Ask the Actuary: Rocket Scientist Needs Help Understanding Social Security Benefits

Last Updated May 13, 2011 11:59 AM EDT

Recently, I received a question from Floyd, one of our readers, based on my prior posts on the benefits a spouse can receive from Social Security:

"Phew! I followed your post today, and I am a real rocket scientist, so I followed the math and reasoning. But it appears that since I am 5-1/2 years older than my spouse, the 'file and suspend' strategy doesn't work well.

"Rocket science is easier! I am analyzing this too much. Am I correct in assuming this doesn't work in our case?"

Floyd, rocket science is harder than understanding Social Security's spousal benefits, (but maybe not by much). The answer to your question will be instructive to readers, so I'm devoting a post to this topic.

The answer to Floyd's question really depends on whether his wife has substantial wage earnings of her own and if the Social Security income based on her earnings record is larger than the spouse's benefit she'd receive based on Floyd's earnings. That spousal benefit is equal to up to half of his Social Security benefit. I'll cover each situation below, using what I know of Floyd and his wife. You may need to review my previous posts to help you figure out your benefits levels, which will be necessary to understand the answers below.

If the Spouse's Benefit Is Larger Than the Benefit Based on Her Own Earnings Record

The 5-1/2 year age difference between you and your wife has no affect on the "file and suspend" option I described in my earlier post. You're still eligible to file and suspend when you turn age 67-1/2 and your wife turns age 62. That will enable her to start the spouse's benefit at age 62, while you can delay starting your Social Security benefits and earn delayed retirement credits until you begin. The spouse's benefit will be half of your benefit at your Full Retirement Age (FRA), further reduced by 30% for having your wife start benefits at her age (62).

It might make sense for you to delay starting your Social Security income as long as possible, up to age 70. Since you're 5-1/2 years older than your wife, there's a pretty good chance that you'll die before her and that she'll have several years of life remaining. If you die first, the spouse's benefit will stop and she'll receive a widow's benefit equal to the Social Security income you were receiving. That's why it makes the most sense for you to delay taking your benefit until age 70: so that her Social Security income after you pass away is as large as possible.

Should your wife start taking the spouse's benefit when she turns 62 or 66? As described in my previous post, if you think you'll still be alive when your wife attains age 78, she'll be money ahead if she waits until age 66 to start the spouse's benefit. And you won't need to file and suspend at that time, since you'll be over age 70. If you think you won't be alive when she attains age 78, then she'll be better off starting her spouse's benefit at her age 62, when you're age 67-1/2. To do that, you'll need to file and suspend your benefit. Of course estimating your lifespan is a guessing game, but sites such as Living to 100 can help you figure the odds.

If the Social Security Income Based on Your Spouse's Earnings Record Is Larger Than the Spouse's Benefit Based on Your Earnings Record
In this situation, the file and suspend maneuver won't help you at all and your wife can start taking the Social Security income based on her own earnings record at any age starting at age 62, while you can delay receiving your Social Security income for as long as you like.

If your wife does want to take the spousal benefit based on your earnings, and delay taking the larger benefit based on her own earnings, she must wait until age 66, her FRA, to do so. But by the time she's 66, you're beyond age 70 and will have started receiving your Social Security income, so you won't need to file and suspend.

Because this subject is close to rocket science in difficulty and complexity, I double-checked my answers with my own expert, Andy Landis, author of Social Security: The Inside Story, and he agrees. He added "remember that if Floyd's wife has a Social Security income based on her earnings record, he can claim a spouse's benefit based on her benefit while delaying the start of his own benefit. To do this, she would need to start her benefit when she reaches age 62, and he could then start his spouse's benefit based on her earnings record when he reaches age 67-1/2, which brings in some handy income. His spouse's benefit would be paid until he reaches age 70, at which time he'd start his own benefit."

To all our readers: Don't feel embarrassed if all of this seems complicated. After all, if a rocket scientist needs help, it's reasonable for you to need help as well. It might be worth the time and expense to seek help from a qualified financial advisor who is experienced with the intricacies of Social Security benefits. You stand to increase your Social Security Benefits by tens of thousands of dollars, which will pay for that advisor many times over.

And Floyd -- you're probably not analyzing this too much. It's well worth many hours of your time figuring out the right decision given your circumstances, given the amount of money at stake. In effect, you're probably "earning" hundreds of dollars per hour for the time you spend. I can guarantee you won't regret it when that Social Security check starts getting deposited in your account each month.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.