Should Wealthy Clients Delay Taking Social Security?

Investing Strategies Retirement Investing
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After 29 years of the “4% rule”, whether I take Social Security early, late, or not at all, isn’t going to have any affect on my level of retirement spending.

However, the ability to effectively “buy” an inflation-adjusted life annuity for about half the cost of what a for-profit insurance company would charge for the same monthly increase in my SS check makes waiting until age 70 attractive.

Could I have started SS at age 62 and just put the money in the stock market? Sure, but then the added income would have knocked me out of free Obamacare and some of these energy efficiency freebies in the Biden IRA legislation. And my asset allocation has been above 90% stock for 25+ years, do I need an even higher allocation to the stock market? Probably not.

intercst

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The article isn’t very good, it’s all over the place and resorts to hyperbole at the end -

Above all, the wealthy should not treat Social Security as an afterthought. “For some wealthy couples who live long lives,” Parrish said, “Social Security may be a million-dollar decision.”

But it did state one good thing that I will need to investigate further -

“A male client may not have the expectation, based on family history, of living until his 90s,” said Robert Peterson, senior wealth advisor at Crescent Grove Advisors. “They then mention that the women on their spouse’s side of the family live until their early 100s. A lot of people are surprised that the surviving spouse steps into the deceased spouse’s benefit [at death], so if a spouse in a relationship doesn’t have a high income-earning history, this could be a significant benefit.”

I’m not sure exactly what “steps into the deceased spouse’s benefit” means. Does it mean that the spouse gets to claim the total amount the deceased spouse used to claim? (instead of half the base amount that is normally claimed) @aj485, can you comment about this?

I used the online social security calculator a few weeks ago and I noticed something interesting. It has a field for “estimated annual future earnings” and if I put “$0” there or “$175,000”, it shows the exact same number. That implies that if I choose to work again, anything I pay into social security will provide exactly zero benefit for me. Could that possibly be correct?

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Yes, that’s what it means.

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There’s a tiny benefit for working past age 70 in a job with a salary high enough to trigger maximum FICA taxes, it replaces the earnings for the year 35 years prior in your Averaged Indexed Monthly Income (AIME) calculation when the max FICA limit was lower. Maybe it increase your benefit by $10/month.

The sweet spot for Social Security is to retire just before you hit the 2nd bend point in AIME. For a retiree with 35 years of max FICA earnings at age 62, he’d still get 77% of the maximum monthly Social Security benefit had he retired at age 45 or 46 and zeroed out that last 17 years of earnings.

And yes, the surviving spouse gets your SS benefit, and they don’t charge you any extra taxes to fund it. Just another way single folks are disadvantaged. {{ LOL }}

intercst

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My wife was ten years older than me and was collecting SS based on her work when she died. I don’t remember the exact numbers, but I began collecting a “survivor” benefit that wasn’t all that different from what she was getting. I waited until I hit 70 to switch to my own, maximized, benefits.

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If both spouses were currently receiving SS benefits, in general (as always, there are exceptions), the surviving spouse will start to receive the higher benefit. If You Are the Survivor | SSA

Because of this, it can be financially beneficial for the higher earning spouse to delay receiving SS until 70, while the lower earning spouse takes SS earlier.

AJ

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Unless you are in some states where the spouse who works for the state government is only able to collect a small portion of SS. In that case it only matters to the spouse who receives their full SS.

Andy

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Personally, I bailed early, just prior to 62 as the telecom business, and LU in particular was downsizing, made an off, job pressures were up, 3rd party work, but less and less talented folks to help out, so frustrating… And my 3 levels of supervision & management to the District level had already left… So nobody was left to keep me woking near home, a ton of windshield or motel time loomed…

I’d attended a retirement seminar the year before, and one or two things stuck. First was that 62 was a solid number, ‘62 is 62’ he said. And he advised folks to begin their SS as soon as possible as none of us have any guarantee we’ll make it to that next year, or 65+, in my case it was 65+8 months, much less 70…

So I bailed, took the company quite a while to create the promised annuity plus the pension, but it happened, many had taken a lump sum, I held out for the annuity. Later in another offer to cash out, it was folded into the pension plan… A little snug that first year, considered part time work, telecom work folded, a CLEC I could have gone into went bankrupt, so I stayed retired…

Sorting out all the various stock shares from Bell System splits and mergers, ESOPs, etc… Consolidate most into either VZ or T, LU went down the drain, messy… Lost a chunk on LU… But in the end more than made up for it by my early AAPL investments, so dividends have been a big help…

I don’t regret bailing at 62, there’s enough stresses on family without adding even more away time… No guarantee any of us will be around tomorrow…

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As I said, there are always some exceptions.

That said - the state employees in those states are generally not paying SS taxes on their income from the state, which is why they don’t get to collect SS based on that income. (If they have had enough income from other sources where they paid SS taxes, they can still collect SS based on the income that they paid SS taxes on.)

There are consequences to the action of not paying into the SS system while working. Self-employed people who don’t report all of their income to ‘save on taxes’ learn that lesson the hard way when it comes to collecting SS, too.

AJ

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They only get a minuscule portion of what they paid into Social Security. They do not get the same as you or I would get.

So if you are married for 10 years, and do not pay into Social Security because you do not have a paying job, do you not get the Social Security of your spouse? If someone marries 3 times and is married for 10 years in each marriage and none of the spouses work, do they not all get equal Social Security payments?

So yes there are consequences but they all do not work out the same way.

