Money Matters

Tips for figuring out when a spouse should take Social Security payments

September 29, 2012 

Q. We have a question regarding spousal Social Security payments. My wife’s Social Security payments will be based upon my Social Security since this will yield a higher payment. I took my Social Security at age 62. Regarding my wife’s SS payment, her best alternative will be to collect half of my Social Security. These questions relate to her applying for SS at 62 vs. 66:

• Does she get half of my current SS payment at 62? Is her payment penalized for early election?

• Does she get half of my current SS payment at 66?

• Does she get half of my full (at 66) SS payment at 62? Is her payment penalized for early election?

• Does she get half of my full (at 66) SS payment at 66?

• Is there any benefit if she waits until 70?

We have tried to find an answer to this on the SS website, but we’re not sure we understand the explanations. This information is important to us as we decide when it is best for my wife to start receiving her SS payments.

A. I’ll provide some guidance but suggest you meet with an adviser to review your benefit amounts and other information that may factor into your decision.

The age a person begins Social Security payments is very important and will impact your benefits for the rest of your life, and if married, perhaps those of your spouse as well. Factors that should be considered include but are not limited to: anticipated life expectancy, need for income, planned earned income, income from other sources, time value of money and concern about running out of money in your lifetime. If married, the life expectancy of the spouse, disparities in age, which of you is the higher wage earner and concern of running out of money in your joint lifetimes also need to be considered.

A person’s primary insurance amount (PIA) is key when determining the age to start receiving benefits and the impact this will have on current and future monthly benefits. The PIA is the amount a person would receive when they apply for Social Security at their full retirement age.

Full retirement age (FRA) for those born in years 1943-54 is 66. When you took your benefit early at 62, you received a benefit 25 percent lower than if you had waited to 66. The actuaries have worked the numbers so if you live until 82 you will receive the same amount of total benefits as if you had waited until 66. If you die prior to 82, you were smart to begin benefits early. You would have been smarter to wait until FRA the longer you live beyond this gender-neutral life expectancy projected by the actuaries. When annual cost of living adjustments are taken into account, this “break even” age is reduced to around 76.

If taking benefits early allows you to either invest this money or leave other funds untouched, and your rate of return is 4 percent or more, the break-even age is somewhere between 76 and 82.

As you have indicated, spouses who have little or no lifetime earnings record can receive benefits based on their spouse’s work history. Your wife will receive any benefit based on her work record, and if that is less than her spousal benefit, an amount will be added to bring the total up to the spousal benefit. Spousal benefits do not earn delayed credits so she would not gain anything by waiting until after her FRA to apply.

If your wife applies for her spousal benefit at her FRA, her benefit will be 50 percent of your PIA. If she applies at 62 she will receive 35 percent of your PIA. If she applies between the ages of 62 and 66, the percentage will be prorated. If you die before your wife, she will receive 100 percent of your benefit or her own, whichever is higher.

Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 99466, Raleigh, NC 27624

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