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nfs
Joined: 14 Mar 2005
Posts: 87
Location: The Dry Side of the Wet Coast
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 Posted: Wed Oct 31, 2007 3:30 pm Post subject: Married couple's strategy for taking Social Security |
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| Quote: | ..."Whoever the higher earner is should plan to delay taking Social Security, because the higher benefit will always live on," says James Mahaney, vice president of Prudential Retirement and coauthor of one of the papers. "The key message is keep your husband in the workforce as long as you can,'' quips Alicia H. Munnell, director of the Center for Retirement Research at Boston College and coauthor of the other paper. (She notes that a wife might continue to work, too, while collecting Social Security. Although early retirees can lose a portion of their benefits if they earn too much, once you reach 66 you don't incur any penalty for working.)
Part of why the 62/70 solution works is something known as joint mortality. Consider a husband and wife, both born on Jan. 1, 1950. When they become eligible for Social Security at 62, the wife will have a projected life expectancy of 84 years and 8 months. That roughly means there's a 50% chance she'll live that long (roughly, because the median life span is not necessarily the average life span). The husband's life expectancy will be 81 years and 10 months. But there's a 50% chance one spouse will die before 78 and a 50% chance the second will hold on until almost 89, the Government Accountability Office calculates. So, in effect, a woman who takes Social Security at 62 isn't necessarily accepting a smaller payout until 84, but only (on average) until her husband (or she) kicks off shy of 78. And that bigger check that the husband waited until 70 to get? Half the time it will keep coming to one of them for 19 years or more.
The table shows the total Social Security payout a high-earning husband and his wife would get in net present dollars, assuming average life expectancies. In all cases, it pays for the husband to wait and the wife to collect earlier.... |
http://finance.yahoo.com/focus-retirement/article/103790/
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Do not distress yourself with dark imaginings. - Max Ehrmann |
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admin
Site Admin
Joined: 06 Feb 2004
Posts: 138
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| Posted: Wed Oct 31, 2007 8:23 pm Post subject: Re: Married couple's strategy for taking Social Security |
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| nfs wrote: | | Quote: | ..."Whoever the higher earner is should plan to delay taking Social Security, because the higher benefit will always live on," says James Mahaney, vice president of Prudential Retirement and coauthor of one of the papers. "The key message is keep your husband in the workforce as long as you can,'' quips Alicia H. Munnell, director of the Center for Retirement Research at Boston College and coauthor of the other paper. (She notes that a wife might continue to work, too, while collecting Social Security. Although early retirees can lose a portion of their benefits if they earn too much, once you reach 66 you don't incur any penalty for working.)
Part of why the 62/70 solution works is something known as joint mortality. Consider a husband and wife, both born on Jan. 1, 1950. When they become eligible for Social Security at 62, the wife will have a projected life expectancy of 84 years and 8 months. That roughly means there's a 50% chance she'll live that long (roughly, because the median life span is not necessarily the average life span). The husband's life expectancy will be 81 years and 10 months. But there's a 50% chance one spouse will die before 78 and a 50% chance the second will hold on until almost 89, the Government Accountability Office calculates. So, in effect, a woman who takes Social Security at 62 isn't necessarily accepting a smaller payout until 84, but only (on average) until her husband (or she) kicks off shy of 78. And that bigger check that the husband waited until 70 to get? Half the time it will keep coming to one of them for 19 years or more.
The table shows the total Social Security payout a high-earning husband and his wife would get in net present dollars, assuming average life expectancies. In all cases, it pays for the husband to wait and the wife to collect earlier.... |
http://finance.yahoo.com/focus-retirement/article/103790/ |
As is almost always the case, these researchers ignored the benefits of having the high-earning spouse take SS at age 62, save and invest the money, then do a withdrawal of application at age 70. See link:
http://www.retireearlyhomepage.com/cheap_annuity.html
The increase in the spousal benefit using the Withdrawal of Application strategy is fantastic. The spouse would pay back $38,664 in benefits at age 70 in return for a $692/month increase in benefits. Vanguard would charge a 70-year-old woman $130,000 for life annuity with a $692/month inflation-adjusted benefit. Here's a spreadsheet:
http://www.retireearlyhomepage.com/SS_WD_of_Application.xls
intercst |
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Cute Fuzzy Bunny
Joined: 19 Feb 2005
Posts: 83
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| Posted: Thu Nov 01, 2007 1:44 pm Post subject: |
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I guess if you made more than 8% on the money, you might rethink withdrawing the application.
