Good things come to those who wait
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Don and Judy, friends of ours who read your column in the Columbus (Ohio) paper, told me that you gave them the following advice in 2003 to increase their Social Security income. You told Don, who would be entitled to full benefits when he turned 65½, to wait until he was 70 to apply. You told Judy, his wife, to apply for her lower benefits at 62 (she had just turned 62 then) and said Don should apply for benefits under Judy’s earnings until he turned 70. And at 70 Don would stop taking benefits under Judy’s wages and become entitled to the much higher benefits under his earnings. Well, Don turned 70 a few months ago and is now getting $2,448 per month, and Judy, who was getting $591 a month, now gets $1,324 a month. This is confusing to me, and I hope I’m explaining it correctly. Can you explain to us how this works? My wife is 62, and I will retire at 66 in December. We don’t get Social Security right now, because we have a mortgage that pays us $3,400 a month in principal and interest until June 2013, when we will really need Social Security because the checks stop cold. We have very little savings, two modest pensions and no Individual Retirement Account or investments.
S.R., Lady Lake, Ill.
Dear S.R.:
I think it was Milton Friedman, the Nobel Prize-winning economist, who in 1992 determined that 87 percent of Americans who reach 65 by 2015 will depend upon Social Security to pay an average of 71 percent of their living costs when they retire. In other words, 87 of every 100 Americans lack the financial intelligence to prepare for the day they hang up their tools or turn in their keys to the corporate toilet.
Lots of folks neither understand nor comprehend the importance of the enormous benefits that accrue if they postpone taking their monthly checks. But because you read my column, which requires insight, knowledge and brilliance, I assume that you possess these qualities at a high level, which will enable you to understand my answer.
For each year you decline to accept your Social Security benefit beyond your full retirement age (let’s assume it’s 66), your Social Security income will rise by 8 percent until you reach 70. For those of you born prior to 1943, the magic number is 7.5 percent. So if you intend to live a long life, the postponement of your Social Security benefits could make a very positive addition to your retirement income.
OK, now pay close attention, because here’s how it plays out:
Judy at age 62 applies for reduced Social Security benefits and receives $750 a month instead of $1,000, which she would have received if she had waited until age 66. Don, who turns 66 in December, decides to wait until age 70 to claim his benefits, but applies for spousal benefits based on Judy’s work record. In this instance, Don would be entitled to 50 percent of what Judy would have received if she had waited until full retirement age of 66. So Don gets half of $1,000, or $500 a month. Hmm …
Now, here’s the magic. The monthly benefit Don is entitled to receive at age 66 ($1,800) continues to accrue and compound at 8 percent until he’s 70 and computes to a monthly income of $2,448. So at age 70, Don applies for his own benefits and the $500 he received from Judy’s work record is discontinued. Because Judy is entitled to 50 percent of Don’s Social Security income, her monthly check increases to $1,224 a month from $500. And that’s a combined Social Security Income of $3,672 a month, or $44,064 a year plus an inflation multiplier. Wow!
Visit with the folks at Social Security. When I spoke with several of them in 2003, one of them told me that he had given the same advice to his parents. That was good enough for me. They’re great people, pleasingly respectful, knowledgeable, as patient as Job and eager to help. If they don’t have an answer they will get back to you lickety-split with the information you need. Darn comforting, that.
Coincidentally, I find the Internal Revenue Service people just as nice and willing to help. Be respectful, and your respect will be returned even more so.
Prior to following this advice, I advise you to counsel with your accountant, who might be embarrassed to the marrow because he didn’t think of it first.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
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