MARRIED MEN: DON'T TAKE SOCIAL
SECURITY TOO EARLY
Social Security benefits usually begin to be received between
ages 62 and 70. A common scenario involves a married couple
where the husband is older and the higher earner. In these
cases, the largest monthly payment is produced if the husband
waits until age 70 to claim his benefit. Once payments begin,
they will continue until the end of the surviving spouse's life.
Most married men usually claim Social Security benefits at age
62 or 63, despite the fact that their family's overall expected
lifetime income would be much greater if they waited a few
years. The longer an individual waits to claim Social Security
benefits, the larger his or her monthly payment will be. This is
the result of an actuarial calculation that takes into
consideration the delayed commencement of benefits.
Those most affected by an early claim of benefits are wives who
outlive their husbands. While men who begin taking benefits
at age 62 lose about 4% of the lifetime income they could have
expected to receive if they had not started early, a surviving
spouse typically receives a survivor's benefit that is 20% less
than it would have been.
So why do men begin taking Social Security benefits at age 62
or 63 even though it's usually not in their family's best interest?
A recent study by the Center for Retirement Research at Boston
College examined this question with surprising results. While
it might be assumed that men are more likely to claim early because
they need the money, the study found that wealth makes
little difference in when benefits are claimed. Men without a
lot of savings often claim early because they need the money to
live on, but wealthly men often claim early too, because they
want to leave their children an inheritance and they prefer to
live on benefits instead of spending down other assets that could
otherwise be passed along to their children.
A Roth IRA would be a great asset to pass to the children. A
Roth IRA has no required minimum distributions (RMDs)
during the owner's lifetime and the designated beneficiary
generally can withdraw it over his or her own life expectancy.
This means a 40-year-old beneficiary who inherits the Roth can
draw it down over approximately 43 years. With no RMDs
during the owner's life and the extended time the beneficiary
has to withdraw it, there should be ample time to generate
meaningful growth to pass on to heirs, income tax-free.