A couple of weeks ago, I wrote up the case for the “file and suspend” Social Security claiming strategy for married, two-earner households. To recap, the strategy can allow two-earner couples to collect a Social Security spousal benefit for up to four years without compromising long-term benefits.
The blog was well-received, but it also brought up as many questions as answers. I want to now walk through a numerical example of how the strategy actually affects income. If you’re like me, these numbers may help you better understand the alternatives.
I’m going to lay out how much a hypothetical couple would receive at different ages under different strategies. People will come to varied conclusions based on their own situations, and that is okay. Let’s take a look at how file and suspend could increase income without sacrificing any long-term benefit.
Here are the assumptions of a hypothetical couple:
- A husband who is two years older than his wife.
- The husband has a full retirement benefit (at age 66) of $1,800 per month. The wife has a full retirement benefit (at age 66) of $2,200.
- Let’s assume that the husband lives until age 83, and the wife until age 85.
Here are the five strategies I considered:
- Strategy 1: Husband claims early (62), wife collects spousal at full retirement age (66), wife claims her own benefit at 70.
- Strategy 2: Husband and wife claim at full retirement age (66). No spousal benefits are claimed.
- Strategy 3: Both claim early (62). No spousal benefits.
- Strategy 4: Both delay claiming (70) without ever taking the spousal benefit.
- Strategy 5: Both delay their own benefits. Husband files and suspends benefits until 70. Wife takes spousal benefit from ages 66 through 69.
On the bottom of the table, I’ve offered a simple sum of the values as well as the net present value of the income streams. Net present value is a calculation that puts relatively less weight on long-term income and more weight on short-term income.
A few things to point out:
- Strategy 5 is clearly superior to Strategy 4. This was the point of my first blog about the “file and suspend” strategy. You have no reason not to claim spousal benefits if you’re both delaying until age 70.
- Strategy 1 also looks good, and it offers short-term income if you have any health or job concerns.
- Strategies 1 and 5 are the two strategies that effectively implement file and suspend. In the case of strategy 1, the husband filed early, but the wife collected spousal benefits and delayed her own.
- By delaying the higher earner’s benefit (strategies 1, 4, and 5), the couple maximized the survivor benefit. This benefit is paid to the surviving spouse, regardless of whether it is the husband or the wife.
If I were in this situation, I would opt for either strategy 1 or strategy 5. If you feel the strong urge to receive some short-term income, strategy 1 can help you do that while not sacrificing too much long-term benefit. If you are more concerned about the long-term, strategy 5 is clearly superior as you will receive higher benefits for life.
Thanks for your attention. I hope to continue publishing blogs like these over the coming months (or years), covering different demographics with each blog. Please feel free to reach out if you have comments, questions, or suggestions for future posts. My email is [email protected].