The mantra from advisors always has been that the client should wait until age 70 to receive the maximum amount in Social Security, Fahlund says. But her research shows that this may not be the best strategy for a couple.
“You need to consider this as part of a larger strategy. It’s not only about taking Social Security. It is also about taking withdrawals and what year you take withdrawals. An advisor can control, with the clients, the actual year the clients begin taking withdrawals.” If the couple wants to retire early, they “better have some Social Security or they are going to have to withdraw from savings and that is not healthy.”
Fahlund gives the following example to illustrate the three possibilities. Ben was born in 1951, makes $98,000 a year and wants to retire at age 62. Sally was born in 1954, makes $68,000 and wants to retire at age 59. He is assumed to die at age 83 and she at 95. They want an income of $124,000 a year during retirement.
If they claim benefits early, total Social Security income over their lifetime will be $1.1 million and withdrawals from their portfolio will be $3.4 million.
If they use either of the other two options, waiting until they are 70 or using the split strategy, the total from Social Security will be $1.5 million and from portfolio withdrawals $3 million. The delaying strategy allows them to wait to withdraw from the portfolio.
“The split strategy is all about integrating Social Security claiming with retirement account withdrawals,” Fahlund says.
T. Rowe Price has a Web site (www.socialsecurityconversation.com) for advisors to help them talk with clients about the different strategies.