Spousal benefits in social security

Fool Community Help Desk Ask A Foolish Question
21

Hi @MarkR,

I was speaking about inflation vs the numbers the SSA quotes.

When calculating future benefit start values, SSA uses a flat model, no inflation factor is used.

To use inflation to adjust those numbers does not give a good view.

Inflation is used to adjust present values down. Your $35,000 pension that doesn’t adjust for inflation will be worth less, like $31,340, in the future as inflation affects everything else.

That give an easy to understand picture that can be compared with today’s values. Compare current $35K vs $31.34 in the future.

The SSA adjusts for inflation every year.

They ALWAYS start using the FRA amount as a starting point. That amount is adjusted by the inflation factor. Then it is adjusted Plus or Minus based on the benefit start point for the individual.

The inflation factor occurs every year, whether you start benefits or not. If your FRA quote is $2,000 this year, in 5 years when you start your benefit, the FRA amount might be $2,229 because it was adjusted for inflation 4 times. From that point, it will be adjusted Plus/Minus based on whether your claim starts at FRA, before or after. The adjustments are done on a per month basis.

As far as trying to game plan future inflation, that always needs to be considered. It does not have anything to do with retiring at 50 or 70. It must always be accounted for in a retirement plan.

When I started planning in 1982, I used 4.5% annual inflation. In the later 1990’s, I reduced that to 4%. I currently use 3.8%. Yes, we have been retired almost 20 years and I still plan forward. My portfolio program calculates the plan end number at the end of every day. It plus our portfolio value and net worth are pushed into a spreadsheet after market close plus on non-market days. The spreadsheet has a few graphs in it so I can easily see trends in the values.

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
https://discussion.fool.com/u/gdett2/activity (Click Expand)

22

I made that bold. ‎‎‎‎‎‎‎‎‎‎‎‎‎

23

That strategy is no longer a valid option. After May 1, 2016 (when file and suspend was eliminated), this option was only available to those who were born before Jan 2, 1954. When they reached FRA, they could claim a spousal benefit and defer their own benefit, which then grew by 8% a year. As of 2024, everyone who was eligible for this has reached age 70, which means that everyone should be claiming their own benefit, if it’s larger than the spousal benefit.

AJ

1 Like
24

I disagree. It depends on how you’re using the numbers. If you’re trying to forecast a breakeven point between claiming at an earlier age vs. a later age, you need to adjust for both inflation and the benefit you get for deferring.

AJ

25

If you are looking at the SS projections of your benefits, if your FRA benefit is $2000, then it would show your age 70 benefit as $2480 because the SS projections are in today’s dollars.

Using the Fed’s 2% inflation goal as the inflation target, if you claimed at a $2000 monthly benefit at your FRA, by the January of the year you turn 70, your benefit would have increased to $2,121 (Please note that SS inflation increases are rounded down to the nearest dollar, so you can’t just apply straight compounding) If you had waited to claim your deferred benefit at 70, it would be 24% higher, or $2630 (again, rounded down to the nearest dollar)

If you want to use a different inflation rate, feel free to do so. The average inflation rate for SS benefits since inflation adjustments started in 1975 has been 3.75% The average inflation rate starting in 2000 has been 2.58%

Your birth month matters. Using the 2% inflation rate, if you hit your FRA in January, it takes 131 months to reach breakeven. If you hit your FRA in December, it takes 142 months to reach breakeven. And please remember, if you were born on the 1st of the month, SS considers you to have reached your FRA at the end of the prior month.

AJ

3 Likes