie
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Joined: Fri Feb 10, 2017 7:00 pm

Re: Suspending social security & 10-year age gap strategy

Post by shermanpie » Sun Jul 16, 2017 4:30 pm

BL wrote:You might check SOCIAL SECURITY MADE SIMPLE
Thanks for the recommendation. The "Suspending Retirement Benefits" section had a clear example.

So my math above is wrong. The the delayed retirement credits are base on the benefit amount, not the primary insurance amount. So it would work out to be 105.4%, not 109%.

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