This is a simple case study on 62 year old wife and 66 year old husband. The Husband elected benefits at full retirement age and wife has yet to file for benefits. Husband has health concerns and wife is healthy, expecting to live 20 more years.
People are largely biased towards claiming social security benefits early. Nearly one third of the population claims benefits as soon as possible, at age 62. There are strong opinions on this topic but the best timing is specific to each person’s situation. See Social Security: There’s More to Consider Than Gross Lifetime Benefits, where I point out several social security considerations beyond gross lifetime calculations.
Today’s post provides a brief analysis of a couple with conflicting health. The husband is struggling with his health and the wife has a clean bill of health. These conflicting timelines can be challenging to navigate. In this case both individuals have each others best interest in mind but it’s easy to imagine how conflicting life expectancy could fuel opposing financial objectives. One person is most concerned about the long-term and the other is most concerned about the short term. As this pertains to social security, it would likely foster an emotional bias within the husband towards claiming benefits as soon as possible whereas leaving the wife more concerned with the long-term affects of this. I hope you find this brief analysis helpful.
Again, to set the stage, Wife is 62 years old, in good health and hasn’t claimed benefits. The Husband is 66 years old, in poor health and claimed benefits at full retirement age. Husband’s monthly benefit is $1,394 and Wife is eligible for spousal benefit. Husband is not working and Wife works occasional jobs, earning less than the income limit.
Wife asked my thoughts on her claiming early. In our conversation we assumed that Husband would likely pass within within 5 years, but Wife would live for 20 years. Our initial instinct was for Wife to claim spousal benefits and enjoy both benefits until Husband is no longer living.
After further discussion I realized Wife doesn’t need additional income now and the long-term maximization of benefits for Wife was of greater importance. Wife has enough non-qualified assets to cover several years living expenses and can make do with the amount of social security income from any outcome. That being said, her financial situation isn’t bullet proof and she prefers making educated decisions that will provide the largest possible inheritance to her children. Of course, there are worse outcomes than her children not receiving an inheritance. The main priority is not running out of money.
Wife was wresting with the concept of claiming spousal benefits now or waiting until her full retirement age to claim. At age 62, Wife can claim $482 monthly spousal benefit. Electing benefits at this age presents the risk of permanently reducing her long-term social security benefit. The reason being that spousal benefits convert to survivor benefits immediately upon notification of death to the social security administration. If this event transpires prior to Wife’s full retirement age, she would experience a permanent reduction of survivor benefits. On the other hand, if Wife is not receiving benefits when Husband upsets the apple cart, she can choose when to claim survivor benefits. In her case this would be full retirement age.
Survivor benefits are reduced as follows:
| Age | % Reduction | Mo. Benefit (No Inflation Adjustment) |
| 62 | 71.7% | $999 |
| 63 | 76.7% | $1,069 |
| 64 | 82.2% | $1,146 |
| 65 | 88.9% | $1,239 |
| 66 | 96.6% | $1,333 |
| 66 + 8 mo. | 100% | $1,394 |
The worst-case scenario for Wife would be to immediately claim spousal benefits and husband to pass shortly thereafter. The best-case scenario would be for Wife to claim spousal benefits now, and husband to live past Wife’s full retirement age.
For this analysis i’m going to adopt a simple gross lifetime benefit comparison. This may seem to go against my comments in Social Security: There’s More to Consider Than Gross Lifetime Benefits but I’m doing so for good reason. This couple’s financial situation is not complicated by taxes or investment withdrawal considerations. They’re able to live entirely off social security income. When Wife is living without Husband she has enough non-qualified assets to supplement her income. Lastly, they’re planning around a fairly narrow range of life expectancy outcomes, which limits the range of possible outcomes and simplifies the analysis. My approach at analyzing the options is to quantify the financial impact to Wife’s lifetime benefits with Husband passing away at various ages within a 5 year time frame.
To avoid a permanent reduction of survivor benefits Wife would either have to wait to claim benefits until full retirement age or Husband would have to live 5 more years while Wife is claiming spousal benefits. Wife plans to live to age 82 and her primary hesitation for claiming spousal benefits is the potential permanent reduction of survivor benefits. Let’s quantify this concern to determine it’s validity. If she was to forgo spousal benefits in exchange for a larger survivor benefit at her full retirement age, she would have collected $300,625 (adjusted for 1.5% cost of living adjustment) by age 82. This scenario is shown on the far right column of the table below. The other columns show the cumulative lifetime benefit if Wife was to claim spousal benefits and Husband was to pass at various ages.
The table suggests there is minimal risk of Wife claiming spousal benefits at 62. All other considerations aside, she should elect spousal benefits as soon as possible.
Before moving forward with the decision to claim spousal benefits, I suggest this couple determine the amount of unrealized capital gains from any assets Wife would need to liquidate to supplement her social security income and determine if it’s worthwhile paying tax on these prior to Wife claiming spousal benefits. That being said, I’m fairly certain it makes sense to pay taxes while both are living. This couple doesn’t own retirement assets but I’d suggest a similar consideration around these for anyone in a similar situation.