Theres also that whole subjective component of whether you'd enjoy that extra money between 62 and 70 or between 80 and 100. Financial optimization needs to incorporate the spending side as well as the money making side. |
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admin
Site Admin
Joined: 06 Feb 2004
Posts: 138
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| Posted: Thu Nov 01, 2007 3:34 pm Post subject: |
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| Cute Fuzzy Bunny wrote: | I guess if you made more than 8% on the money, you might rethink withdrawing the application.
Theres also that whole subjective component of whether you'd enjoy that extra money between 62 and 70 or between 80 and 100. Financial optimization needs to incorporate the spending side as well as the money making side. |
Wouldn't being able to buy an inflation-adjusted life annuity with a first year payout of 21% ($8,304 on a $39,664 investment in the case of the spouse) allow you to spend even more money with safety? However, I agree that this strategy is only relevant to retirees with ample funds.
intercst |
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unclemick
Joined: 14 Oct 2007
Posts: 72
Location: Kansas City near the yellow brick road
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| Posted: Sun Nov 04, 2007 4:55 pm Post subject: |
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| admin wrote: | | Cute Fuzzy Bunny wrote: | I guess if you made more than 8% on the money, you might rethink withdrawing the application.
Theres also that whole subjective component of whether you'd enjoy that extra money between 62 and 70 or between 80 and 100. Financial optimization needs to incorporate the spending side as well as the money making side. |
Wouldn't being able to buy an inflation-adjusted life annuity with a first year payout of 21% ($8,304 on a $39,664 investment in the case of the spouse) allow you to spend even more money with safety? However, I agree that this strategy is only relevant to retirees with ample funds.
intercst |
Hold that thought - I'll get back with ya in 6 years!
Getting closer all the time.
 
heh heh heh  |
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cltsiang
Joined: 31 Jan 2008
Posts: 1
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| Posted: Thu Jan 31, 2008 10:50 am Post subject: |
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| I find this withdrawal and reapplying at age 70 very interesting. The question I have is how to handle the income tax that we have paid for the last 8 years. I know the article mentioned how to do the tax. Can you give me some IRS document number that I can do further research? Thanks. |
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harley
Joined: 26 Nov 2007
Posts: 13
Location: Ocean City MD
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| Posted: Mon Mar 03, 2008 4:49 pm Post subject: |
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intercst said | Quote: | | As is almost always the case, these researchers ignored the benefits of having the high-earning spouse take SS at age 62, save and invest the money, then do a withdrawal of application at age 70. |
I agree with the plan to do the withdrawal of application. My problem is that I'm just 52, and if you convince the MSM to advertise that this is possible, they'll close the loophole long before I get there. Let's just keep this one under our FIRE hat.
Harley |
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harley
Joined: 26 Nov 2007
Posts: 13
Location: Ocean City MD
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| Posted: Mon Mar 03, 2008 4:58 pm Post subject: |
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| Nevermind. I read the next set of posts and saw that this issue was already discussed. |
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RDHADS2
Joined: 11 Jun 2008
Posts: 1
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| Posted: Wed Jun 11, 2008 10:48 pm Post subject: Another scenario |
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In my case, the wife has been collecting social security disability for almost 20 years. I doubt she will be interested in the application withdrawal scenario.
However, I can begin taking social security benefits at age 62. Spouse gets $1340 per month, I get $1569.
At age 66, my full retirement age, I can withdraw my application, pay the benefits back and then file for a spouse benefit which would be 50% of what my spouse is getting or $670. I let my benefits accrue. Then at age 70, I can switch over to my much higher benefit without having to forfeit the spouse benefit I collected from age 66 to age 70. |
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