Don’t Quit Your Day Job . . . Just Yet

A Few Years Can Buy a Lot for Retired Couples

Time is...literally money.

By Bob Sabolich

Here’s the deal. There are too many variables in play regarding when a couple should plan to collect Social Security. But after my last client left my office, I had to get this message out . . .

But What if You are Married?

Many couples have a spouse (let’s assume the wife) who will rely on her husband’s earnings history for purposes of computing her benefit payout.  Most likely, the wife stayed at home many years raising the kids, and didn’t have the opportunity to max out her earnings for purposes of determining her SSB.

General Rule

Here is where things get a bit trickier regarding when to start collecting your SSB, especially when you will be basing SSB payout on a spouse’s earnings history.  Most people know the “spousal” rule.  It essentially says that the spouse is entitled to 50% of the benefit that the primary spouse would enjoy.  For example, let’s assume both John and Mary are 2 months past their 67th birthdays.  If John is entitled to $1,000 per month, then Mary gets $500 per month.

What most people don’t know is that the above 50% ONLY applies at full retirement.  So, same facts, but let’s assume that our dear couple opts to start collecting their SSB at the tender age of 62.  John’s SSB drops down to $700.  No surprise here. Most people know that John’s benefit drops substantially (30% in this case).  What about Mary? Does she receive 50% of John’s $700, i.e., $350?  The spouse benefit is reduced downward from 50% for every month below John’s full retirement age.  In this case, Mary’s $500 benefit is further reduced by 35%, resulting in a monthly SSB to her of only $325.

So, waiting until full retirement age results in a $1,500 per month SSB payout, but opting for age 62 results in only a $1,025 payout.  Again, John’s reduction went down by 30%.  But Mary got clobbered with a 35% reduction.  Note that for every month they wait, both John and Mary’s SSB payout is increased.

This may not be the end of the world, but my point is that age 62 versus age 67 computation is a bit more nuanced than some may think, and those nuances seem to point more toward the benefit of waiting until full retirement age, if possible, to start collecting.  Or at least to wait a bit longer if you can hold out.  Mind you, there are other factors to fold into this analysis, such as marginal tax bracket, general health, etc.  But the spousal factor adds an additional twist to the planning – a twist that you cannot disregard.

You do not have to navigate these twists and turns alone. The Huth Thompson team has the depth of knowledge to help you make critical decisions that could put you in a better financial situation. Contact us and we can start the conversation.

Sound like a plan for you? Give me a call or send me an email.

---

Robert G. Sabolich, CPA, ChFC, Partner

Bob joined the firm in 1991 and became a partner in 1994. He has served as the head of the tax department since 1991. He received a Bachelor of Science in Accounting from Mesa State College and a Master’s degree in Tax Accounting from Colorado State University. Bob also has a Chartered Financial Consultant designation from the American College. He serves as a board member of the Lyn Treece Boys and Girls Club Foundation and is an active member of Lafayette Reformed Presbyterian Church. Bob can be reached via email or by phone at (765) 428-5000.