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Social Security -- Wives, Cash In Early; Husbands, Hold Your Horses!

Posted by: editor3 | Nov 13,2007


Traditionally, married couples have been led to believe that the husband should claim his Social Security benefits first, leaving the wife to collect hers later. This belief was founded on the fact that women generally live longer than men do and they would be able to claim the maximum amount in their later years. Not so, says a new study conducted by the Boston College's Center for Retirement Research.

In the study, which was helmed by center director Alicia Munnell and senior research associate Mauricio Soto, it was discovered that women fared much better financially if they claimed their Social Security at age 62, while their husbands waited until turning 69. At 62 years of age, a married woman can start collecting her Social Security benefit based on her earnings. Or, she can instead receive spousal benefits from her husband's earnings.

The study found that the main priority of married couples heading into retirement should be to maximize the value of the survivor's benefits. With Social Security, the surviving spouse can receive up to 100 percent of their spouse's earnings if the earnings of the deceased were the higher of the two. When the husband collects early, at age 62, both his benefits and his wife's survivor benefits are instantly reduced by 25 percent. The wife's survivor benefits only reach 100 percent if the husband waits until 66 to claim his benefit.

In addition, for each year the husband waits to claim, his benefit will increase by eight percent until he turns 70. Another way that claiming early can help the married woman down the road is that her benefit would count toward the household income. The higher the household income at her husband's retirement, the higher her survivor benefit will be.

When Should You File?

Munnell and Soto came up with a way to help those confused about retirement to figure out when would be the best time for them to claim their benefits. Essentially, the two believe that if the wife's benefit produces at least 40 percent of what her husband's benefit would be, then she should claim at 62. Then, the husband can claim his benefit at 69, thus maximizing the survivor benefit.

However, if the wife's benefits are between 30 and 40 percent of her husband's benefit earnings, and they are the same age, then the wife should claim at 66 and the husband at 67. If the wife is younger than the husband by three to six years, then the standard ages of 62 for the wife and 69 for the husband should apply.

If the wife's Social Security benefit is less than 30 percent of her husband's, and if there's an age difference of five or six years, then the wife should claim at 62 and her husband at 68. If both the husband and the wife are the same age, then they should each claim their benefit at 66 years of age.

Work Longer, Reap the Rewards Later

Since women live longer than men, Munnell believes that wives should stay actively working longer. She states in an interview that the ideal age for a woman to retire is 66 and that her husband should retire no earlier than 69. Due to the longer lifespan, Munnell insists that it's important for the wife to secure as much in her 401(k) as possible before retirement. By not planning ahead, and retiring too early, Munnell says that a woman can be seriously faced with financial difficulties over the long run.

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