Should I start benefits now?

[dadoms]

Hi -

I’m trying to decide/confirm a decision on when to start my SS benefits. I know the rule of thumb that if you can afford to delay starting benefits to age 70, it is beneficial. In my particular case, I’m pretty sure I’m better off starting my benefits now as I’ve reached my full retirement age at 66 years and 4 months because it will bump my wife’s spousal benefits up.  

Details:  

Husband (myself) – DOB June 1956, Wife – DOB February 1952

My benefit at FRA (October, 2022) is 2,881. If I delay until 70, my benefit would be 4,050. My wife (age 70, and has always earned less than me) has been collecting, and her current benefit amount is 1,052. If I start collecting 2,881 now, my wife can apply and collect a spousal benefit of 1,440 (1/2 of my benefit). I'm told that if I delay until 70, my wife's benefit would remain at 1,440 as the spousal benefit remains at half of what my amount was at FRA.

I’ve tried projecting these benefits out in a spreadsheet and did some guessing at COLA amounts, and it seems to me that in my case, I’d better off claiming now because of the additional spousal benefits between now and when I reach 70. If I delay I would have to be somewhere around 100 to recoup the (total) additional amounts not received between 66 & 70.  Is there anything I’m missing or that I need to be aware of?

Thanks for any responses.

[Tonster521]

@dadomsI understand the concept that you are wrestling with. The point in time when you are essentially equal depends on the discount rate that you are using to measure one decision versus another. Another factor that is important is life expectancy. Because we do not know our individual life expectancy, it is OK to use the average (age 84). Thereafter, you may change the age plus or minus from age 84 and change the discount rate as well to reflect your individual situation. Most folks use 0% as a discount rate when comparing a SS Benefit at Full Retirement Age (FRA) versus Delayed Retirement (any age from FRA to age 70). Using 0% is not wrong. However, that would be the same as leaving money in a non-interest checking account for the period of time one is measuring. In your case, it is 44 months. Using 0%, you will recoup the 44 months of SS Benefits in 12.5 years or age 82.5. If you use a 3% discount rate which is close to the rate in the SS benefit formula, you will recoup in about 14 years or age 84. I have rounded fractions and months so other readers may understand the concept. Please note that the SSA advises that the election of SS Benefits at Early (age 62), FRA (66 to 67) or Delayed (70) are actuarial equivalents based on average life expectancy. which happens to be approximately age 84. Of course, everybody doesn't die at age 84. I suggest that you review the Mortality Stats at the SS website which were developed, I believe, as of 2019. You will find that about 2/3 (66%) of males have passed before attaining age 85. Females are at about 50% by age 85. Also, if you use a greater discount rate (i.e., 4%, 5%, 6%, or greater) because you are savvy investor, it will take longer to recoup your SS Benefits which is $126,764 ($2,881 X 44 months). If you add your spouse's additional SS Benefits that would need to be recouped or $17,072 ($388 X 44 months), you will need to recoup $143,836 ($3,269 X 44 months). Once again, using 0% as the discount rate will take just over 14 years (age 84) to recoup. At a 3% discount rate, you will recoup at approximately age 86.

So, the good news is that it will not take to age 100, but will take at least 12 or more years depending on the discount rate you use. Please note that I used $3,726 as your age 70 SS Benefit based on the following info from the SSA https://www.ssa.gov/OACT/ProgData/ar_drc.html It looks like your SS Benefit will increase 2/3 of 1% for each month you delay or 29.33% if you delay to age 70. That will increase your PIA at FRA from $2,881 to $3,726 or $845/month. I could not reconcile to the amount you provided or $4,050. I did not use any estimated COLA inasmuch as you would need to increase your amounts at FRA and each year thereafter until age 70 by the COLA percentages, if any. Those amounts will be de minimis compared to the amount (over $100,000) you need to recoup.

[fffred]

@dadoms 

Try working with this free online calculator. It is really good and won’t try to sell you anything (and I am not affiliated). You can try various scenarios considering both you and your wife. I made some guesses on inputs for your case and it seems that waiting until near 70 (but before 70) was the optimal case.

bear in mind that your spouse will get your full benefit if you predecease her. In this event waiting until 70 may provide cheap “longevity insurance “

see https://opensocialsecurity.com/

Good luck!

[dadoms]

Thank you. I found that helpful.

[cat0w]

You and your wife should decide if this is best for both of you. Do you have a house payment, car payment or other debt that the extra money would help you pay off faster? What is the cost of your insurance, health, home, and vehicles? Do you need the money to help cover that? 

[dadoms]

Thank you for your reply, and I should emphasize that the additional income would be nice, but we could manage without it for a few more years if it makes financial sense.