Planning for Singles’ Social Security Benefits

Most people leave a lot of money on the table when choosing their Social Security retirement benefits. It’s understandable. The rules can be complicated, and there are nuances in them. Plus, there aren’t many people offering advice on how to maximize benefits.

Last month and in other visits we detailed different ways married couples can work together to maximize benefits. Single people also have options to carefully consider, and the options vary depending on whether you’re unmarried, divorced, or widowed.

Let’s start with the basic rules for taking benefits.

You can begin SS retirement benefits as early as age 62. The full retirement age, when you receive what’s called the primary insurance amount, for people retiring now is 66 (67 for those born after 1959). Begin benefits before 66 and your monthly benefit will be less than the primary insurance amount. You’ll receive about 75% of the PIA by starting benefits at 62. If you wait until age 70, you receive extra benefits, about 132% of the PIA.

The standard advice, which I’ve given in the past, is to compute the breakeven point. Estimate the minimum age you need to live for the lifetime benefits received to be the same whether you begin benefits early or late. Most of the time, the break-even age for delaying benefits to age 70 is around 80. You have to live at least that long for the lifetime benefits to be the same whether you begin benefits at 62 or 70. Live longer, and you’ll benefit by delaying benefits and lose by taking earlier benefits.

But the question isn’t as simple as that, points out William Meyer of Social Security Solutions. He says the monthly increases from delaying benefits aren’t steady and equal, so the breakeven age changes. From age 62 to 63, benefits increase 0.42% of the PIA per month of delay. From 63 through 66, they increase 0.56% of the PIA monthly. From 66 through 70, benefits increase 0.67% of PIA monthly.

Because of this unevenness, the breakeven age changes. There are good times and bad times for singles to begin retirement benefits, and most singles are making the wrong choice.

The worst times for singles to begin benefits, says Meyer, are between 62 years, one month and 63 years, 11 months and from 65 years, five months and 66 years, seven months. Many people take benefits either when they’re first eligible or at normal retirement age, and those are among the worst times. He says the break-even age is 78 years when benefits are begun from 62 to 63 but falls to 76 years at ages 63 to 64. The break-even point from then is on a roller coaster through age 70.

There are additional considerations for divorced and widowed taxpayers.

A divorced person can collect based on an ex-spouse’s earned benefits when they were married for at least 10 years, have been divorced at least two years, and the ex-spouse seeking to claim on the other ex-spouse’s benefits has not remarried. Perhaps the best part of the rules for divorced people is that you don’t have to coordinate with the ex-spouse. You can make choices without regard to whether the ex-spouse has applied for benefits or is remarried.

When the qualifications are met, you are entitled to the higher of your own benefit and one half of your ex-spouse’s full retirement amount if your ex-spouse is qualified for them, regardless of whether he or she has applied. Your benefit is reduced if you begin it before 66.

One strategy is for the divorced person to wait until at least age 66. At 66, you can file a claim that is restricted to spousal benefits, meaning collecting 50% of the other ex-spouse’s earned benefits. Then, at age 70 you can file to claim based on your own earnings record and receive the maximum amount.

That’s not the best strategy for everyone. If there was a large disparity between the career earnings of the two ex-spouses, the higher-earning spouse might not want to claim one half of the other spouse’s benefit. The lower-earning spouse would earn more both immediately and for life by filing an unrestricted claim and taking the higher of his or her own benefit and 50% of the other ex-spouse’s benefit.

Divorced spouses also can receive survivor’s benefits. When the other ex-spouse dies, the surviving ex-spouse, if not remarried and at least full retirement age, can collect the higher of his or her own earned benefit and 100% of what the other ex-spouse was receiving at the time of passing.

The survivor’s benefits are a little different for a surviving spouse who was married to the deceased spouse at the time of death. A surviving spouse receives the higher of his or her earned benefit and 100% of the deceased spouse’s earned benefit (or what the deceased spouse was receiving at the time of his or her passing). Survivor’s benefits can begin as early as age 60 (age 50 if the survivor is disabled), but benefits will be reduced for taking them early and will be about 71% of full benefits by taking them at 60. Full benefits can be received if the survivor waits until full retirement age to begin the benefits. Eligibility for survivor’s benefits isn’t affected when the survivor remarries after age 60.

RW March 2013.