Summary

In this conversation, Amy and Mike discuss the complexities of Social Security claiming strategies for couples, using three Social Security case studies to illustrate different scenarios. They emphasize the importance of personal circumstances, longevity protection, and the integration of Social Security decisions into a broader financial plan. The discussion also touches on the significance of survivor benefits and the need for individuals to consider their unique situations when making these decisions.

Chapters

00:00 Understanding Social Security Decisions for Couples

08:54 Case Study 1: Jack and Jill’s Retirement Planning

12:52 Case Study 2: Jack and Jill’s Age Gap Considerations

15:40 Case Study 3: The Younger Higher Earner

18:30 Broader Considerations in Social Security Planning

Takeaways

• Social Security decisions are highly personal and vary by individual circumstances.

• Understanding spousal benefits is crucial for married couples.

• Delaying Social Security can provide longevity protection.

• Calculators can help maximize Social Security benefits, but personal goals matter more.

• Survivor benefits play a significant role in claiming strategies.

• Health status and life expectancy should influence claiming decisions.

• Integrating Social Security into a total financial plan is essential.

• Different claiming strategies can impact overall retirement income.

• It’s important to consider all available benefits, including disability and survivor benefits.

• Planning for Social Security should account for potential changes in financial needs.

Links

Send Us A Question or Comment: [email protected]

Schedule a consultation with Mike: https://nextmissionfinancialplanning.com/contact/

Schedule a consultation with Amy: https://www.instarfp.com/contact

Transcript

Amy (00:02)

Hey Mike, so today we’re wrapping up our social security series by looking at some Social Security case studies and talking about how we think about helping someone decide when to claim. We’ve got three different situations that couples may find themselves in.

Mike Hunsberger (00:18)

Yeah, I think these are a good representation of the complexity of the decision and how you can think about it. And sorry to the single folks, we’re mainly dealing with a couple of situations here because the single side is relatively straightforward. It’s just based on whether you want to maximize for longevity or not. But yeah, these are good Social Security case studies and looking forward to running through them with

Amy (01:21)

So we’ve got three situations couples may find themselves in. Now, these situations aren’t going to cover your situation exactly, so you have to do your homework because no case study is gonna completely approximate what you’ve got going on in your life.

Mike Hunsberger (01:38)

Yeah, very personal decision. Some people may, again, look to maximize for longevity risk. Others may say, want my money right away. So we’ll dive into these three cases and talk about them. But it’s really personal, as you said. And Amy.

You want to just give a kind of overview of the spousal. I know we covered it in the previous podcast, but just to refresh everybody.

Amy (02:11)

Yeah, so as we talked about in one of the earlier podcasts, when you have a married couple, both spouses can claim on their benefit.

if they both claim it full retirement age, if there’s a lower earning spouse, that was, you know, much, they earn much less than the other spouse, then, you know, they’re going to claim their benefit, but then their benefits actually going to plus up, it’s going to be increased to, 50 % of the higher earning spouses, cause it’s based on that spousal record. So you’ve got the benefit coming off your record. and if that’s less than 50 % of what would come off your spouse’s record, then it’s increased to that,

to that amount, so 50 % of your spouses. Did I about get it?

Mike Hunsberger (02:59)

Yep, yep. And you hit the key is at that full retirement age. You know, as we talked about before, you can claim anywhere between 62 and 70. And so really understanding that if the lower earning spouse claims at 62 and the higher earning spouse has already claimed that they’ll still get the same plus up, but it’ll be based on their lower claiming.

rate so it won’t be the full 50 percent. A lot of people get confused on that and are like well you just have the lower earning spouse claim as soon as possible but that will result in a reduction and not that full 50 percent. And then the second piece of the couple’s decision is also the survivor benefit. So what that is is when you have a married couple when the first spouse dies the

you basically the benefit continues at that higher earning spouse. So if the higher earning spouse dies first, the lower earning spouse will continue to get that higher earning spouse’s benefit. And so that’s the other thing you need to think about when you’re doing the couple’s decision for that. anything else that we need to recap before we dive into the scenarios?

Amy (04:25)

No, I think that gets back to the basics that we’ve already gone through. Let’s go ahead and start into scenario number one.

Mike Hunsberger (04:33)

All right. So a couple Jack and Jill are both 60, looking forward to probably retiring in about two years when they’re both 62. They both consistently worked, and their benefits are pretty close. Jack’s benefit as a full retirement age is expected to be about 2,800.

Jill’s expected benefit at her full retirement age is projected to be about $3,000. So only about a $200 difference there. So what are your thoughts in that situation?

