Two days ago, I was sitting on a bench overlooking the Atlantic Ocean watching sizable waves smash onto the sandy beach and talking to a recently retired friend about, no kidding, Social Security.
My friend is the sort of guy who pays attention to his finances, but as he was mapping out his retirement scenario before leaving his job, he wrestled with when to start taking Social Security benefits.
Your 'Full Retirement Age'
At 67, he was already past what Social Security calls "full retirement age," which is 66 for most boomers. (The size of your Social Security benefits are reduced if you claim them between 62 and your full retirement age; you’ll get just 75 percent by claiming at 62. The checks grow by 8 percent a year for every year you delay receiving the money between your full retirement age and age 70.)
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When my friend called Social Security to ask what he should do, he was advised to “do the math.” So he did — and decided to sign up immediately.
I wish I’d asked him whether he considered the financial repercussions of this decision for his wife of roughly 40 years.
How Men's Claiming Decisions Hurt Women
Too often, men don’t — and their wives pay a price.
According to a study on Social Security claiming decisions of nearly 14,000 older couples by Federal Reserve Board economist Alice M. Henriques, most married men think solely of themselves when choosing the date they’ll start filing for Social Security benefits.
If they delayed receiving benefits, the men would provide their wives with more income if widowed. But Henriques found that husbands showed nearly “no response to the large incentives” for postponing their start date. As a result, she wrote, men are reducing their wives' lifetime benefits.
That's because many married women are still financially dependent on their husbands in their 60s and beyond, even though women have increasingly stormed the workplace, the gender wage gap is shrinking and more women are becoming savvy about money. Husbands typically work more years than their wives (due to their time off for maternity leave and child rearing) and earn more money. As a result, when it comes to Social Security, most married women end up relying on the program’s spousal and survivor benefits.
But here’s the tarnished gold in Henriques’ digging, in my opinion: Almost half of men claim Social Security benefits as soon as they are eligible – at 62. A quarter wait until age 63 – 65 and fewer than 5 percent start taking Social Security after turning 65, according to her research.
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So how much money is left on the table as a result of early claiming?
About 20 percent of couples give up at least $5,000, Henriques says; an additional 5 percent or so lose at least $20,000.
Why Couples Must Decide Together
The need for couples to assess their claiming decisions jointly is why analyst Larry Kotlikoff, writing on the PBS NewsHour website, recently told a married 67-year-old terminal cancer patient not to take his benefits right away.
If he survives to 70 and delays claiming Social Security until then, Kotlikoff said, his wife will receive a 24 percent higher survivor benefit check every month.
“Your decision about when to take your own retirement benefit will impact what your spouse and, indeed, your ex-spouses to whom you were married for 10 years or more, will receive in survivor benefits,” Kotlikoff wrote.
(MORE: A Woman's Guide to Social Security)
Unquestionably, when to start the monthly checks flowing from Social Security is a mind-twister for women and men. And there’s no perfect age for everyone to start collecting benefits, since the best timing for you will depend on such factors as your health, employment history and savings.
But making wise choices can translate to a difference of thousands of dollars during your lifetime, so it’s worth studying up on this subject. One thing worth remembering: delayed filing can be especially beneficial for women, who tend to outlive men and run a higher risk of falling into poverty at advanced ages.
Many Are Confused About the Claiming Rules
Unfortunately, as columnist Mark Miller wrote in a recent Morningstar post, most people don't seem to understand the relationship between the age you can begin claiming benefits and the size of those benefits.
For example, he noted, 56 percent of men and 63 percent of women filed for benefits sometime before their full retirement age in 2011 (the most recently available data). By waiting until 70, however, they could have received 132 percent of their full retirement age benefit.
Out of curiosity, I decided to see how my own Social Security benefits might differ depending on when I began taking them. After running some numbers on the AARP Social Security calculator, I learned that I’d receive nearly $1,000 a month more by waiting until age 70 than by starting at 62. Since I'm married and my husband is seven years older, he should apply at 70 for his own Social Security benefits. I'd apply for spousal benefits at 67 and then apply for my own at 70.
Where to Get Smarter About Social Security Benefits
Now it's your turn. Here are a few places to help you – and your spouse or partner – decide when to claim Social Security:
Visit a Social Security Administration office. The Social Security website can pinpoint the nearest location. When you go to one of the offices, a staffer can show you how much your benefits would total depending on when you begin taking them. But he or she is not permitted to offer advice.
Check out online tools. Start by reading Social Security’s guide to benefits on Next Avenue. Also, check out Kotlikoff’s “How to Avoid Making Social Security Mistakes” and Forbes executive editor Janet Novack’s “The Big Decision: When to Take Social Security.”
Other great sources of information include AARP’s Social Security Q&A tool, the Social Security Choices website and Miller’s site, RetirementRevised.com, which has frequently asked questions about spousal and survivor benefits.
For an answer to a particular question about your situation, try Ask Mary Jane, a free online service from the National Committee to Protect Social Security and Medicare.
Once you’re well versed, get your Social Security benefits statement online. It estimates how much you'll receive based on your earnings history. You’ll be able to see amounts calculated on alternate filing dates, but you won’t be able to get the scoop on spousal or survivor benefits. (I recommend checking your Social Security statement online annually; I do it around my birthday.)
Next, use a good, free online calculator or two to run “what if” scenarios. I like the T. Rowe Price Social Security Benefits Evaluator and AARP’s Social Security Benefits Estimator because they let couples see figures using a range of variables.
Sure, this will take a little time. But a little effort now could make a huge difference in your future financial security.