The date that you start Social Security can really impact the success of your and your spouse’s retirement plan. Not every married couple understands the extent this could affect their overall financial plan. Oftentimes, mistiming their Social Security ends in costly mistakes.
Most couples obviously aren’t doing this on purpose. It’s just that the information on what to do isn’t always clear. They unknowingly make decisions that have big implications for themselves and for their spouse in the future.
In the video above, Dave Zoller shares what you need to know to avoid these costly mistakes and how to maximize your family benefit.
Married couples thinking through their optimal income strategy for their retirement plan typically have a Social Security strategy in mind.
Social Security planning is one of those age-specific strategies that our team at Streamline Planning helps clients think through and plan for. But it’s not a one-and-done solution.
A lot of people think that once they determine a Social Security plan, it’s set for the rest of their life. But there are a lot of changing factors to consider,
For example, this couple (we’ll call them Paul and Jane) are nine years apart. Paul is 67 and Jane is 58. The husband was planning to stop working this year and starting Social Security as supplemental income. Yes, the traditional planning technique would make sense here. Paul is 67 -at full retirement age. But when we ran the scenario, as you can see in the video above, his income plan looked good, but it brought up an important discussion.
In this post, I’ll point it out some of the potential issues I noticed, so you don’t start planning your retirement in a way that could cause an issue in the future. Then I’ll walk through the actual numbers of this sample retirement plan, something that’s not in the article, just so you can get an idea of what this would actually look like and how you might get into trouble if you use this rule-of-thumb planning technique.
Again, this is my opinion, and it’s not advice. So please consult with your own wealth management team before making any decisions.
As we often do with our clients, we had to look farther into the future. We mapped out a scenario where Paul passes away at 84, and Jane is still 75. She’s got a good family track record of living a long time, and Paul, not so much. That doesn’t mean it’s definitely gonna happen, but just looking at the odds, it seems that’s a scenario we should plan for.
When we mapped out this scenario, the Social Security benefit would actually decrease by $1,800 (and that’s using just today’s values). That decrease happens because Paul’s receiving about $3,000 a month.
If he were to start Social Security now or this year, Jane is receiving or scheduled to receive $1,800 per month. If Paul passes away, Jane will be able to step up her benefit to what Paul’s was ($3,000). But that $1,800 that Jane was taking goes away. Essentially reducing her total family benefit, from $4,800 down to $3,000, a 37% decrease.
So the question becomes- should Paul delay his benefit and instead use his other accounts? An IRA or taxable account could be used to supplement his income. That way he can continue to get an increase in Social Security.
In this example, Paul passes away at 84, and Jane is 75. What if he’s able to delay Social Security till age 70? In the chart below, you can see the increased green bars that pop up, and this is for the benefit of Jane. So if they’re planning together as a couple, this could make a lot of sense for them.
For Paul and Jane, if he waits to claim his benefit and draw from investment accounts first, then his benefit could increase to $3,900 per month. And again, things could change for this plan and for this couple, because life changes. But this prepares them to maximize future benefits for Jane, if Paul were to pass away.
There are a lot of factors that go into these kinds of decisions. Having the ability to map out these scenarios and arrive at the best possible decision is a real benefit to retirees.
First, remember that delaying to 67 (or really to any age) means you’re not receiving quite a bit of money from Social Security. For Paul, specifically in this example, he’s not receiving over 100K for those three or so years where he’s delaying it. That is a lot of money, but it could be worth it if your spouse is going to live longer than you are.
A few other scenarios when it could make sense:
If you’re thinking about planning for Social Security in this way, we recommend meeting with your own financial professional before making a decision. If you’re getting to the point where you’re going to start using Social Security benefits and need help figuring out the tax impact, the withdrawal, income, and the investment strategy in retirement, feel free to reach out to us.