Amy (05:11)

Yeah, yeah. So, you know, for this, you know, we have to get into the spousal benefit. So the 50%, that’s not really a consideration here because Jack is already going to get more than half of Jill’s $3,000 full retirement age benefit. So the things that, you know, you might consider around this decision is, you know, do you have enough assets to delay claiming until age 70?

And if you do, then typically we think about having the spouse with the higher benefit delay for as long as possible. So in this case, maybe we recommend that Jill delays until age 70.

And then for Jack, it kind of depends. There’s lots and lots of factors going on, but he could either delay until full retirement age or maybe even age 70, depending on how many assets they have and whether they have a lot of money in traditional IRAs. And the reason there is because if you delay social security a little bit longer,

If you have big traditional IRAs or big pre-tax 401k or retirement plan for savings plan money, if you have a lot of it, then delaying social security could give you more opportunity to do Roth conversions. So that’s kind how I think about it, Mike. What about you?

Mike Hunsberger (06:41)

Yeah, I agree, Amy. You know, I view social security as longevity protection first and foremost, and I try to get that over to clients that they think the same way. It just gives you that extra protection from running out of money. If you die early and maybe you didn’t get back all the money that you contributed,

you’re dead. I mean, at that point, it doesn’t really matter in the big scheme of things. So yeah, I’m a fan of delaying, especially the higher earning spouse, because, you know, likely that could continue longer even than that first spouse is alive. definitely longevity protection is what I optimize for.

Amy (07:37)

Yeah, and it’s interesting because a lot of people, the way they want to attack this decision is, okay, what’s my breakeven point? And am I going to live that long? And by breakeven, if you give up social security for a period of time in exchange for that higher benefit, when would…

When does it become more advantageous for waiting? And I think you make a really great point with the longevity protection. It’s less about gaming the system and more about making sure that your needs are going to be met throughout retirement, which includes if we happen to, if your financial planner builds you a plan out through age 95, what if you live to 105?

you know, so, and of course we have no way of knowing, and there’s plenty of time to adjust the plan and things like that. But I think you make a really good point about longevity protection and that factoring into the decision and not just the breakeven point or, you know, claiming early because you, you don’t want social security to run out of benefits before you have a chance. and then the other thing I would just say is that even if, even if you’re going to retire early,

and you could claim at 62, you don’t have to do both. You don’t have to retire and then claim as early as possible. It makes a lot of sense to see how your social security claiming strategy best supports your financial plan and all of the facts in your case.

Mike Hunsberger (09:16)

Yeah, that’s great. So I think we wrapped up number one. What’s number two?

Amy (09:23)

Okay, so for scenario number two, in this case, Jack is 67 and he just retired. He’s married to Jill who’s 61 and she’s going to work two more years. Jack has the higher earnings history. His benefit at full retirement age is $3,200 and at age 70 is about $3950. Jill’s expected benefit at her full retirement age is $1,100. What are your thoughts, Mike?

Mike Hunsberger (09:51)

All right, so this one definitely is a little more complicated. Spousal benefits are in play here because, Jill’s benefit is less than half of Jack’s. just looking at that, if they both go to full retirement age, Jill would get $1,600. That would be the 50%. So basically, it’s a $500 additional top up.

that she gets from the spousal piece. The age difference makes it interesting. Jill will work in a few more years. So in this one, I’d again say Jack should delay at least until Jill retires and probably all the way until 70 to get that full benefit. Jill’s flaming strategy.

Again, if she claims early, say, you know, when she retires at 63, it’ll be, you know, reduced a little bit. But the other thing they’ve got going, Jax, you know, there’s a there’s a decent age gap there. you know, typically men die earlier. So a lot of time, you know, that survivor benefit is going to

into play. So,

This will be one that you’d want to run through a calculator to kind of figure out, you know, what’s the difference between Joe wait until 67 or claiming at 63 or 65 or somewhere in there and how much of a reduction is it really to kind of come up with that. But in general, I’d definitely say Jack should extend because he’s going to.

you know, that benefit is likely to continue much longer and it just gives Jill additional money if Jack dies first. How about you? What do you think?

Amy (11:56)

Yeah, I mean, in a situation like this, I would be hard pressed to recommend that Jack claim any earlier than 70 because he’s quite a lot older than her. Men typically don’t live as long as women on average. And so having him wait. So to me, the Jack part of this equation is somewhat straightforward unless there’s other considerations that we haven’t included in this case study. I’d be hard pressed to have him claim

many earlier than 70. So to me, you know, the wild card in this equation is figuring out the best time for Jill to claim. And a lot of that honestly has to do with, you know, additional assets that are available, are there pensions, you know, and it does come down to philosophy at some point. So again, to your point, definitely have to run her situation through a calculator.

but I would probably control for meaning just assume that Jack’s gonna claim it 70 because he’s older and his benefits so much higher in case he passes away before her. How about case study number three, Mike?

