Lifestyle in Retirement

Spouse Penalty When Social Security Is Started Early

A woman on average will live longer than her husband, just about everyone is aware of this fact.  According to Employee Benefits Research Institute survey 4 out of 5 professional financial advisers fail to consider the extra longevity of women when giving advice to their clients about when to start Social Security income payments. This could be very costly to a woman who outlives her husband well into her 80s or 90s. 

From age 62 to 70 there are a lot of income options which are not available after age70. For example 401(k) or other qualified plans could be used as bridge income to age 70 thus allowing Social Security payment to increase about 8% per year or perhaps supplementing income with part time work or consulting.

 From Market Watch-

“Widows getting cheated out of Social Security”

 August 24, 2012|Ian Salisbury

“For instance, presented with a 62-year-old man in average health who wants to retire right away but has, together with his wife, saved $800,000, only one in five advisers suggested he put off taking Social Security as long as possible. The recommendations were made despite the fact that with such a large nest egg, the couple appeared to face little immediate need for cash and the decision would significantly crimp the woman’s survivor benefit should she become a widow.”

In the example above if this couple defers taking Social Security until age 70 and in its place they use $250,000 of savings to purchase a lifetime income annuity covering husband and wife.  Their Social Security payment at age 70 would be almost double.  At age 70 they would still have $550,000 plus interest earnings in their savings. The lifetime income annuity and Social Security continue payments until they both die.  This way the wife’s survivor benefit remains as high as possible to help offset future cost of living increases.

 For help you may ask questions in the comments or contact me privately here:

Tim Barton

Chartered Financial Consultant