Show Your Love in Social Security ClaimingChia-Li Chien, Ph.D., CFP®, PMP®, CPBC
Chia-Li Chien, PhD, CFP®, PMP®, Apr. 23, 2019
Ever since my near-death car accident in 2014, I am a regular Uber and Lyft passenger. Having the convenience of Uber or Lyft to airports, events, or business meetings saves me from the stress of driving. I ride with Uber around the world, and I get spoiled. Over time, as more people use Uber and Lyft, I’ve noticed the level of service declined in Uber. I switched to Lyft, but the quality is about the same. I suppose that I feel that I am entitled to quality services such as a clean, less than 5-year-old vehicle and a driver who assumes that I don’t want to chat the whole way. Should I be entitled to all of these because I am a close to five star–rated passenger?
We all get spoiled by the thriving society that we live in; after a while, we feel entitled to certain benefits because of our contributions. California Lutheran University faculty Mark Edwards presented two sessions about Social Security claiming in NextGen Mentoring Forum, a weekly series webinar that mentors young financial planning professionals about how to excel in the industry. Mr. Edwards indicated that if you are a married couple, and you love your spouse, consider claiming Social Security retirement benefits at a later age to maximize the benefits for the surviving spouse.
An individual can claim Social Security retirement benefits between ages 62 and 70. I suppose many retirees feel entitled to claim Social Security retirement benefits as early as age 62 but claiming earlier than full retirement age (FRA) will permanently reduce your Social Security retirement benefits. In 2015, the Social Security Administration reported that the population claiming Social Security retirement benefits before reaching the FRA consisted of 54.1% of males and 60.8% of females (Chien, 2018). People often decide to claim Social Security retirement benefits based on potential loss instead of gain, according to prospect theory (Kahneman, 2013). Perhaps retirees are concerned about the U.S. government’s financial stability.
People may be in life circumstances such that they need to claim as early as age 62—because they can, and are entitled to, claim early. But that entitlement does not mean that it is suitable if your loved one could benefit more from a delayed claim. Let’s walk through an example of John who retired in January 2017 and claimed at age 62 (exact age 62 and 0 months, maximum-taxable earnings since age 22) (SSA, 2017b). John received the maximum initial monthly benefit of $2,153. If John claimed at age 65, the initial monthly benefit amount is $2,542, and if he claimed at age 70, he would receive a maximum initial monthly benefit of $3,538. The reduction was 15.30% when John claimed at age 62 compared to a 39.18% increase if he waited until age 70.
What Mr. Edwards referred to was the cost to the surviving spouse. John’s wife Mary never entered the workforce, so Mary received half of John’s benefits when she reached retirement age. What if Mary outlives John? How much will Mary receive? Well, because John claimed at age 62, and Mary survived John, Mary will receive $2,153 when John dies. If John had waited to claim until age 70, Mary would receive $3,538. Women live longer than men. Having $3,538 in Social Security retirement benefits would have afforded a comfortable living standard for Mary.
So Mr. Edwards was right. If John loves Mary, considering delaying claiming Social Security retirement benefits would have been ideal.
Well, I am entitled to a re-do many times in rating my Uber/Lyft rides. But you don’t get a re-do with Social Security retirement benefits. Once the benefits are claimed, it is permanent unless you suspend or pay back to the Social Security Trust Fund. If you already work with a Certified Financial Planner (CFP), chances are he or she has used commercial software like SS Analyzer, Social Security Timing or Maximize My Social Security to help you determine the most appropriate timing and amount. If not, get help early to show your love in Social Security claiming to take care of your spouse.
Chien, C.L. (2018). Practical Strategies To Enhance Retirement Success Rates In The United States. Unpublished PhD Dissertation, The American College of Financial Services, Bryn Mawr, PA.
Kahneman, D. (2013). Thinking, fast and slow. New York: Farrar, Straus, and Giroux.