Husbands should consider delaying Social Security benefits
USA Today, January 15, 2008
Here’s some advice for married men who will turn 62 this year: If you want to make up for all the times you came home with beer on your breath, left your socks on the bathroom floor or gave your wife a DustBuster for Valentine’s Day, hold off on filing for your Social Security benefits.
Many men who are eager to retire may chafe at this suggestion. This year, the oldest baby boomers are turning 62, making them eligible for Social Security. About half of those boomers are expected to claim their benefits as soon as they’re eligible, even though that means a permanent 25% reduction in benefits.
Retirement experts warn that this strategy could result in significantly lower benefits for boomers who live for a long time. Maybe that’s a risk you’re willing to take. But if you’re the primary breadwinner, claiming benefits early could also jeopardize your spouse’s financial security.
Here’s why: If one member of a married couple dies, the surviving spouse can continue to receive her own Social Security benefit, or 100% of the deceased spouse’s benefit, whichever is more. If your wife earned less over her lifetime than you did, and she outlives you, she’ll start receiving your benefits. If you file at 62, she’ll inherit a reduced amount of benefits for the rest of her life, says Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries.
Most “break-even” calculators don’t address survivor benefits, says James Mahaney, retirement specialist for Prudential Financial. Suppose, for example, that a break-even calculator shows that your break-even age is 77 (you can find a break-even calculator at www.ssa.gov). Based on your benefits alone, that would suggest that you should delay filing if you think you’ll live past 77, and file early if you think you’ll die before then.
But that calculation doesn’t address what happens if your wife outlives you. And there’s a good chance that will happen. According to the American Academy of Actuaries, the average 62-year-old man will live an additional 21.9 years, while the average 62-year-old woman will live 25.5 more years.
A women’s issue
Some women are the primary breadwinners, of course, but in the majority of couples, husbands retire with higher lifetime earnings than their wives. Women are more likely to leave the workplace to care for children or elderly parents. Median wages for women continue to lag behind wages for men. Women are also more likely than men to become widowed â€” and not only because they typically live longer. Most married women are younger than their husbands.
More than 40% of elderly women depend on Social Security for more than 90% of their income, compared with 28% of elderly men, according to the American Academy of Actuaries. More than 20% of unmarried women over 65 are poor, but only 5% of married couples over 65 are poor.
Given the high rate of poverty among elderly women, the tendency among married men to claim benefits early “is a major social problem,” according to a recent research paper by the Center for Retirement Research.
“Most older women have major reductions in their standard of living when their husbands die,” says Steven Sass, associate director for research at the center.
A 1999 Center for Retirement Research study found a dramatic difference in incomes for widows over 90, based on when their husbands claimed Social Security benefits.
When their husbands claimed benefits at their full retirement age or later, the widows’ average benefits were 19% above the federal poverty level. But when their husbands claimed benefits before they reached full retirement age, the average benefits for widows were 1% below the poverty line.
Break-even calculators encourage retirees to regard the timing of their benefits as a gamble, which is a “terrible way to think,” Sass says. Instead, retirees should view Social Security as an insurance policy. By delaying benefits, Sass says, husbands can reduce the risk that their widows will spend their final years in poverty.
An early start?
While married men should delay claiming Social Security benefits, married women might receive higher lifetime benefits by filing for Social Security at 62, Gebhardtsbauer says, because these women don’t get locked into a reduced benefit. If they outlive their husbands, they can “trade up” to their husbands’ higher Social Security payout, he says. (If the wife dies first, the lower benefit will die with her.)
But to get the most from their combined benefits, husbands should wait to file. “When you make your retirement plans, you’ve got to consider how you’re going to have a good stable income for you and your spouse for the rest of your lives,” Sass says. For married men, he says, delaying Social Security “is by far the best thing you can do.”