Should my husband draw Social Security now at age 66 1/2?
My husband and I got married a year ago. I am 58 years old and he is 66. When we married, we both agreed to work until I retired, which is good because neither one of us is wealthy. In the meantime, his parents in Texas recently passed away. We inherited some money and a few low valued rental properties there. He is in Texas, where he hasn't worked for two years now, still trying to get rid of those properties and I am back in Illinois (where we will live) working full-time. The Texas properties are really bad and he is putting in a lot of labor to fix them up. I think he should take Social Security now instead of digging into the money we inherited to live off of each month. My salary pays for my commute, living expenses, insurance, and a small bit for savings if we're lucky. I'm also covering a long-term care insurance policy for us and dental for both of us as well as my health insurance. When he gets back to Illinois, we wanted to buy a house, but instead of even getting a part-time job to supplement our income (which would not decrease his Social Security at this point) as he promised, he is living off of the inherited money and refusing to draw Social Security until age 70. Soon, we won't have enough money to get a house or for any retirement security. At this point in our lives, I don't see how waiting 4 years to get an increase of $200 a month makes any sense. We are losing $15,000 a year to maybe make $2,400 more a year four years from now. I think he should get a part-time job AND take the Social Security. Who knows if either one of us will make it to 70 or be unable to work soon, and we'll both have to live to over 80 to break even with what he's NOT taking. Letting the Social Security sit there with our fingers crossed for a very small increase while we could have income, and maybe even some savings on top of that, and instead spending saved money for our house, seems insane. We are just getting further and further behind. I would like your opinion because this is really starting to get contentious between us. I realize in a normal situation that if you don't need the money, you shouldn't take it until 70 years old, but we DO need the money. I can't possibly cover for the both of us. Besides that, if something happens to his or my health, and neither one can work, we're really in a worse mess. What should I do?
You will get a number of pretty good answers on this platform about overall financial planning. I want to address what I think is the 800-pound gorilla in the room that very few financial advisors seem to talk enough about when considering the question of whether to take Social Security early versus deferring.
The Social Security program is on the road to insolvency. Our politicians keep kicking the can down the road on the major budgetary issues that face this country: The budget deficit (currently $585 billion), the growing public debt ($19.8 trillion), and the entitlement programs (Medicare, Medicaid, and Social Security). People in this country will only tolerate these costs ballooning up to a point before demanding some fiscal responsibility. If the US hits another recession in the next 5 years, tax revenues will go down for the Federal government, further blowing a hole in the budget deficit, increasing the debt, and putting a strain on future funding for entitlement programs. In my estimation, there is a high probability that in the next decade, the political tide in this country is going to shift towards cutting these entitlement programs as a way to shrink the budget deficit, and that may very well mean cutting Social Security payments.
In other words, Social Security is on the path to going broke. Now, if a person owed you money, and you were confident that they were going to be broke in the not-too-distant future, and they offered you a partial settlement of what they owed you now, would you take it or would you wait for them to come up with the whole sum later? You'd probably take 70 or 80 cents on the dollar now, because you'd rather get something now than risk them going totally broke and getting nothing at all.
This is why I almost always advise baby boomers to take Social Security early. I understand that you can get more cash flow down the line if you wait. But most people completely forget, ignore, or are unaware that there is a risk of insolvency in the Social Security program, and a risk that Congress decides to slash entitlements across the board. If you think the Social Security payments are guaranteed forever, you are ignoring the very obvious 800-pound gorilla in the room--that these entitlement programs are woefully underfunded, and you should probably take your benefits now while the programs are still alive.
Best of luck!
Dear Investopedia reader, I feel your concerns as they are shared by many retirees or soon to be retirees. I patently tell my clients two things. First, as Pythagoris once said, numbers will eventually lead a person down the path of reason. That is what I would say to you and your husband. When looked at unemotionally, numbers and the reality of them most always provides clarity. Almost any planner today has access to what we call Social Security maximization reports which can actually tell you the month, year and method to take social security. I say method because unbeknownst to most citizens, there are multiple ways to file for social security, some of which were taken away in the last year, yet many still exist. I know that at one time, there were over 4,000 different ways to file. So as you can see, it is not that simple and without knowing, you could be settling for less than what you are actually entitled to. It is not neccessarily always at age 70 is my main point. So the best way to know for sure is to get one of these reports done for you. I can assist with this and will do so at no cost to you if you would like.
