This past month I came across an interesting case that I thought might be of interest to you! I have a gentleman whom I will call Gordon who was born in December of 1962, his wife Daphine was born in November 1984, thus we have a 22 year age difference! Now at 1st glance one might correctly assume that Daphine will outlive Gordon, thus his waiting until age 70 to claim his Social Security benefits would be most logical since she would inherit the greater benefits upon his death!
Fly in the Ointment
They have been blessed with 3 children, twins who are 11 and another daughter who is 7. Should Gordon claim benefits in December when he turns 62 that would allow the kids to receive children’s benefits until they graduate from high school and Daphine the ability to collect benefits until the youngest child turns 16 using the Maximum Family Benefit calculation.
See the numbers:
The Earnings Test
Now since Gordon will only be 62 in December he would be subject to the Earnings Test (lose $1 in benefits, for every $2 he earns in excess of $22,320 per year) until he reaches FRA (67) That calculation would affect the children’s benefits as well! Gordon owns his own business and makes approximately $120,000 per year, thus the Earnings Test would eliminate ALL benefits for himself and his children. One might correctly advise that he wait until 67 (FRA) to claim benefits, the kids will be 16 and 12 thus they could receive benefits for 2 years and 6 years respectively and still leave a greater benefit to Daphine upon his death vs his claiming at 62!
Thinking Outside the Box
Gordon owns his own company and Daphine works with him in the company, if Gordon reduces his own income to $22,000 per year and pays Daphine $100,000 he could eliminate the Earnings Test calculation and start receiving benefits starting in January $2,658/mo. which would allow the kids to receive $34,000 in benefits as well! Should he decide to go this route the kids would receive approximately $320,000 over the next 10 years (see attachment).
Downside
Gordon’s monthly check at 70 should he claim at 62 would be $3,100 per month, if he waits until 70 to claim his check would be $5,500 or a $2,400 per month difference! Also, remember there is a 22 year age disparity between Gordon and Daphine so it is highly likely that she will outlive him. If he dies at age 85 and claims benefits at 62 vs 70, she will receive $3,800 per month less or $45,600 per year! If she lives to age 95 there is a $935,000 cumulative difference in total benefits in favor of him waiting until 70.
Huge Decision
As you can see there are PLUSES and MINUSES to both scenarios and it should be a decision that is not taken lightly! My job is to explore ALL options and then present them in such a way that the client with assistance from their advisors (CPA’s and Financial Advisors) make the best decision based upon the information that we have available! Every Decision has Consequences that in this case could have repercussions for 60+ years!
