Social Security as Longevity Insurance

Social SecurityMost people look at the benefits they would receive today when making their decision about when to begin receiving their Social Security. They also underestimate how long they may live unless they already have medical issues that are known to reduce longevity.

These two impulses cause many couples to begin their benefits too early which has an adverse effect for survivor income. When one person dies, the lowest benefit “goes away” and the highest benefit “remains.”

The article below explains how that works with a couple and their Social Security benefits at various ages.

 

 

I mentioned above that health considerations sometimes cause people to make poor benefit choices as well. Why? Because they may incorrectly fear, that if the unhealthiest one doesn’t start their benefit before something happens, they lose it because they didn’t get any Social Security if they predecease their spouse before age 70.

If the unhealthiest spouse is the lowest earning spouse, receiving their benefit early may be okay since the lowest benefit “goes away” anyway. There are some comparisons that may be insightful between a working spouse’s benefit, which is based on 100% of their earnings record (with adjustments between ages 62 & 70), and their spousal benefit based on their 50% of their spouse’s earnings record (with adjustments between 62 & 70). Naturally you’d want to take the higher benefit between the two – but that higher benefit changes depending on what age you might start it.

If the unhealthiest spouse is the higher earning spouse, then delay may still be wise, since the benefits to the surviving healthier spouse would be greater as discussed in the article above. Why delay even if unhealthy? Even though the unhealthy spouse may not have as many years as a healthier spouse, the higher benefit continues, so you need to think about the other spouse’s welfare as well. And, remember, you are only assuming the unhealthier spouse goes first – that may not be how it works even though odds may favor that assumption. Thus – the unhealthier spouse would also end up with the higher benefit when the lower benefit goes away.

 

Of course, if the income is needed at whatever level now, then delaying is a moot point. But, if delaying some income now is possible by working longer, or starting to live off of saved retirement funds in the meantime, then there may be more income later by doing that (which reduces the need to rely on savings and returns on those savings). And it is this dynamic that should be evaluated before making a rushed decision.

Here is a chart that illustrates how much Social Security may change by age depending on your Full Retirement Age (you can find yours on your Social Security Statement).

SS @66 v 67(Please hold your shift key and then click on graph to enlarge image) 

 

More examples are available in the post “Social Security and Survivor Considerations.”

Divorcees also should consider their choices.

Surviving divorcees also have benefits.

 

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About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

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