As a couple approaching retirement, you’re wise to consider your Social Security strategy. With your wife eligible for benefits and you planning to work for a few more years, it’s essential to weigh the pros and cons of filing early versus waiting.
Your wife’s current benefit amount is $675, which would increase to $845 if she waits until her full retirement age (FRA). Meanwhile, your benefit at 65 is $2,785, and $3,295 at FRA. The question is whether she should start drawing on her Social Security now and invest the funds, switching to spousal benefits when you retire, or wait until you retire and claim the full 50% spousal benefit.
While waiting might seem like the obvious choice, it’s crucial to consider your individual circumstances, risk tolerance, and goals. If your wife files early, her benefit will be reduced, but she could invest the funds and potentially earn a higher return. On the other hand, waiting until FRA would provide a higher monthly benefit, but she might miss out on years of potential investment growth.
To make an informed decision, let’s examine the tradeoffs. If your wife files early, her primary benefit would be reduced by 16.67%, and her spousal benefit would be reduced by 20.83%. However, if she waits until FRA, she’ll receive the full $845 per month. If she starts collecting Social Security now and invests the payments, she could have around $23,000 in savings by age 67.
One approach is to consider the withdrawal rate needed to generate an additional $170 per month. Using the 4% rule as a guide, your wife would need around $51,000 to support this monthly withdrawal. While investing early might not reach this amount, there are scenarios where filing early makes sense, such as if she has a short life expectancy, you need the money now, or you have sufficient guaranteed income from other sources.
On the other hand, waiting until FRA might be more suitable if you’re risk-averse, expect to live to an average age, or don’t need the money immediately. A blended third option could also be considered, where your wife files for her own benefit at FRA and then switches to her spousal benefit after you file. This approach would avoid reductions and maximize her benefits.
Ultimately, the decision depends on your individual circumstances and priorities. It may be helpful to consult with a financial advisor to determine the best strategy for your unique situation.
Leave a Reply