Q: My wife and I used the strategy of her taking early Social Security benefits when she turned 64 based on her own earnings record, while I completely deferred my benefit from my own earnings record, which is significantly higher than my wife's benefit. I'm four years older than she is, so I was over 66 when she applied for her benefit and able to apply for 50% of her benefit as her spouse. This strategy has been recommended by several financial planners.
Now that I'm turning 70, I've applied for my own benefit. The Social Security Administration is telling us that although I will benefit from the deferral, my wife will not. It seems her benefit as my spouse is 50% of the amount I would receive at age 66, but only about 35% of my benefit at 70. Is that correct? --WG via email
A: Yes. Nevertheless, your wife definitely stands to gain as a result of your strategy -- and not just because it has boosted your household income.
It's true that your bigger benefit won't increase her spousal benefit during your lifetime. Your benefit gains 8% a year for each of the four years you postpone taking it between the time you turn 66 and the time you turn 70 -- but her maximum spousal benefit is 50% of what you would have received at your full retirement age of 66.
However, she will certainly benefit if she survives you: her maximum widow's benefit is 100% of what you were entitled to when you died. That will be a much larger amount as a result of your deferral.
People who are contemplating the strategy you've used sometimes ask me if it isn't a gamble. 'What if I decide to postpone my Social Security application at 66, and then die before I turn 70?'' they ask. 'Won't it all have been for nothing?'
From your viewpoint, perhaps, since you personally will never reap the extra benefit. But it will make a big difference to your surviving spouse. He or she will receive 100% of the amount you were entitled to get at the time you died, regardless of whether you had actually applied for it. An example: Your benefit at 66 is $2,000 a month; but you defer your application. Unhappily, you die at 68. Your survivor will receive $2,320 a month -- 16% more than if you had taken Social Security at age 66.
And of course, annual inflation adjustments in that survivor's benefit will be based on a bigger initial amount. Over time, that too will make a substantial difference in his or her monthly income.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.