I just completed a video series on Karen and Ken in which I ran 6 different scenarios to see what would be the “best” time for them to take Social Security You can find the playlist here.
As you will see in the scenarios, taking Social Security early made the most sense. Why? Because Karen, the primary breadwinner, is much younger than Ken AND Ken didn’t have nearly as long life expectancy.
I was actually surprised by the end results. I would have thought that with Karen’s longer life expectancy it would make sense for her to delay and gather up her delayed earnings credits.
The problem comes in that Ken can NOT get a spousal benefit until Karen files. In this scenario, Ken received NOTHING in the years Karen was allowing her delayed credits to build up. Thus, while she WAS gathering 8% increases each year on her own record, they was sacrificing Ken’s spousal benefit which is 50% of Karen’s benefit!
Clear as much, eh?
The lesson is that if a higher earning spouse is much younger it may make sense to take Social Security early. Again, the reason is to allow the Spousal Benefit to be initiated for the lower earning, and older, spouse. Remember the Spousal Benefit can NOT be received until the other spouse actually files.
Ken receives NO Spousal Benefit until Karen files for her own benefit.
There is also another time it makes sense to file for Social Security early. I talk about this here. This will be when your surviving spouse is affected by the Government Pension Offset (GPO). Essentially, if your surviving spouse did not work in a job that paid into Social Security, say a teacher in the state of Texas, she will most likely lose most, if not all of, of her Survivor Benefits.
Thus, if you defer Social Security until you are 70 on the hope of leaving a higher benefit to your surviving spouse upon your death, this may not work out as you anticipated because of the GPO.
A lot of people get upset with the GPO. There argument is valid in many ways. Why should a surviving spouse, say a stay at home mom, who never paid into Social Security, receive Spousal and Survivor benefits while a worker who also didn’t pay into the system but receives her own pension be denied?
Social Security is nothing if not a curious program indeed. But remember the Social Security system was set up to keep people out of poverty. That’s it. A retired teacher with her own pension is much less likely to be in poverty without her Survivor benefit, than a stay at home mom without a Survivor benefit.
In practical terms, for what Social Security is intended to do, alleviate poverty, it works very, very well.
Lots to chomp on here, my friends. As always, make your Social Security choices after doing SOME research. You can never nail down the “perfect” time in which to file as you have no clue when your own demise will be. But with a bit of knowledge, and luck, you can make a superior decision.