The second thing I tell them is never to trade financial security for emotional security. This comes in many forms as humans are emotional creatures, but if you can take both of these pearls of wisdom together, sit down with your husband and go over the numbers unemotionally and think in terms of what is best financially, your answer will come. However, this will happen only if armed with the knowledge you need to make that decision. In this case, as I see it from what you have shared, you need the exact options you have with social security, as well as the consideration of what is being spent and done now, the time and effort in doing so, and any number of factors you alone are provy to. A good planner with your best interests in mind are a treasure trove of information and solutions.
Best of luck to you!
Whew! You have a lot of moving parts to think about here. And also at least one incorrect assumption in addition to a lot of missing information. Right up front it's apparent you need to visit with a holistic, fiduciary planner who can do projections for you based on your current assumptions, and, put together the missing pieces for you.
The "incorrect assumption" is your Social Security calculation. If your husband's annual benefit at 66 is $15,000 then it would be no less than 32% higher at his age 70: $19,800. The delayed credits between 66 & 70 are simple (as opposed to compouned) 8% for a total of 32%. That's $4800/yr, twice the $2400 number you're using. With cost of living increases- which apply even if you're not taking benefits -that increase would be even more. In general, your husband is correct in his plan to spend down savings in exchange for much higher lifetime income. In addition, if his benefit is higher than yours will be at his age then he is also doing you a big favor. Because upon his death, his full benefit will replace yours.
However, having said that, here are some of the missing pieces any planner would need:
- Your budgets. Yes, that's plural. A Survival budget is essential. This is the amount of monthly income it would take to be sure you are housed, fed, healthcared, dressed and transported for work. Then a Living budget, the amount you need to live life the way you would like.
- Both your Social Security benefits at age 66. Most planners can work forward and backward from there.
- Your longevity. Meticulous planners will have you complete a Longevity Calculator. You can do this yourself in advance with a quick Google search. If your result is less than about 85 then you may indeed want to file for Social Security early. But your biggest retirement risk is living longer than you expect. Social Security is a great hedge against that risk.
- All your asset values and income amounts.
AARP has a pretty good calculator at http://www.aarp.org/work/social-security/social-security-benefits-calculator.html if you would like to start there. But there is no substitute for an experienced planner who can pull everything together for you and visually illustrate the effects of different choices.
When to begin taking Social Security can be a very subjective matter, but it really is objective if you really need the income stream (in your case this seems to make sense). One of the key phrases in your story is "this is starting to get contentious between us", and I would HIGHLY recommend you seek out a finanical planner to help settle this matter as a third party. In addition, it seems the inheritance money is a tremendous finanical windfall for the both of you, and that money also needs to be earmarked for your long term needs/expenses. You did not mention you have any additional retirement savings, so without knowing your full story I will assume there is very little to none, which makes the inheritance money that much more important. Also, based on your story, I don't think buying a home is in your best interest when you consider the repairs, maintenance, and the loan you will have to repay on the property. Ultimately, you need to focus on cash flow now, preserving the inheritance, and saving as much money as you can. I would also suggest having a professional review your long term care policies to determine whether there may be a way to save money on the premiums you are paying.
To summarize, based on what you have said, your thinking is correct. However, unless you meet with a financial planner to help the two of you settle this dispute nothing will be resolved. A financial planner can help provide the two of you a roadmap to succes in retirement and for the long run. They can help both of you find the pitfalls in the plan, make corrections where necessary, and be the intermediary between you and your husband. I don't think if you show your husband this response he will care much unless he speaks with someone on a personal level. Sometimes the planning has more to do with the emotions, and a planner can help the both of you see clearly down the road where you are headed. I would suggest a fee only planner for you.
I hope this helps,
Thank you for sharing the details of your financial situation. I wanted to applaud you for covering the long term care insurance, dental insurance and health insurance. I empathize with you as I understand how stressful the situation has become. It is true that by delaying Social Security your husband would increase his benefit. I don't know the details of your household income. When I advise clients, we we delay the larger of the two Social Security benefit to ensure continuity of retirement. I agree that putting too many resources in an illiquid asset like real estate can compromise your ability to save for retirement and maintain financial stability. I think working with an unbiased objective Certified Financial Planner to help you see the impact one area has on another area of your financial life can be eye opening. Working with a third party with no emotional attachment to the situation can change the dynamic in this situation.
Good luck to you.