Death and taxes may be the only two things that are certain in life, but, even for death, there is uncertainty about the date it will happen to a particular individual.
That uncertainty makes it difficult for people to figure out how they will get the most in Social Security over their lifetimes. But two recognized experts say they've come up with a way to improve results.
Usually a potential beneficiary decides how long he thinks he will live, based on health conditions and family history, and then selects a Social Security starting date based on the life expectancy prediction. Research shows that the cumulative benefits of Social Security are about the same for a person at age 80, regardless of when he or she starts claiming. If a person thinks he will live past 80, he likely should delay taking benefits as long as possible in order to get a bigger monthly check. The starting benefit is greatest if a person waits until age 70 to begin collecting.
If the beneficiary has a family history of early deaths before age 80 or is in poor health, conventional wisdom says he will want to start benefits earlier to maximize the cumulative payout, even though the monthly benefits are smaller.
In actuality, there are many ways to claim benefits, and if a spouse is alive, the number of possibilities multiplies. Which strategies work best to maximize benefits depends greatly on an individual's circumstances.
But William Meyer and Dr. William Reichenstein say it may not be necessary to predict a client's longevity in order to pick the best claiming strategy. Some strategies produce optimal results over a range of ages to which a person and his or her spouse might live, they say.
Meyer, founder and managing principal of Social Security Solutions, and Reichenstein, principal and head of research for the firm, have developed customized graphs for couples that show over what range of ages at death that Social Security strategies produces the most money. Ages of the couple, who earned the most money, work history, health history and other factors are considered in generating the results. Some strategies are best for only one year, others work well for several years.
The difference between living a few years longer or a few years less for one spouse can mean gaining or losing tens of thousands of dollars, says Meyer. More information can be found in a case study done by Reichenstein to demonstrate how the process works.
“By presenting clients with an analysis by age zones, they should be able to make an informed decision about which claiming strategy they would prefer, even though they will not know their precise life spans,” Meyer says.
Most people know that the longer a person waits to take Social Security, the larger the benefit will be. And yet, approximately half of Americans start Social Security at age 62, when payments are smallest, and another one quarter take it before their full retirement age, which is 66 for those born between 1943 and 1954.