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« Inherited Roth IRA: What Are the Rules for Beneficiaries? | Main | Laid-Off, Now Working Part-time: How Will Earning Less Affect My Social Security Benefit? »

08/03/2009

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Thank you for this smart, clear explanation. Another scenario I'd like to see you address is a wife who delays collecting her own Social Security but can reduce her work hours (or write that novel) and begin collecting as a dependent when her (older)husband retires.

Ms. Fahlund assumes a zero rate of return on the accumulated benefits. Assuming a rate of return greater than zero on the accumulated benefits, it will take Joe longer than until age 78 to catch up to Bob.

Lynn replies:
True, we didn't assume a rate of return on Bob's Social Security benefit. We figure he's living on it.
If he doesn't need his benefit to cover his living expenses, I'd urge him to postpone filing for it.
What else can he invest it in for the next four years that will give him a government-guaranteed 8% annual return above inflation -- the return he'll get just by waiting to collect it?


In your initial post you wrote:

"With a four-year delay, your starting benefit is actually boosted about 36%, thanks to the effects of compounding -- and about 52% when Social Security’s inflation adjustments are added in, says Christine Fahlund, senior financial planner at T. Rowe Price."

Your expert made a mistake. The benefits are not compounded by the delay in claiming benefits. Waiting until 70 to claim benefits gets a retiree 132% of the benefits available at age 66, not 136%.

Further, the inflation adjustments are irrelevant since they affect both parties' benefits the same. An analysis ignoring inflation would yield the same results as one that considers inflation.

Additional reasons to maybe wait until 70:
1. If a person starts collecting at 66 and continues to work, a portion of the SS is taxable if the income is over a certain level. (As much as 85% of the benefit may be taxable).
2. Waiting not only increases the individual's SS income, but it may also increase the spousal benefit.

I am 62 and receiving S.S. of $1500. I have an ex wife of 28yrs. Divorced 10yrs.
If she files for Spousal Benefits, will it be deducted from my $1500? Also will it affect the status of my present wife when she is 62?

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