The following three statements about Social Security are common, but incorrect. (Or rather, each is partially correct, but the part that’s incorrect is super important.) Can you spot the errors?
If you are married, it’s a good idea to delay taking Social Security.If you have a shorter than average life expectancy, you should claim early. (Or conversely, if you have a longer than average life expectancy, you should wait to claim.)Social Security is actuarially neutral (meaning that claiming at one age is as good as another, given that you’re likely to get the same overall amount).In each case, the error is the same: It addresses the when-to-claim question by looking at the wrong life expectancy in some cases.
Myth: “If you’re married, it’s a good idea to delay taking Social Security.”When the spouse with the higher “ primary insurance amount” delays taking retirement benefits, it increases the amount the couple will receive per month as long as either spouse is still alive (because if the high-PIA spouse dies first, the low-PIA spouse can claim a widow/widower benefit, which will be increased as a result of the high-PIA spouse having waited).
As a result, it’s true that it’s typically advantageous for the high-PIA spouse to delay taking benefits.
However, for this very same reason (that is, the availability of widow/widower benefits) it is typically less advantageous for the low-PIA spouse in a married couple to delay than for an unmarried person to delay. When the low-PIA spouse delays, it only increases the amount the couple will receive per month as long asboth spouses are still alive.
Myth: “If you have a short life expectancy, you should claim early.”While the above statement is typically true for unmarried people, it’s often wrong for married people.
For married people, each person must consider both life expectancies.
If one spouse has a very short life expectancy, that is a reason for the low-PIA spouse to claim early (because the couple’s first-to-die life expectancy isn’t for very long). But it is not necessarily a reason for the spouse with the short life expectancy to claim early.
And conversely, if one spouse has a very long life expectancy, that is a reason for the high-PIA spouse to wait to claim (because the couple’s second-to-die life expectancy is quite long). But it is not necessarily a reason for the spouse with the long life expectancy to wait.
Myth: “On average, it doesn’t matter when you claim, because Social Security is actuarially neutral.”Social Security is designed to be approximately actuarially neutral for unmarried people.* That is, if they claim early, the lower monthly benefit they receive should be, on average, approximately offset by the fact that they’ll receive benefits for a greater number of months.
However, if delaying retirement benefits is actuarially neutral for an unmarried person (i.e., on average, it will neither help nor hurt them), then, for the reasons discussed above, delaying must be better than neutral for the high-PIA spouse in most married couples and worse than neutral for the low-PIA spouse in most married couples.
How to Make Better Social Security DecisionsIn summary, to make proper Social Security decisions:
If you are unmarried, the decision should of course be based on only your own life expectancy,For the high-PIA spouse in a married couple, the decision should be based on the couple’s second-to-die life expectancy, andFor the low-PIA spouse in a married couple, the decision should be based on the couple’s first-to-die life expectancy.*But even for a specific unmarried person, Social Security still tends not to be actuarially neutral. That is, most single people have a reason to expect that claiming early or late will be advantageous. For example, you may have a longer (or shorter) than average life expectancy, or inflation-adjusted interest rates may be higher or lower than those baked into the Social Security benefit calculations. |
