For those who are starting to think about the role Social Security will play in their retirement income picture – and especially for those who are faced with making a decision in the near future – I would refer you to an interesting paper by James Mahaney and Peter Carlson, "Innovative Strategies to Help Maximize Social Security Benefits."
In the paper, the authors examine a hypothetical case in which one spouse earned more than the other during their lifetime, and is eligible for more than double the other’s benefits. By having the lower-earning spouse elect to receive benefits at age 62, the couple are bringing Social Security dollars into the home for the longest period possible. And by delaying until age 70 the income benefit for the higher-earning spouse, lifetime benefits can in many cases be increased substantially.
The authors cite the tendency among retirees to focus only on the initial Social Security benefit amount, and overlook the “second stage” when they calculate the benefit. In the example, if the higher-earning spouse is the first to die, the surviving spouse will receive a “step up” to a much higher benefit than s/he would then be currently receiving.
The authors mention a separate study by the Center for Retirement Research which reinforces the point that when considering when to apply for Social Security benefits, the life expectancy of each spouse be considered carefully.
Of course, there is no single best answer for every person, let alone every married couple. For many, the Social Security retirement benefits decision will be one of the major financial decisions of one’s life. We strongly recommend consulting an expert and carefully evaluating the choices and the implications of each.
R. Kevin O’Keefe, CIMA®, AIF ®
Chief Investment Officer
Posted: November 18, 2009