Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.
Ladies, Is Your Husband A Cad?
The first Boomers are applying for Social Security! I distinctly remember – like it was yesterday – these same people saying “don’t trust anyone over thirty!” I guess it wasn’t yesterday, but more like ’68.
Guys, if burning your draft card was dumb then, applying now for early Social Security benefits might not be much smarter. Carelessness with matches in ’68 got you in trouble with the feds. Carelessly applying for early Social Security now could hurt your wife.
Here is my free legal advice for the month: Hang on, there, fellas and don’t apply for Social Security until you’ve read this article . . . which won’t be hard unless you’re almost up to the window at the Social Security office while you’re looking at this column.
A recent study at Boston College’s Center for Retirement Research has concluded that men are applying for Social Security benefits too early. That hurts a surviving wife because it will lower her benefits when her husband dies first (which is what the odds makers say will happen).
To understand why, you need to understand the math. At this point I’d like to ask the actuaries and accountants to take a break while I explain in English.
Social Security retirement is a mandatory retirement system for most US citizens. The size of your benefit depends upon how long you worked and how much you earned. The longer your work history and the more impressive your earnings, the bigger the retirement benefit. Remember all those payroll taxes you paid?
Mathematically, that earnings history is then reduced to a present value or lump sum. It then becomes a question of: How much retirement benefit will that lump sum pay for if you live as long as the fed’s actuaries say you should?
If you take a “normal” retirement benefit beginning at age 65, you might receive $1,000 monthly. If you elect to work longer, you might receive $1,200 monthly when you do eventually begin to receive a check. Why? Since the feds didn’t pay you during the years you continued to work, that lump sum on hand has gotten bigger. Also, the feds won’t have as many years to pay out.
On the other hand, you may think dropping out and beginning a benefit as early as possible (age 62) seems attractive. But in my example you might receive only $750 monthly. Why? Because the feds have to pay you longer.
If you are think you will not live much past 71 or 72, taking the lower early retirement benefit might make sense because $750 a month for ten years is better than $1,000 a month for 7 years.
But that is if you are single. If you are married and your wife (I’m talking to the guys, here) plans on living quite awhile, your early retirement benefit is not such a great idea. Why? Because the feds calculate your wife’s survivor benefit (what she will be paid after you die) as a percentage of your monthly benefit. Because you retired earlier, your monthly benefit was lower.
In fact, the Boston College study concluded that the survivor’s benefit for the widow of the early retiree was about 20% lower than the fellow who retired at normal retirement age.
So . . . are the early retiree husbands “cads” (Boston College’s term)? Or are they just ignorant?
Very cautiously the study tied educational level to later claiming of benefits. Of course, many things could account for that, including the possibility that the better educated brethren simply liked their jobs more and worked longer. However the Boston College study suggests that educational level could tie more closely to financial awareness.
As the Social Security “normal” retirement age starts inching up (which it is scheduled to do), the “early retirement problem” could get worse.
The Social Security Administration’s Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire. Unfortunately, none calculate spousal benefits. Based on the Boston College report, adding such calculators would be a good first step.
Also, bear in mind that none of this applies if you burned your draft card in ’68 and moved to Canada.