Mike Hunsberger (13:07)

All right, so this one’s similar but opposite. Jill’s 55. She’s the higher earner. Her expected full retirement age benefit is 3,200 this time. Again, that would be 3,950 at 70. Jack’s 61 with an expected benefit of 1,100.

One additional point, Jill’s retired military, Jack would get the SBP at 40%. So of Jill’s retirement. So what are your thoughts around the situation like that?

Amy (13:48)

Yeah, so this one’s a little bit more complex, right? Because the higher earner is younger. And so the key takeaway here is that Jack will not be eligible for the spousal benefit until Jill claims. So if they want to go for longevity protection, Jill can delay until 70.

But it likely doesn’t make sense for Jack to delay beyond full retirement age. He can claim his full retirement age benefit for a good, say, nine years if Jill delays until 70. So a little bit more complex here and you know.

whenever the higher earner is younger, that’s just how it works out. But again, taking into account all the other facts and circumstances around this case. What about you, Mike? What are your thoughts on this one?

Mike Hunsberger (14:41)

Yeah, I think you pretty much hit them other than, again, a lot of these situations, pretty much all the situations that a person has is complex. You want to integrate it into your total financial plan. There are some kind of standalone social security calculators out there that can tell you, hey, this is how you can kind of maximize or this is the best claiming strategy.

Specifically for that, I encourage you to look for them. Some of them are paid and not too expensive. And then there are some free ones out there also. But again, that all needs to be integrated into a total financial plan. then there are other decisions that factor into claiming.

And so why don’t we talk a little bit about those also, Amy. What are your thoughts on some other things that might go into just instead of the straight numbers piece?

Amy (15:48)

Yeah.

Yeah, yeah. So I mean, I think we did hit some of them, you know, ages of the spouse. So we went through that with the last two case studies, ages of the spouse. So who’s older by how much and is the higher earner older or younger? So age is one. Health.

health status. if you know, for example, that you have a terminal illness that could factor in and change all the calculus. So maybe all the rules are different. If you know, if you know for certain that one spouse has a terminal illness, or if there’s a family history of early passing, now you can’t hang your hat on that because you know, anything can happen. But that’s another, that’s another consideration. How about you Mike, do you have a couple?

Mike Hunsberger (16:45)

Yeah, I’d say, you know, again, other assets, you know, some people are going to need to claim Social Security as soon as they stop working just because they may not have a pension or may not have saved enough. And so those two decisions are tied together. So that’s an important one. And then the tax piece is always another thing to consider. We talked about it.

in one of the earlier shows about, you can claim Social Security at 62 and still be working, but it reduces how much you’re actually going to get. it’s fairly complicated. just understanding the tax implications of the claiming decision is important. Anything else, Amy?

Amy (17:40)

Yeah, I mean, I just I would say that, you know,

A lot of people, know, the calculators are very helpful. The social security calculator is very helpful. But keeping in mind that the point of the calculator is to help you maximize social security. If your goal is to get the most you possibly can out of social security, that’s great. Those calculators are great. But if you have different goals and you want to maximize those goals, then you need to figure out not necessarily maximizing social security.

do a lot of plans where taking a different, so taking a slightly less social security, different than the optimized social security strategy is actually better for the overall plan. So keep that in mind and keep your, know, keep.

your goals, your personal goals firmly in mind as you decide, as you make this decision. And then the only other thing that I would add is that, you know, as we wrap up this series, there’s a lot of social security benefits that we really didn’t hit on over the last few episodes. There’s disability benefits, there’s benefits for divorced couples, there’s benefits for children and families if there’s a big age difference or there’s younger kids and there’s an early death. And then there’s options around

survivor benefits if someone dies. So much more to get into, but we focus primarily on the retirement benefits of social security.

Mike Hunsberger (19:11)

Yeah, that’s great point. Again, lot of those are beyond the scope of a retirement podcast, but for folks out there, it’s good to know that those are available and they should be aware. And if they’re ever in that situation, they need to look into those.

Amy (19:32)

Awesome.

Mike Hunsberger (19:34)

Yeah, I think that about wraps it up. hopefully folks found this interesting. Maybe they haven’t thought about Social Security too much, again, other than when the reports come out and say it’s going to run out of money each year. So hopefully this helped frame that decision for folks as they approach retirement.

Amy (20:00)

Awesome, it was good chatting with you, Mike. Take care.

Mike Hunsberger (20:02)

All right. Bye.