I think Kotlikoff just learned something new about “file & suspend”
Why The Social Security Split Strategy Could Prove Costly For Clients
https://www.fa-mag.com/news/the-social-security-split-strate…
“It’s a risky strategy and to advise it is a pretty reckless thing to do,” Kotlikoff said, adding that advisors who are suggesting the split strategy must consider the mortality potential of the higher-earning spouse. “They really have to be thinking that this person is going to die with pretty good probability because otherwise they are putting their [client] household at risk of a lower-lifetime benefit."
Kotlikoff, also a professor of economics at Boston University and the author of Money Magic – An Economist’s Secrets to More Money, Less Risk, and a Better Life, spoke recently during a webinar sponsored by Financial Experts Network. He explained that prior to May 2016, there was an option in the law that allowed one spouse to file for retirement benefit anywhere from age 62 to age 70 and the other spouse could file just for a spousal benefit. This also applied to divorced couples, where the ex could file for benefit if the marriage lasted 10 or more years and the divorce was for at least two years.
intercst
Incredible that an article about SSI claiming strategies for couples includes neither the phrase “breakeven point” nor “joint life expectancy.”
Sure, claiming at 70 for both works great if both spouses live into their late 80s or 90s, but that’s not what the odds are.
My wife is 2 years older than I am, 60 & 62. The odds that we both are alive at 82/84 are only 31%, according to SSA’s 2019 Period Life table.
However, the odds that one of us reaches 90 are about 50%.
To quote Michael Kitces-
<<More generally, the key distinction to recognize is that when couples have substantively different benefits and are considering the breakeven periods, delaying the higher earner’s benefit will win as long as EITHER person is alive at the breakeven, but delaying the lower earner’s benefit will only win if BOTH of them are alive at the breakeven point.>>
https://www.kitces.com/blog/why-it-rarely-pays-for-both-spou…
If the couple is Jack Lalanne & his wife, having both delay until 70 makes sense. Average Americans probably ought to hedge their bets.
3 Likes
To quote Michael Kitces-
<<More generally, the key distinction to recognize is that when couples have substantively different benefits and are considering the breakeven periods, delaying the higher earner’s benefit will win as long as EITHER person is alive at the breakeven, but delaying the lower earner’s benefit will only win if BOTH of them are alive at the breakeven point.>>
One big benefit of a couple running this analysis for themselves is when an annuity salesman comes calling (or you discover that the free dinner seminar “How To Maximize Your Social Security” is really an annuity pitch): Rather than buy an annuity, it will probably be a better scenario to delay SS and live off the money you’d pay for that annuity. Delaying SS looks like a much better way to insure against longevity risk than buying an annuity, especially at current rates.
4 Likes