Andy

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It’s because they are getting a pension from the state that, in theory, was supposed to replace SS, at least that’s the excuse that the state gave so that they wouldn’t have to pay the employer side of SS.

But in the case of a spouse who worked for the state, they are receiving a pension that’s supposed to replace SS (see above). So comparing them to non-working spouses isn’t really valid.

As far as non-working spouses receiving SS benefits based on their spouse’s work, that seems like social engineering to encourage (1) getting married and (2) having one of the married couple be a stay-at-home spouse.

What about those who have never married? They don’t even get a chance for anyone to claim benefits based on their earnings.

AJ

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Since Social Security’s spousal benefit for women was introduced in 1939, I suspect it was more a recognition of marriage and work patterns at the time than social engineering. Men weren’t eligible to receive spousal benefits until the 1950’s when they were given the option to retire at 62.

At any rate the spousal benefit at their FRA is capped at 50% of the working spouses PIA at his/her FRA. if a former spouse remarries before the age of 60, he/she is ineligible to receive a spousal benefit and survivor benefits. If You Are the Survivor | SSA provides more details.

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I am not sure how you get social engineering AJ. Most people do not know or even understand this portion of the Social Security system so I doubt the theory on social engineering. But that is exactly what Social Security was set up as initially.

I don’t understand how that would have anything to do with it. If you don’t have a spouse how would that have any bearing on this discussion. Unless you are talking same sex couples, but even that argument is moot now.

What get’s me is if you work for 40 years, pay into social security all those years, and your spouse works for the government and gets a pension, your Social Security benefits at death will be significantly reduced to your spouse. Yet a person who marries 3 times and is married for at least 10 years to each spouse. Each one of them receives the same Social Security benefit. Seems like a huge hole in the Social Security laws.

With a government pension someone could work 30 years in the private sector, than go into the public sector and receive only a small portion of their Social Security. No matter how much they put in. Seems like a regressive tax on someone who has worked so hard all their like. (Start working at 15 years old, work till 45 years old. Go into public sector and work till 75 years old.)

Andy

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How is that not social engineering to encourage marriage, with a stay-at-home wife?

That was still social engineering to encourage marriage with a stay-at-home spouse.

Again - what about those who never marry, and therefore are the only ones who can claim their SS?

AJ

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I’m not sure I clearly understand the complaint being posed by @buynholdisdead …

If a spouse is collecting social security based on their own earnings record, then they can’t also collect a second spousal benefit from social security based on their spouses earnings record. And if a spouse is collecting an alternative from their state based on their own earnings record, and thus aren’t eligible for social security, then why should they be able to collect a second spousal benefit from social security???

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I would disagree that most people don’t know about receiving SS benefits based on their spouse’s work. Heck, even my hairstylist (with a high school education) used to talk with me about claiming strategies if her current husband died, and what else had to happen to be able to claim on her first husband’s benefit. I think a lot of people don’t know the details, but understand the general concept that a lower-paid/non-working spouse can get a benefit based on their higher paid spouse’s work.

Yes, SS is social engineering. That was my point - part of the social engineering is to encourage marriage where one of the spouses stays at home.

You are complaining about your spouse getting limited benefits based on your work record after you die. Being married to someone who has a government pension actually puts you in a slightly better situation than someone who never married - nobody gets to claim on their benefits after they die, but your spouse with the government pension has some claim on your benefits after you die.

Yes, because your spouse has a government pension provided by the taxpayers, and the pension is typically more generous than SS, at a lower cost. Government workers usually pay less than 1% of their earnings towards their pension, while those covered by SS pay 6.2%

The rules were set up by Congress, who apparently didn’t like the optics of government workers claiming both a taxpayer funded pension and SS. You should lobby your Congressperson if you don’t like the rules.

How would it be fair to the ex-spouses if they didn’t receive anything, or had to split it with the other ex-spouses just because the person that they married was a serial marrier?

That should be one of the considerations that they take into account before they choose to go into the public sector.

AJ

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Exactly…

AJ

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Why should you have to pay into social security without getting anything back?

Andy

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I see what you did there. To make it perfectly clear. I do not think Social Security was set up as social engineering.

Actually you are complaining that someone who has no spouse doesn’t get a benefit after they are dead. That doesn’t make any sense at all? Seems like you are making an argument just to be argumentative.

Right but that doesn’t make it right. There are many rules set up by the government that are not well thought out.

It seems AJ your whole argument is based on the status quo. You really are not thinking about the right or wrong of these decisions but instead just arguing for decisions that have not been well thought out.

Andy

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No, I’m just pointing being unable to pass your full SS benefit on to someone else when you die is not limited to those who are married to someone who is receiving a government pension.

I will also point out that WEP/GPO doesn’t reduce the SS benefit by the full amount of the government pension, so between the pension and the reduced benefit, your spouse will still receive more than your benefit. In comparison, if your spouse didn’t have a government pension, her maximum received would be either your benefit amount or her benefit amount, whichever is larger. So by collecting part of your benefit plus her government pension, she will still be getting more than if she didn’t have the government pension.

Oh, I think this one was pretty well thought out. As a taxpayer, I wouldn’t think it was fair that the survivor of a couple where one has a government pension as their retirement benefit and the other has SS as their retirement benefit should continue to receive both full benefits when the SS recipient dies. In comparison, the survivor of a couple who both receive SS benefits claimed at FRA will get between 50% and 67% of the total that they had been receiving when both were alive. Why shouldn’t a survivor collecting a government pension get a similar haircut?

No, actually, I think that the status quo was the right decision, which is why I’m defending it.

AJ

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